As filed with the Securities and Exchange Commission on July 30, 1998
Registration No. 333-56087
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
to
FORM S-11
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Hersha Hospitality Trust
(Exact name of registrant as specified in governing instruments)
148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070
(717) 770-2405
(Address of principal executive offices)
Jay H. Shah, Esq.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, Pennsylvania 19106
(215) 238-1045
(Name and address of agent for service)
---------------
Copies to:
Cameron N. Cosby, Esq. James J. Wheaton, Esq.
Hunton & Williams Willcox & Savage, P.C.
Riverfront Plaza, East Tower 1800 NationsBank Center
951 East Byrd Street One Commercial Place
Richmond, Virginia 23219-4074 Norfolk, Virginia 23510
(804) 788-8604 (757) 628-5619
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
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 number of the earlier effective registration statement for the same
offering. [ ]
If the Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
CALCULATION OF REGISTRATION FEE
===============================================================================
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Securities Being Being Price Per Offering Registration
Registered Registered Share (1) Price (1) Fee
===============================================================================
Common Shares,
$0.01 par value per share 2,666,667 $6.00 $16,000,002 $4,720
===============================================================================
(1) Estimated solely for the purpose of determining the registration fee.
---------------
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, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<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 ______, 1998
PROSPECTUS
2,666,667 Shares
Hersha Hospitality Trust
Common Shares of Beneficial Interest
---------------
Hersha Hospitality Trust, formed in May 1998 (the "Company"), has been
established to own initially ten hotels (the "Initial Hotels") and to continue
the hotel acquisition and development strategies of Hasu P. Shah, the Chairman
of the Board of Trustees and Chief Executive Officer of the Company. Mr. Shah
and certain of his affiliates (together, the "Hersha Affiliates") purchased or
developed all of the Initial Hotels, which will be contributed to the principal
operating subsidiary of the Company, Hersha Hospitality Limited Partnership (the
"Partnership"), by a group of affiliated partnerships, a corporation and
individuals (the "Selling Partnerships") in exchange for interests in the
Partnership and assumption of debt. Following the completion of this offering
(the "Offering") and the use of Offering proceeds as described herein, the
Company will own approximately a 43% general partnership interest in the
Partnership. The Company is a self-advised Maryland real estate investment trust
that intends to qualify as a real estate investment trust ("REIT") for federal
income tax purposes.
The Initial Hotels are located in Pennsylvania and include three Holiday
Inn Express(Registered Trademark) hotels, two Hampton Inn(Registered Trademark)
hotels, two Holiday Inn(Registered Trademark) hotels, two Comfort Inn(Registered
Trademark) hotels and one Clarion Suites(Registered Trademark) hotel with an
aggregate of 989 rooms. The Partnership will own, directly or through subsidiary
partnerships, 100% of the equity interests in the Initial Hotels and will lease
them to Hersha Hospitality Management, L.P. (the "Lessee"), a limited
partnership wholly-owned by certain of the Hersha Affiliates. The Hersha
Affiliates have managed all of the Initial Hotels since their acquisition or
construction. Upon the closing of the Offering of common shares of beneficial
interest of the Company, par value $.01 per share (the "Common Shares"), and the
use of the Offering proceeds as set forth herein, the Partnership will have
approximately $11.7 million of fixed-rate debt outstanding, which will be
secured by some of the Initial Hotels.
All of the Common Shares offered hereby are being sold by the Company. The
Company proposes to sell 166,667 of the Common Shares offered hereby directly to
certain Hersha Affiliates at the initial public offering price, with the
remainder of the Common Shares offered hereby being sold through Anderson &
Strudwick, Incorporated (the "Underwriter"). The Company's Declaration of Trust
generally prohibits direct or indirect ownership of more than 9.9% of the
outstanding Common Shares by any person. Prior to the Offering, there has been
no public market for the Common Shares. The Company will apply for listing of
the Common Shares on the American Stock Exchange under the symbol "HT." The
initial public offering price of the Common Shares will be $6.00 per share (the
"Offering Price"). See "Underwriting" for a discussion of factors considered in
determining the Offering Price. The Company intends to make regular quarterly
distributions to its shareholders initially equal to $0.12 per share, which on
an annualized basis would be equal to $0.48 per share or 8.0% of the Offering
Price.
See "Risk Factors" for a discussion of material risks that should be
considered by prospective purchasers of the Common Shares offered hereby,
including the following risks:
o Conflicts of interest between the Company and the Hersha Affiliates,
including conflicts regarding the sale or refinancing of the Initial Hotels,
may have resulted, or may in the future result, in the interests of the
shareholders not being reflected fully in all decisions made or actions taken
by officers and Trustees of the Company.
o The purchase prices to be paid for the six Initial Hotels that have little
operating history or have been newly renovated are based upon projections
by management as to the expected operating results of such hotels,
subjecting the Company to the risk that these hotels may not achieve
anticipated operating results and the rent received by the Company from
such hotels after the first Adjustment Date or Second Adjustment Date (as
defined herein) could be less than anticipated, which could adversely
affect the amount of cash available for distribution to the shareholders
of the Company.
<PAGE>
o The Company's lack of control over the daily operations of the Initial Hotels
could, in the event that the Lessee fails to effectively operate the Initial
Hotels, make the Company's business strategy more difficult to achieve, which
could adversely affect the amount of cash available for distribution to the
shareholders of the Company.
o The dependence of the Company on the Lessee's ability to make payments under
the Percentage Leases in order to generate revenues may, in the event that
there is a reduction in revenues at the Initial Hotels, adversely affect the
amount of cash available for distribution to the shareholders of the Company.
o The Company and the Partnership were recently formed, and the Company has
no experience operating as a REIT or a public company.
o The number of the Initial Hotels is limited and therefore adverse changes in
the operations of any Initial Hotel could adversely affect the amount of cash
available for distribution to the shareholders of the Company.
o Mr. Shah and the partners of the Selling Partnerships personally guarantee
all of the indebtedness secured by the Initial Hotels, and the personal
bankruptcy of any of the guarantors would constitute a default under the
related loan documents.
o Purchasers of the Common Shares sold in the Offering will experience
immediate and substantial dilution of $4.01, or 66.8% of the Offering Price,
in the net tangible book value per Common Share. In addition, in the event
that any of the purchase prices of the Initial Hotels are increased pursuant
to the repricing described herein, owners of the Common Shares at such time
will experience further dilution.
o Risk of taxation of the Company as a regular corporation if it fails to
qualify as a REIT, which would adversely affect the amount of cash available
for distribution to the shareholders of the Company.
---------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===============================================================================
Proceeds
Price to Selling to
Public Commission(1) Company(2)
- -------------------------------------------------------------------------------
Per Common Share........... $6.00 $.48 $5.52
Total...................... $16,000,002 $1,200,000 $14,800,002
===============================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriter and other matters. As stated above, the Company proposes to sell
166,667 of the Common Shares offered hereby directly to certain Hersha
Affiliates at the Offering Price. No selling commission will be paid to the
Underwriter with respect to such shares.
(2) Before deducting expenses payable by the Company, estimated at $587,000.
Does not reflect the Underwriter Warrants granted by the Company to the
Underwriter to purchase 250,000 Common Shares for a period of five years at a
price per share equal to 165% of the Offering Price. See "Underwriting."
-----------
The Common Shares, other than the 166,667 Common Shares offered directly
by the Company to certain Hersha Affiliates, are being offered by the Company
through the Underwriter on a best efforts all-or-none basis, when, as and if
issued and subject to approval of certain legal matters by counsel for the
Underwriter and certain other conditions. Unless sooner withdrawn or canceled,
the Offering will continue until the earlier of the date on which all the Common
Shares offered hereby are sold or ___________, 1998 (the "Offering Termination
Date"). Until the closing date of the Offering (the "Closing Date"), all
proceeds from the sale of the Common Shares will be deposited in escrow with
First Union National Bank of North Carolina, Charlotte, North Carolina (the
"Escrow Agent"). If the Offering is withdrawn or canceled or if all of the
Common Shares offered hereby are not sold and all proceeds therefrom received by
the Company on or prior to the Offering Termination Date, all proceeds will be
returned by the Escrow Agent to the persons from which they are received
promptly after such termination or withdrawal.
Anderson & Strudwick
Incorporated
The date of this Prospectus is , 1998.
<PAGE>
[COLOR PHOTOS AND ART WORK TO COME]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY .......................................................... 1
The Company ............................................................... 1
Summary Risk Factors ...................................................... 1
The Partnership ........................................................... 3
The Lessee ................................................................ 3
The Initial Hotels ........................................................ 4
Growth Strategy ........................................................... 6
Acquisition Strategy ...................................................... 6
Internal Growth Strategy .................................................. 6
Formation Transactions .................................................... 7
Benefits to the Hersha Affiliates ......................................... 10
Conflict of Interest Policies ............................................. 11
Distribution Policy ....................................................... 11
Tax Status ................................................................ 11
The Offering .............................................................. 12
Summary Financial Data .................................................... 13
RISK FACTORS ................................................................ 17
Conflicts of Interest ...................................................... 17
Conflicts Relating to Sales or Refinancing of Initial Hotels ............ 17
No Arm's-Length Bargaining on Percentage Leases, Contribution Agreements,
the Administrative Services Agreement and Option Agreement ........... 17
Competing Hotels Owned or to be Acquired by the Hersha Affiliates ......... 17
Acquisition of Hotels with Limited Operating History ...................... 18
Inability to Operate the Properties ....................................... 18
Dependence on the Lessee .................................................. 18
Newly-Organized Entities .................................................. 18
Limited Numbers of Initial Hotels ......................................... 18
Guarantors of Assumed Indebtedness ........................................ 18
Substantial Dilution ...................................................... 18
Tax Risks ................................................................. 19
Failure to Qualify as a REIT ............................................ 19
REIT Minimum Distribution Requirements .................................. 19
The Price Being Paid for the Initial Hotels May Exceed Their Value ........ 19
Emphasis on Franchise Hotels .............................................. 20
Concentration of Investments in Pennsylvania .............................. 20
Hotel Industry Risks ...................................................... 20
Operating Risks ......................................................... 20
Competition for Guests .................................................. 20
Investment Concentration in Single Industry ............................. 20
Seasonality of Hotel Business and the Initial Hotels .................... 20
Risks of Operating Hotels under Franchise Licenses ...................... 20
Operating Costs and Capital Expenditures; Hotel Renovation .............. 21
Real Estate Investment Risks .............................................. 21
General Risks of Investing in Real Estate ............................... 21
Illiquidity of Real Estate .............................................. 21
Uninsured and Underinsured Losses ....................................... 21
Property Taxes .......................................................... 22
Environmental Matters ................................................... 22
Compliance with Americans with Disabilities Act and other Changes in
Governmental Rules and Regulations ................................. 22
Market for Common Shares .................................................. 22
Effect of Market Interest Rates on Price of Common Shares ................. 22
Anti-takeover Effect of Ownership Limit, Staggered Board, Power to Issue
Additional Shares and Certain Provisions of Maryland Law ................ 23
Ownership Limitation .................................................... 23
Staggered Board ......................................................... 23
Issuance of Additional Shares ........................................... 23
Maryland Business Combination Law ....................................... 23
Potential Adverse Effects of Leverage and Lack of Limits on Indebtedness .. 23
Dependence Upon External Financing ........................................ 24
Assumption of Contingent Liabilities of Selling Partnerships .............. 24
Ability of Board of Trustees to Change Certain Policies ................. 24
Growth Strategy ........................................................... 24
Competition for Acquisitions ............................................ 24
Acquisition Risks ....................................................... 25
Reliance on Trustees and Management ....................................... 25
Possible Adverse Effect of Shares Available for Future Sale on Price of
Common Shares ........................................................... 25
THE COMPANY ................................................................. 25
GROWTH STRATEGY ............................................................. 28
Acquisition Strategy ...................................................... 28
Investment Criteria ..................................................... 28
Financing ............................................................... 28
Internal Growth Strategy .................................................. 29
USE OF PROCEEDS ............................................................. 29
DISTRIBUTION POLICY ......................................................... 30
PRO FORMA CAPITALIZATION .................................................... 32
DILUTION .................................................................... 33
SELECTED FINANCIAL INFORMATION .............................................. 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................................... 38
Overview .................................................................. 38
Results of Operations of the Initial Hotels ............................... 38
Comparison of Three Months Ended March 31, 1998 to the
Three Months Ended March 31, 1997 ................................... 38
Comparison of year ended December 31, 1997 to year ended
December 31, 1996 .................................................... 38
Comparison of year ended December 31, 1996 to year ended
December 31, 1995 .................................................... 38
Liquidity and Capital Resources ........................................... 38
Inflation ................................................................. 39
Seasonality ............................................................... 39
Year 2000 Compliance ...................................................... 40
BUSINESS AND PROPERTIES ..................................................... 40
The Initial Hotels ........................................................ 40
The Percentage Leases ..................................................... 43
Franchise Licenses ........................................................ 48
Operating Practices ....................................................... 49
Employees ................................................................. 49
Environmental Matters ..................................................... 50
Competition ............................................................... 50
Insurance ................................................................. 50
Depreciation .............................................................. 51
Legal Proceedings ......................................................... 51
Hersha Affiliates' Hotel Assets Not Acquired By The Company ............... 51
Ground Leases ............................................................. 51
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES .................. 52
Investment Policies ....................................................... 52
Financing ................................................................. 52
Conflict of Interest Policies.............................................. 53
Declaration of Trust and Bylaw Provisions ............................... 53
The Option Agreement .................................................... 53
The Partnership ......................................................... 53
Provisions of Maryland Law .............................................. 53
Policies with Respect to Other Activities ................................. 54
Working Capital Reserves .................................................. 54
FORMATION TRANSACTIONS ...................................................... 54
Benefits to the Hersha Affiliates ......................................... 55
MANAGEMENT .................................................................. 57
Trustees and Executive Officers ........................................... 57
Audit Committee ........................................................... 58
Compensation Committee .................................................... 58
<PAGE>
TABLE OF CONTENTS
Page
----
Compensation .............................................................. 58
Exculpation and Indemnification ........................................... 58
The Option Plan ........................................................... 59
The Trustees' Plan ........................................................ 60
CERTAIN RELATIONSHIPS AND TRANSACTIONS ...................................... 61
Repayment of Indebtedness and Guarantees by Mr. Shah and the Hersha
Affiliates .............................................................. 61
Hotel Ownership and Management............................................. 61
Option Agreement .......................................................... 61
THE LESSEE .................................................................. 61
Management of the Lessee .................................................. 62
PRINCIPAL SHAREHOLDERS ...................................................... 62
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST ................................ 63
General ................................................................... 63
Common Shares ............................................................. 64
Preferred Shares .......................................................... 64
Classification or Reclassification of Common Shares or Preferred Shares.... 65
Restrictions on Transfer .................................................. 65
Other Matters ............................................................. 66
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S DECLARATION
OF TRUST AND BYLAWS ......................................................... 66
Classification of the Board of Trustees ................................... 67
Removal of Trustees ....................................................... 67
Business Combinations ..................................................... 67
Control Share Acquisitions ................................................ 67
Amendment ................................................................. 68
Limitation of Liability and Indemnification ............................... 68
Operations ................................................................ 69
Dissolution of the Company ................................................ 69
Advance Notice of Trustees Nominations and New Business ................... 69
Possible Anti-takeover Effect of Certain Provisions of Maryland Law and of
the Declaration of Trust and Bylaws ..................................... 69
Maryland Asset Requirements ............................................... 70
SHARES AVAILABLE FOR FUTURE SALE............................................. 70
PARTNERSHIP AGREEMENT ....................................................... 71
Management ................................................................ 71
Transferability of Interests .............................................. 71
Capital Contribution ...................................................... 71
Redemption Rights ......................................................... 72
Operations ................................................................ 72
Distributions ............................................................. 73
Allocations ............................................................... 73
Term ...................................................................... 73
Tax Matters ............................................................... 73
FEDERAL INCOME TAX CONSEQUENCES.............................................. 73
Taxation of the Company ................................................... 74
Requirements for Qualification............................................. 75
Income Tests ............................................................ 76
Asset Tests ............................................................. 80
Distribution Requirements ............................................... 80
Recordkeeping Requirement ............................................... 81
Partnership Anti-Abuse Rule.............................................. 81
Failure to Qualify ...................................................... 81
Taxation of Taxable U.S. Shareholders ..................................... 82
Taxation of Shareholders on the Disposition of the Common Shares .......... 82
Capital Gains and Losses .................................................. 82
Information Reporting Requirements and Backup Withholding ................. 83
Taxation of Tax-Exempt Shareholders ....................................... 83
Taxation of Non-U.S. Shareholders ......................................... 84
Other Tax Consequences .................................................... 85
Tax Aspects of the Partnership............................................. 85
Classification as a Partnership.......................................... 85
Income Taxation of the Partnership and its Partners ..................... 86
Sale of the Company's or the Partnership's Property ....................... 87
UNDERWRITING ................................................................ 88
EXPERTS ..................................................................... 89
REPORTS TO SHAREHOLDERS ..................................................... 89
LEGAL MATTERS ............................................................... 89
ADDITIONAL INFORMATION ...................................................... 90
GLOSSARY .................................................................... 91
INDEX TO FINANCIAL STATEMENTS................................................ F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. Unless the context otherwise indicates, all references
herein to the "Company" include Hersha Hospitality Trust and Hersha Hospitality
Limited Partnership and its subsidiary partnerships. The offering of 2,666,667
Common Shares pursuant to this Prospectus is referred to herein as the
"Offering." See "Glossary" beginning on page 91 for the definitions of certain
additional terms used in this Prospectus.
The Company
Hersha Hospitality Trust (the "Company") has been established to own
initially interests in ten hotels (the "Initial Hotels") and to continue the
hotel acquisition and development strategies of Hasu P. Shah, Chairman of the
Board of Trustees and Chief Executive Officer of the Company. The Company,
formed in May 1998, is a self-advised Maryland real estate investment trust that
intends to qualify as a real estate investment trust ("REIT") for federal income
tax purposes. The Initial Hotels include three Holiday Inn Express(Registered
Trademark) hotels, two Hampton Inn(Registered Trademark) hotels, two Holiday
Inn(Registered Trademark) hotels, two Comfort Inn(Registered Trademark) hotels
and one Clarion Suites(Registered Trademark) hotel. The Initial Hotels are
located in Pennsylvania and contain an aggregate of 989 rooms. The Holiday Inn
Express(Registered Trademark) hotels in Hershey, Pennsylvania and New Columbia,
Pennsylvania, the Hampton Inn(Registered Trademark) hotel in Carlisle,
Pennsylvania and the Comfort Inn(Registered Trademark) hotel in Harrisburg,
Pennsylvania (the "Newly-Developed Hotels") are newly constructed and therefore
have limited operating history. The Holiday Inn Express(Registered Trademark)
hotel in Harrisburg, Pennsylvania, the Holiday Inn(Registered Trademark) hotel
in Milesburg, Pennsylvania and the Comfort Inn(Registered Trademark) hotel in
Denver, Pennsylvania (the "Newly-Renovated Hotels") have been newly renovated
and, as a result, the Company believes that such hotels' future performance will
improve significantly over such hotels' prior operating histories. The remaining
hotels, the Hampton Inn(Registered Trademark) hotel in Selinsgrove,
Pennsylvania, the Holiday Inn(Registered Trademark) hotel in Harrisburg,
Pennsylvania and the Clarion Suites(Registered Trademark) hotel in Philadelphia,
Pennsylvania are referred to herein as the "Stabilized Hotels."
Summary Risk Factors
An investment in the Common Shares involves various risks, and investors
should carefully consider the matters discussed under "Risk Factors," including,
among others, the following:
o Conflicts of interest between the Company, the Hersha Affiliates and
the Lessee that may have resulted, or may in the future result, in
the interests of the shareholders not being reflected fully in all
decisions made or actions taken by officers and Trustees of the
Company, including:
> conflicts related to the adverse tax consequences to the
Hersha Affiliates upon a sale of any of the Initial Hotels or
the refinancing or prepayment of principal on certain of the
Assumed Indebtedness, and the related risk that the Hersha
Affiliates' personal interests with regard to a sale or
refinancing of an Initial Hotel or repayment of certain of the
Assumed Indebtedness could be adverse to those of the Company;
> lack of arm's-length negotiations with respect to the terms of
the Percentage Leases, the contribution agreements for the
Initial Hotels, the Option Agreement (as herein defined), the
Administrative Services Agreement (as herein defined) and the
Hersha Affiliates' conflicts relating to enforcing those
agreements;
> conflicts relating to ownership and operation of other
hotels by the Hersha Affiliates; and
> conflicts relating to competing demands on Mr. Shah's time.
o The purchase prices for the Newly-Developed Hotels and the
Newly-Renovated Hotels are based upon projections by management
as to the expected operating results of such hotels, subjecting
the Company to risks that those hotels may not achieve
anticipated operating results and the rent received by the
Company from such hotels after the First Adjustment Date or Second
Adjustment Date, as applicable, could be less than anticipated,
which could adversely affect the amount of cash available
for distribution to the shareholders of the Company.
1
<PAGE>
o The Company's lack of control over the daily operations of the
Initial Hotels could, in the event that the Lessee fails to
effectively operate the Initial Hotels, make the Company's business
strategy more difficult to achieve, which could adversely affect the
amount of cash available for distribution to the shareholders of the
Company.
o The dependence of the Company on the Lessee's ability to make
payments under the Percentage Leases in order to generate revenues
may, in the event that there is a reduction in revenues at the
Initial Hotels, adversely affect the amount of cash available for
distribution to the shareholders of the Company.
o The Company and the Partnership were recently formed, and the
Company has no experience operating as a REIT or a public company.
o The number of the Initial Hotels is limited and therefore adverse
changes in the operations of any Initial Hotel could adversely
affect the amount of cash available for distribution to the
shareholders of the Company.
o Mr. Shah and the partners of the Selling Partnerships personally
guarantee all of the Assumed Indebtedness, and the personal
bankruptcy of any of the guarantors would constitute a default
under the related loan documents.
o The Offering Price exceeds the net tangible book value per
share. Therefore, purchasers of Common Shares in the Offering
will realize an immediate and substantial dilution of $4.01, or
66.8% of the Offering Price, in the net tangible book value of
their shares. In addition, in the event that any of the purchase
prices of the Newly-Renovated Hotels or the Newly-Developed
Hotels are increased on the First Adjustment Date or the Second
Adjustment Date, as applicable, owners of the Common Shares at
such time will experience further dilution.
o Risk of taxation of the Company as a regular corporation if it fails
to qualify as a REIT and the Company's liability for federal and
state taxes on its income in such event, which would adversely
affect the amount of cash available for distribution to the
shareholders of the Company.
o The price to be paid by the Company for the Initial Hotels may
exceed the fair market value as determined by a third-party
appraisal of the Initial Hotels.
o Five of the Initial Hotels are licensed under one franchise brand,
Holiday Inn/Holiday Inn Express, and any adverse developments to
that franchise brand could adversely affect the amount of cash
available for distribution to the shareholders of the Company.
o The geographic concentration in Pennsylvania of the Initial Hotels
may expose the Company to regional economic fluctuations that could
have a significant negative effect on the operation of the Initial
Hotels, and ultimately on cash available for distribution to the
shareholders of the Company.
o Risks affecting the real estate or hospitality industries
generally, including economic and other conditions that may
adversely affect the Company's real estate investments and the
Lessee's ability to make lease payments, potential increases in
assessed real estate values or property tax rates, the relative
illiquidity of real estate, uninsured or underinsured losses, and
the potential liability for unknown or future environmental
liabilities, any of which could adversely affect the amount of
cash available for distribution to the shareholders of the
Company.
o The absence of a prior market for the Common Shares, the lack of
assurance that an active trading market will develop or that the
Common Shares will trade at or above the Offering Price, and the
potential negative effect of an increase in interest rates on the
market price of the Common Shares.
2
<PAGE>
o The restriction on ownership of Common Shares and certain other
provisions in the Company's declaration of trust (the "Declaration
of Trust") or the Company's Bylaws (the "Bylaws") may have the
effect of inhibiting a change of control of the Company, even when a
change of control may be beneficial to the Company's shareholders.
The Partnership
The Company will contribute substantially all of the net proceeds from the
Offering to Hersha Hospitality Limited Partnership (the "Partnership") in
exchange for approximately a 43% partnership interest in the Partnership. The
Company will be the sole general partner of the Partnership. Shortly after the
closing of the Offering, the Partnership will acquire, directly or through
subsidiary partnerships, 100% of the equity interests in the Initial Hotels. Mr.
Shah and certain affiliates (the "Hersha Affiliates") own the partnerships that
currently own all of the Initial Hotels (collectively, the "Selling
Partnerships"). Ownership of the land underlying two of the Initial Hotels will
be retained by certain Hersha Affiliates and will be leased to the Partnership
pursuant to separate ground leases, each with a 99-year term, and collectively
providing for rent of $21,000 per year. See "Certain Relationships and
Transactions."
The Partnership will acquire the Initial Hotels in exchange for (i) units
of limited partnership interest in the Partnership ("Units"), which will be
redeemable, subject to certain limitations, for an aggregate of approximately
3.5 million Common Shares, with a value of approximately $21 million based on
the Offering Price, and (ii) the assumption of approximately $25.2 million of
the indebtedness related to the Initial Hotels, approximately $11.7 million of
which (the "Assumed Indebtedness") will remain outstanding and approximately
$13.5 million of which will be repaid immediately after the acquisition of the
Initial Hotels using the net proceeds of the Offering. See "Formation
Transactions." The purchase prices of the Newly-Renovated Hotels will be
adjusted as soon as the Company's and the Lessee's audited financial statements
for the year ended December 31, 1999 (the "First Adjustment Date") become
available. The purchase prices of the Newly-Developed Hotels will be adjusted as
soon as the Company's and the Lessee's audited financial statements for the year
ended December 31, 2000 (the "Second Adjustment Date") become available. The
adjustments will be calculated by applying the initial pricing methodology to
such hotels' cash flows as shown on the Company's and the Lessee's audited
financial statements for the year ended on the First Adjustment Date or the
Second Adjustment Date, as applicable, and the adjustments must be approved a
majority of the Independent Trustees (as defined herein). If the repricing
produces a higher aggregate value for such hotels, the Hersha Affiliates will
receive an additional number of Units that, when multiplied by the Offering
Price, equals the increase in value plus the value of any distributions that
would have been made with respect to such Units if such Units had been issued at
the time of acquisition of such hotels. If, however, the repricing produces a
lower aggregate value for such hotels, the Hersha Affiliates will forfeit to the
Partnership that number of Units that, when multiplied by the Offering Price,
equals the decrease in value plus the value of any distributions made with
respect to such Units.
The Lessee
In order for the Company to qualify as a REIT, neither the Company nor the
Partnership may operate hotels. Therefore, the Initial Hotels will be leased to
Hersha Hospitality Management, L.P., a Pennsylvania limited partnership
wholly-owned by certain of the Hersha Affiliates (the "Lessee"), pursuant to
leases (the "Percentage Leases") that are designed to allow the Company to
participate in growth in revenues of the Initial Hotels by providing that
percentages of such revenues be paid by the Lessee as rent. Each Percentage
Lease has been structured to provide anticipated rents at least equal to 12% of
the purchase price paid for the hotel, net of (i) property and casualty
insurance premiums, (ii) real estate and personal property taxes, and (iii) a
reserve for furniture, fixtures and equipment equal to 4% (6% for the Holiday
Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) of gross revenues at the
hotel. This pro forma return is based on certain assumptions and historical
revenues for the Initial Hotels (including projected revenues for the
Newly-Developed Hotels and the Newly-Renovated Hotels) and no assurance can be
given that future revenues for the Initial Hotels will be consistent with prior
performance or the estimates. See "Risk Factors-Acquisition of Hotels with
Limited Operating History." The rent on the Newly-Developed Hotels and the
Newly-Renovated Hotels until the First Adjustment Date or Second Adjustment
Date, as applicable, will be fixed (the "Initial Fixed Rent"). After the First
Adjustment Date or the Second Adjustment Date, as applicable, rent will be
computed with respect to the Newly-Developed Hotels and the Newly-Renovated
Hotels based on the percentage rent formulas described herein. The Initial
Hotels will be operated by the Lessee. The
3
<PAGE>
Percentage Leases will have initial terms of five years and may be extended for
two additional five-year terms at the option of the Lessee. See "Business and
Properties-The Percentage Leases."
The Initial Hotels
The following table sets forth certain information with respect to the
Initial Hotels:
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1997
------------------------------------------------------------------------------------------------
Estimated
Lessee
Income Before Estimated Average
Number of Room Other Lease Lease Daily
Initial Hotels Rooms Revenue Revenue(1) Payments(2) Payments(3)(4) Occupancy Rate REVPAR(5)
- -------------- ----- ------- ---------- ----------- -------------- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Newly-Developed
Holiday Inn Express
Hershey, PA(6) ...... 85 $ 210,612 $ 4,877 $ 80,985 $ 96,156 38.8% $ 75.62 $29.35
New Columbia, PA(7) . 81 $ 13,369 $ 253 (48,535) 6,653 9.0% $ 59.68 $ 5.39
Hampton Inn:
Carlisle, PA(8) ..... 95 659,861 8,421 293,368 303,029 53.5% $ 65.33 $34.93
Comfort Inn:
Harrisburg, PA(9) ... 81
Newly-Renovated
Holiday Inn Express:
Harrisburg, PA(10) .. 117 1,357,241 176,868 550,639 504,406 56.4% $ 56.33 $31.78
Holiday Inn:
Milesburg, PA ....... 118 1,254,070 220,684 579,756 524,750 52.0% $ 56.07 $29.13
Comfort Inn:
Denver, PA (11) ..... 45 658,285 0 271,167 262,234 54.7% $ 73.26 $40.08
Stabilized
Holiday Inn:
Harrisburg, PA ...... 196 3,103,820 1,787,958 1,738,713 1,614,402 63.3% $ 68.22 $43.17
Hampton Inn:
Selinsgrove, PA (12) 75 1,271,943 46,148 705,488 657,471 71.9% $ 65.29 $46.96
Clarion Suites:
Philadelphia, PA .... 96 2,350,702 319,950 1,026,785 976,102 73.7% $ 91.02 $67.09
Total/weighted average 989 $10,879,903 $ 2,565,159 $ 5,198,366 $ 4,945,203 60.2% $ 68.27 $41.09
</TABLE>
- -------------------------
(1) Represents restaurant revenue, telephone revenue and other revenue.
(2) Represents total revenue less the Lessee's expenses, including hotel
operating expenses but excluding lease payments. See "Selected Financial
Information."
(3) Had the Newly-Developed Hotels been open for the entire twelve months
ended December 31, 1997, the total estimated lease payments for all of the
Initial Hotels would have been approximately $7 million.
(4) Represents payments of Rent by the Lessee calculated by applying the rent
provisions in the Percentage Leases using historical revenues of the
Initial Hotels as if January 1, 1997 was the beginning of the lease year.
In the case of the Newly-Developed Hotels and the Newly-Renovated Hotels,
the estimated lease payments reflect the Initial Fixed Rents for such
hotels pro-rated for the period in which each hotel was open.
(5) Revenue per available room ("REVPAR") is determined by dividing room
revenue by available rooms for the applicable period.
(6) This hotel opened in October 1997 and, thus, the data shown represent
approximately three months of operations.
(7) This hotel opened in December 1997 and, thus, the data shown represent
approximately one month of operations.
(8) This hotel opened in June 1997 and, thus, the data shown represent
approximately seven months of operations.
4
<PAGE>
(9) This hotel opened in May 1998 and, thus, there are no data shown.
(10) The land underlying this hotel will be leased to the Partnership by
certain Hersha Affiliates for rent of $15,000 per year for 99 years.
(11) The land underlying this hotel will be leased to the Partnership by
certain Hersha Affiliates for rent of $6,000 per year for 99 years.
(12) A portion of the land adjacent to this hotel will be leased to a Hersha
Affiliate for $1 per year for 99 years.
For further information regarding the Initial Hotels, see "Business and
Properties - The Initial Hotels" and " - The Percentage Leases."
5
<PAGE>
Growth Strategy
The Company will seek to enhance shareholder value by increasing amounts
available for distribution to shareholders by acquiring additional hotels that
meet the Company's investment criteria as described below and by participating
in increased revenue from the Initial Hotels through the Percentage Leases.
Acquisition Strategy
The Company intends to acquire additional hotels that meet its investment
criteria as described below. See "The Company-Growth Strategy-Acquisition
Strategy." The Company will emphasize limited service and full service hotels
with strong, national franchise affiliations in the upper-economy and mid-scale
market segments, or hotels with the potential to obtain such franchises. In
particular, the Company will consider acquiring limited service hotels such as
Comfort Inn(Registered Trademark), Best Western(Registered Trademark), Days
Inn(Registered Trademark), Fairfield Inn(Registered Trademark), Hampton
Inn(Registered Trademark), Holiday Inn(Registered Trademark) and Holiday Inn
Express(Registered Trademark) hotels, and limited service extended-stay hotels
such as Hampton Inn and Suites(Registered Trademark), Homewood Suites(Registered
Trademark), Main Stay Suites(Registered Trademark) and Residence Inn by
Marriott(Registered Trademark) hotels. Under the Bylaws, any transaction
involving the Company, including the purchase, sale, lease or mortgage of any
real estate asset, in which a Trustee or officer of the Company, or any
Affiliate (as defined herein) thereof, has an interest (other than solely as a
result of his status as a Trustee, officer or shareholder of the Company) must
be approved by a majority of members of the Company's Board of Trustees (the
"Trustees"), including a majority of the members of the Board of Trustees who
are not officers, directors or employees of the Company, any lessee of the
Company's or the Partnership's properties or any underwriter or placement agent
of the shares of beneficial interest of the Company that has been engaged by the
Company within the past three years, or any Affiliate thereof (the "Independent
Trustees").
The Company intends to focus predominately on investments in hotels in the
eastern United States. Such investments may include hotels newly developed by
the Hersha Affiliates. Pursuant to an agreement with Hasu P. Shah, Jay H. Shah,
Neil H. Shah, Bharat C. Mehta, Kanti D. Patel, Rajendra O. Gandhi, Kiran P.
Patel, David L. Desfor, Madhusudan I. Patni and Manahar Gandhi, each a Hersha
Affiliate, the Partnership will have a two-year option to acquire any hotels
acquired or developed by the Hersha Affiliates within 15 miles of any of the
Initial Hotels or any subsequently acquired hotel (the "Option Agreement"). See
"Certain Relationships and Transactions-Option Agreement." The Company's policy
with respect to acquisitions of hotels (the "Acquisition Policy") is to acquire
hotels for which it expects to receive rents at least equal to 12% of the
purchase price paid for each hotel, net of (i) property and casualty insurance
premiums, (ii) real estate and personal property taxes, and (iii) a reserve for
furniture, fixtures and equipment equal to 4% (6% in the case of a full-service
hotel) of gross revenues at each hotel. The Trustees, however, may change the
Acquisition Policy at any time without the approval of the Company's
shareholders.
The Company's additional investments in hotels may be financed, in whole
or in part, with undistributed cash, subsequent issuances of Common Shares or
other securities, or borrowings. The Company is currently negotiating with
lenders to obtain a $10 million line of credit (the "Line of Credit"). A failure
to obtain the Line of Credit could adversely affect the Company's ability to
finance its growth strategy. See "Risk Factors -Dependence Upon External
Financing." The Company's initial policy is to limit consolidated indebtedness
to less than 55% of the aggregate purchase prices for the hotels in which it has
invested (the "Debt Policy"). The Trustees, however, may change the Debt Policy
without the approval of the Company's shareholders. The aggregate purchase
prices paid by the Company for the Initial Hotels is approximately $47.3
million. After the Formation Transactions, the Company's indebtedness will be
approximately $11.7 million, which represents approximately 25% of the aggregate
purchase price to be paid by the Company. Because of the Debt Policy and the
amount of the Assumed Indebtedness, the success of the Company's acquisition
strategy will depend in the future on its ability to access additional capital
through issuances of equity securities. See "The Company-Growth
Strategy-Investment Criteria and Financing," "Risk Factors-Risks of Leverage"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Internal Growth Strategy
The Percentage Leases are designed to allow the Company to participate in
growth in revenues at the Initial Hotels. See "Business and Properties-The
Percentage Leases." The Percentage Leases generally provide for the Lessee to
pay the greater of a monthly base rent ("Base Rent") or percentage rent
("Percentage Rent"). The Percentage Rent for each Initial Hotel is comprised of
(i) a percentage of room revenues up to a certain threshold
6
<PAGE>
amount (the "Threshold"), (ii) a percentage of room revenues in excess of the
Threshold but not more than an incentive threshold amount (the "Incentive
Threshold"), (iii) a percentage of room revenue in excess of the Incentive
Threshold and (iv) a percentage of revenues other than room revenues. The
Incentive Threshold is designed to provide incentive to the Lessee to generate
higher revenues at each hotel by lowering the percentage of revenue paid as
Percentage Rent once room revenues reach certain levels. In the case of the
Newly-Developed Hotels and the Newly-Renovated Hotels, the Lessee will pay the
Initial Fixed Rent until the First Adjustment Date or the Second Adjustment
Date, as applicable, after which the Lessee will pay the greater of Base Rent or
Percentage Rent. See "Business and Properties-The Initial Hotels" and "-The
Percentage Leases-Amounts Payable Under the Percentage Leases." The Initial
Fixed Rent, the Base Rent and Percentage Rent are hereinafter referred to
collectively as "Rent."
Formation Transactions
The principal transactions in connection with the formation of the Company
and the acquisition of interests in the Initial Hotels (the "Formation
Transactions") are as follows:
o The Company will sell 2,666,667 Common Shares in the Offering,
including 166,667 Common Shares to be sold to the Hersha Affiliates,
at the Offering Price. The net proceeds to the Company from the
Offering will be contributed to the Partnership in exchange for
approximately a 43% general partnership interest in the Partnership.
o The Partnership will acquire the Initial Hotels by acquiring
either all of the partnership interests in the Selling
Partnerships or the Initial Hotels in exchange for (i) Units that
will be redeemable, subject to certain limitations, for an
aggregate of approximately 3.5 million Common Shares, with a
value of approximately $21 million based on the Offering Price
and (ii) the assumption of approximately $25.2 million in
indebtedness secured by all of the Initial Hotels, approximately
$13.5 million of which will be repaid with the proceeds of the
Offering. The purchase prices of the Newly-Developed Hotels and
the Newly-Renovated Hotels will be adjusted on the First
Adjustment Date or the Second Adjustment Date, as applicable, as
described in "-The Company."
o The land underlying the Holiday Inn Express, Harrisburg,
Pennsylvania and the Comfort Inn, Denver, Pennsylvania each will be
leased to the Partnership by certain Hersha Affiliates for aggregate
rent of $21,000 per year for 99 years. Also, a portion of the land
adjacent to the Hampton Inn, Selinsgrove, Pennsylvania will be
leased to a Hersha Affiliate for $1 per year for 99 years.
o Each Initial Hotel will be leased to the Lessee pursuant to a
Percentage Lease. The Percentage Leases will have an initial
non-cancelable term of five years. All, but not less than all,
of the Percentage Leases may be extended for an additional
five-year term. At the end of the first extended term, the
Lessee, at its option, may extend some or all of the Percentage
Leases for the Initial Hotels. The Percentage Leases generally
provide for the Lessee to pay the greater of the Base Rent or
Percentage Rent. The Percentage Rent for each Initial Hotel is
comprised of (i) a percentage of room revenues up to the
Threshold, (ii) a percentage of room revenues in excess of the
Threshold but less than the Incentive Threshold, (iii) a
percentage of room revenue in excess of the Incentive Threshold
and (iv) a percentage of revenues other than room revenues. The
Incentive Threshold is designed to provide an incentive to the
Lessee to generate higher revenues at each hotel. Until the
First Adjustment Date or the Second Adjustment Date, as
applicable, the rent on the Newly-Developed Hotels and the
Newly-Renovated Hotels will be the Initial Fixed Rents applicable
to those hotels. After the First Adjustment Date or the Second
Adjustment Date, as applicable, rent will be computed with
respect to the Newly-Developed Hotels and the Newly-Renovated
Hotels based on the percentage rent formulas described herein.
The Lessee will hold the franchise license (the "Franchise
License") for each Initial Hotel. See "Business and
Properties-The Percentage Leases."
o The Partnership and certain of the Hersha Affiliates will enter
into the Option Agreement, pursuant to which the Hersha
Affiliates will agree that, if they develop or own any hotels in
the future that are located within 15 miles of any Initial Hotel
or hotel subsequently acquired by the Partnership, the Hersha
Affiliates will give the Partnership the option to purchase such
hotels for two years. See
7
<PAGE>
"Risk Factors-Conflicts of Interest-Competing Hotels Owned or to be
Acquired by the Hersha Affiliates" and "Policies and Objectives with
Respect to Certain Activities-Conflicts of Interest Policies-The Option
Agreement."
o The Company and the Lessee will enter into the Administrative
Services Agreement, pursuant to which the Hersha Affiliate will
provide certain administrative services in exchange for an annual
fee equal to $55,000, plus $10,000 for each hotel owned by the
Company.
o The Company has granted the Underwriter warrants to purchase 250,000
Common Shares (the "Underwriter Warrants") for a period of five
years at a price per share equal to 165% of the Offering Price.
o The Partnership has granted 2744 Associates, L.P., which is a Hersha
Affiliate, warrants to purchase 250,000 Units (the "Hersha
Warrants") for a period of five years at a price per Unit equal to
165% of the Offering Price.
8
<PAGE>
Following consummation of the Formation Transactions, the structure and
relationships of the Company, the Partnership, the Initial Hotels and the Lessee
will be as follows:
[Flow chart describing the organization of the Company after
completion of the Offering appears here]
9
<PAGE>
(1) The Company will sell 166,667 Common Shares directly to certain Hersha
Affiliates at the Offering Price.
(2) Two of the Initial Hotels will be held directly by the Partnership and the
remaining eight Initial Hotels will be held by subsidiary partnerships of
the Partnership. The Company will lease the land underlying the Holiday
Inn Express, Harrisburg, Pennsylvania and the Comfort Inn, Denver,
Pennsylvania from certain Hersha Affiliates pursuant to separate leases,
each with a term of 99 years, and collectively providing for annual rent
of $21,000.
Benefits to the Hersha Affiliates
As a result of the Formation Transactions, the Hersha Affiliates will
receive significant benefits, including but not limited to the following:
o The Hersha Affiliates will receive approximately 3.5 million Units
in exchange for their interests in the Initial Hotels, which will
have a value of approximately $21 million based on the Offering
Price. The Units held by the Hersha Affiliates will be more liquid
than their current interests in the Selling Partnerships once a
public trading market for the Common Shares commences and after the
applicable holding periods expire.
o The Lessee, which is owned by the Hersha Affiliates, will hold
the Franchise Licenses for the Initial Hotels and will be
entitled to all revenues from the Initial Hotels after payment of
Rent under the Percentage Leases and other operating expenses.
The Company will pay certain expenses in connection with the
transfer of the Franchise Licenses to the Lessee. See "The
Lessee."
o Approximately $13.5 million of indebtedness owed by the Selling
Partnerships will be repaid with a portion of the proceeds of the
Offering. Approximately $7.5 million of such indebtedness is
owed to entities controlled by the Hersha Affiliates and relates
principally to hotel development expenses in connection with the
Initial Hotels. Certain of the Assumed Indebtedness is and will
remain guaranteed by the Hersha Affiliates. Upon the repayment
of such indebtedness, the Hersha Affiliates will be released from
the related guarantees. The Hersha Affiliates may receive
increased cash distributions from the operations of the Initial
Hotels as a result of the reduction of indebtedness on the
Initial Hotels.
o If the repricing on the First Adjustment Date or the Second
Adjustment Date, as applicable, produces a higher value for the
Newly-Developed Hotels or the Newly-Renovated Hotels, the Hersha
Affiliates will receive an additional number of Units that, when
multiplied by the Offering Price, equals the increase in value
plus the value of any distributions that would have been made in
connection with such Units if such Units had been issued in
connection with the acquisition of such hotels.
o The Lessee, which is owned by the Hersha Affiliates, will receive an
annual fee equal to $55,000, plus $10,000 for each hotel owned by
the Company for providing certain administrative services to the
Company.
o Certain tax consequences to the Hersha Affiliates from the
transfer of equity interests in the Initial Hotels will be
deferred.
o Messrs. Hasu P. Shah, K.D. Patel and Bharat C. Mehta will receive
$7,500 per year for serving as Trustees. Mr. Shah shall also be
entitled to receive a salary of not more than $100,000 per year
provided that the Common Shares have a closing price of $9.00 per
share or higher for 20 consecutive trading days and remain at or
above $9.00 per share.
o The Partnership has granted 2744 Associates, L.P., which is a
Hersha Affiliate, the Hersha Warrants to purchase 250,000 Units
for a period of five years at a price per share equal to 165% of
the Offering Price.
10
<PAGE>
o Certain of the Hersha Affiliates will receive a total of $21,000
per year pursuant to 99-year ground leases with respect to the
Holiday Inn Express, Harrisburg, Pennsylvania and the Comfort
Inn, Denver, Pennsylvania.
o A portion of the land adjacent to the Hampton Inn, Selinsgrove,
Pennsylvania will be leased to a Hersha Affiliate for $1 per year
for 99 years.
Conflict of Interest Policies
The Company has adopted certain policies designed to minimize the effects
of potential conflicts of interest. In addition, the Partnership will enter into
the Option Agreement with certain of the Hersha Affiliates pursuant to which the
Hersha Affiliates will agree that if they develop or own any hotels in the
future that are located within 15 miles of any Initial Hotel or hotel
subsequently acquired by the Partnership, the Hersha Affiliates will give the
Partnership the option to purchase such hotels for two years. See "Risk
Factors-Conflicts of Interest-Competing Hotels Owned or to be Acquired by the
Hersha Affiliates" and "Policies and Objectives with Respect to Certain
Activities-Conflicts of Interest Policies-The Option Agreement." The
Declaration of Trust, with limited exceptions, requires at least three of the
Company's Trustees be Independent Trustees. Such Independent Trustee requirement
may not be amended, altered, changed or repealed without the affirmative vote of
at least a majority of the members of the Board of Trustees (and the affirmative
vote of the holders of not less than two-thirds of the outstanding Common
Shares, and other shares of beneficial interest of the Company entitled to vote,
if any exist). The Trustees also are 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.
Distribution Policy
The Company intends to make regular quarterly distributions to holders of
the Common Shares initially equal to $0.12 per share, which on an annualized
basis would be equal to $0.48 per share or 8.0% of the Offering Price of $6.00
per share. The first distribution, for the period from the closing of the
Offering to September 30, 1998, is expected to be a pro rata distribution of the
anticipated regular quarterly distribution. See "Distribution Policy" for
information regarding the basis for determining the initial distribution rate.
The Company believes that the pro forma financial information constitutes a
reasonable basis for setting the initial distribution rate. The Trustees will
determine the actual distribution rate based on the Company's actual results of
operations, economic conditions and other factors. See "Partnership Agreement"
and "Distribution Policy."
Tax Status
The Company intends to make an election 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 initial taxable year ending December 31, 1998. If
the Company qualifies for taxation as a REIT, then with certain exceptions, the
Company will not be taxed at the corporate level on its taxable income that is
distributed to its shareholders. A REIT is subject to a number of organizational
and operational requirements, including a requirement that it currently
distribute at least 95% of its taxable income, excluding net capital gains.
Failure to qualify as a REIT will render the Company subject to federal income
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates and distributions to the common shareholders in any such
year will not be deductible by the Company. Although the Company does not intend
to request a ruling from the Internal Revenue Service (the "Service") as to its
REIT status, the Company will obtain the opinion of its legal counsel, Hunton &
Williams, based on certain assumptions and representations described in "Federal
Income Tax Consequences," that the Company has been organized in conformity with
the requirements for qualification as a REIT beginning with the taxable year
ending December 31, 1998, and that its proposed method of operation as
represented to its counsel and as described herein will enable it to satisfy the
requirements of such qualification. Investors should be aware, however, that
opinions of counsel will not be binding on the Service or any court. Even if the
Company qualifies for taxation as a REIT, the Company or the Partnership may be
subject to certain state and local taxes on its income and property. In
connection with the Company's election to be taxed as a REIT, the Declaration of
Trust imposes restrictions on the ownership and transfer of Common Shares. The
Company intends to adopt the calendar year as its taxable year. See
11
<PAGE>
"Risk Factors-Tax Risks," "-Ownership Limitation," "Federal Income Tax
Consequences-Taxation of the Company" and "Description of Capital Stock -
Declaration of Trust and Bylaw Provisions-Restrictions on Transfer."
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Shares offered by the Company............. 2,666,667
Common Shares and Units to be outstanding after
the Offering..................................... 6,117,500(1)
Use of Proceeds.................................. To purchase the Initial Hotels, to
repay certain indebtedness of the
Selling Partnerships, to pay certain
expenses of the Offering and for
working capital purposes.
Symbol on the American Stock
Exchange......................................... "HT"
- ---------------
</TABLE>
(1) Excludes 250,000 Common Shares issuable upon exercise of the Underwriter
Warrants, 250,000 Common Shares issuable upon the redemption of 250,000
Units issuable upon exercise of the Hersha Warrants, 650,000 Common Shares
reserved for issuance pursuant to the Option Plan (as herein defined) and
______________ Common Shares reserved for issuance pursuant to the
Trustees' Plan (as herein defined). See "Formation Transactions,"
"Management-Option Plan" and "Underwriting."
12
<PAGE>
Summary Financial Data
The following tables set forth unaudited estimated revenue and expenses
and financial data for the Company, unaudited summary estimated revenue and
expenses and financial data for the Lessee and combined historical financial
data for the Initial Hotels. Such data should be read in conjunction with the
financial statements and notes thereto, which are contained elsewhere in this
Prospectus. The estimated revenue and expenses and financial data for the
Company and the Lessee are presented as if the consummation of the Formation
Transactions had occurred on January 1, 1997 and carried forward through the
interim period presented. The balance sheet data is presented as if the
consummation of the Formation Transactions had occurred on March 31, 1998.
13
<PAGE>
Hersha Hospitality Trust
Unaudited Summary Estimated Revenue and Expenses and Financial Data(1) (In
thousands, except per share data and number of Common Shares)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Estimated Revenue and Expenses:
Percentage Lease revenue (2) ................ $ 1,179 $ 4,945
Depreciation and amortization ............... 394 1,190
Interest expense (3) ........................ 246 873
Real estate and personal property
taxes and property and casualty insurance . 96 375
General and administrative .................. 84 335
Ground lease ................................ 5 21
---------- ----------
Total expenses .............................. $ 825 $ 2,794
========== ==========
Estimated income before minority
interest .................................. 354 2,151
Minority interest (4) ....................... 200 1,213
---------- ----------
Net income applicable to holders
of Common Shares .......................... $ 154 $ 938
========== ==========
Earnings per Common Share ................... $ .06 $ .35
========== ==========
Weighted average number of Common
Shares outstanding ........................ 2,666,667 2,666,667
Other Data:
Funds from operations applicable to
holders of Common Shares (5) .............. $ 326 $ 1,456
Funds from operations (5) ................... $ 748 $ 3,341
Net cash provided by operating activities (6) $ 748 $ 3,341
Net cash used in investing activities (7) ... $ 155 $ 665
Net cash used in financing activities (8) ... $ 792 $ 3,073
March 31, 1998
---------------------------------
Historical Pro Forma
---------- ---------
Balance Sheet Data:
Net investment in hotel properties. -- $ 25,966
Minority interest in Partnership... -- $ 8,917
Shareholders' equity............... -- $ 6,891
Total assets....................... -- $ 27,561
Total debt......................... -- $ 11,753
- ------------------
</TABLE>
(notes on page 16)
14
<PAGE>
Hersha Hospitality Management, L.P.
Unaudited Summary Estimated Revenue and Expenses and Financial Data (1)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
Estimated Revenue and Expenses: March 31, 1998 December 31, 1997
------------------ -----------------
<S> <C>
Room revenue....................... $2,572 $10,880
Other revenue (9).................. 571 2,565
------ -------
Total revenue...................... $3,143 $13,445
------ -------
Hotel operating expenses (10)...... 2,032 8,449
Percentage Lease payments (2)...... $1,179 $ 4,945
------ -------
Net (loss) income.................. $ (68) $ 51
====== =======
</TABLE>
Combined Selling Partnerships - Initial Hotels
Summary Combined Historical Operating and Financial Data
(In thousands)
Three Months Ended
March 31 Year Ended December 31
------------------ ----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Statement of Operations
Data:
Room revenue $ 2,572 $ 1,659 $10,880 $ 7,273 $ 5,262
Other revenue (9) 571 627 2,565 2,716 1,957
------- ------- ------- ------- -------
Total revenue $ 3,143 $ 2,286 $13,445 $ 9,989 $ 7,219
Hotel operating expenses(10) 2,236 1,830 9,173 8,172 6,250
Interest 397 198 1,354 921 634
Depreciation and
amortization 389 233 1,189 924 711
------- ------- ------- ------- -------
Net income (loss) $ 121 $ 25 $ 1,729 $ (28) $ (376)
======= ======= ======= ======= =======
- -------------------------
(notes on following page)
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(1) The estimated information does not purport to represent what the Company's
or the Lessee's financial position or results of operations would actually
have been if consummation of the Formation Transactions had, in fact,
occurred on such date or at the beginning of the periods indicated, or to
project the Company's or the Lessee's financial position or results of
operations at any future date or for any future period. Represents
estimated revenue and expenses as if (i) the Partnership recorded
depreciation and amortization, paid interest on remaining debt after the
Formation Transactions occurred, and paid real and personal property taxes
and property insurance as contemplated by the Percentage Leases, and (ii)
the Formation Transactions occurred as of the beginning of the periods
indicated.
(2) Represents Rent paid by the Lessee pursuant to the Percentage Leases,
which payments are calculated by applying the rent provisions in the
Percentage Leases to the historical revenues of the Stabilized Hotels. In
the case of the Newly-Developed Hotels and the Newly-Renovated Hotels, the
Percentage Lease revenues (or payments) equal the Initial Fixed Rents with
respect to those hotels pro-rated for the period in which each hotel was
open. There is no assurance that such revenues will reflect the actual
revenues of such hotels.
(3) Reflects the average weighted interest rate on the Assumed Indebtedness of
8.38% and 8.39% for the three months ended March 31, 1998 and the year
ended December 31, 1997, respectively.
(4) Calculated as 56.41% of estimated income before minority interest.
(5) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations represents net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and
joint ventures. For the periods presented, estimated depreciation and
amortization and minority interest would have been the only adjustments to
estimated net income necessary to arrive at funds from operation. Funds
from operations should not be considered an alternative to net income or
other measurements under generally accepted accounting principles as an
indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. The Company
considers funds from operations to be an appropriate measure of the
performance of an equity REIT in that such calculation is a measure used
by the Company to measure 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.
Although funds from operations has been computed in accordance with the
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 working capital changes, cash
expenditures for capital improvements or debt service with respect to the
Initial Hotels and, therefore, does not represent cash available for
distribution to the shareholders of the Company. For a complete
presentation of cash available to the shareholders of the Company, see
"Distribution Policy." Under the Percentage Leases, the Partnership is
obligated to pay the costs of certain capital improvements, real estate
and personal property taxes and property insurance, and to make available
to the Lessee an amount equal to 4% (6% for the Holiday Inn, Harrisburg,
PA and the Holiday Inn, Milesburg, PA) of gross revenues per quarter, on a
cumulative basis, for the periodic replacement or refurbishment of
furniture, fixtures and equipment at the Initial Hotels. The Company
intends to cause the Partnership to spend amounts in excess of the
obligated amounts if necessary to maintain the Franchise Licenses for the
Initial Hotels and otherwise to the extent that the Company deems such
expenditures to be in the best interests of the Company. See "Business and
Properties-The Percentage Leases."
(6) Pro forma funds provided by operating activities excludes cash provided by
(used in) operating activities due to changes in working capital.
(7) Represents improvements and additions to the Initial Hotels from funds to
be made available to the Lessee as provided in Note (6) above.
(8) Represents estimated initial distributions to be paid based on the
estimated initial annual distribution rate of $0.48 per share and
2,666,667 Common Shares and 3,450,833 Units outstanding plus the estimated
debt service on the Assumed Indebtedness.
(9) Represents restaurant revenue, telephone revenue and other revenue.
(10) Represents departmental costs and expenses, general and administrative,
repairs and maintenance, utilities, marketing, management fees, real
estate and personal property taxes, property and casualty insurance and
ground leases. The pro forma amounts exclude real estate and personal
property taxes, property and casualty insurance, ground leases and
management fees.
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This Prospectus may contain forward-looking statements including, without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import. Such forward-looking statements relate to future
events and the future financial performance of the Company, and involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company or industry to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Prospective investors should
specifically consider the various factors identified in this prospectus which
could cause actual results to differ, including particularly those discussed in
the section entitled "Risk Factors" beginning on this page. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any forward-looking statements to reflect future
events or developments.
RISK FACTORS
In evaluating the Company's business, prospective investors should
carefully consider the following risk factors in addition to the other
information contained in this Prospectus.
Conflicts of Interest
Because of the Hersha Affiliates' ownership in and/or positions with the
Company, the Partnership, the Lessee and the Selling Partnerships, there are
inherent conflicts of interest in the Formation Transactions and in the ongoing
lease, acquisition, disposition and operation of the Initial Hotels.
Consequently, the interests of shareholders may not have been, and in the future
may not be, reflected fully in all decisions made or actions taken by officers
and Trustees of the Company. See "The Company-Formation Transactions" and
"Policies and Objectives with Respect to Certain Activities-Conflicts of
Interest Policies."
Conflicts Relating to Sales or Refinancing of Initial Hotels
The Hersha Affiliates have unrealized gain associated with their interests
in the Initial Hotels and, as a result, any sale of the Initial Hotels or
refinancing or prepayment of principal on the Assumed Indebtedness by the
Company may cause adverse tax consequences to the Hersha Affiliates. Therefore,
the interests of the Company and the Hersha Affiliates could be different in
connection with the disposition or refinancing of an Initial Hotel. Decisions in
connection with any transaction involving the Company, including the disposition
of an Initial Hotel or refinancing of or prepayment of principal on the Assumed
Indebtedness, in which a Trustee or officer of the Company, or any Affiliate
thereof, has an interest (other than solely as a result of his status as a
Trustee, officer or shareholder of the Company) must be made by a majority of
the Trustees, including a majority of the Independent Trustees.
No Arm's-Length Bargaining on Percentage Leases, Contribution
Agreements, the Administrative Services Agreement and Option Agreement
The terms of the Percentage Leases, the agreements pursuant to which
the Company and the Partnership will acquire, directly or indirectly, the
Initial Hotels, the Administrative Services Agreement and the Option
Agreement were not negotiated on an arm's-length basis. See "Business and
Properties-The Percentage Leases" and "Certain Transactions-The Percentage
Leases." The Company will not own any interest in the Lessee. Messrs. Hasu
P. Shah, K.D. Patel, and Bharat C. Mehta are Trustees of the Company and
collectively own approximately 35% of the Lessee. Consequently, they have a
conflict of interest regarding the enforcement of the Percentage Leases, the
Administrative Services Agreement and the Option Agreement. See "The Lessee."
Competing Hotels Owned or to be Acquired by the Hersha Affiliates
The Hersha Affiliates may develop or acquire new hotels, subject to
certain limitations. While it is anticipated that Mr. Shah will devote
substantially all of his time to the business of the Company, such development
or acquisition by the Hersha Affiliates may materially affect the amount of time
Mr. Shah has to devote to the affairs of the Company. The Lessee may operate
hotels that are not owned by the Company, subject to certain restrictions, which
may materially affect the amount of time that the Lessee has to devote to
managing the Initial Hotels. See "Policies and Objectives with Respect to
Certain Activities-Conflict of Interest Policies-The Option Agreement."
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Acquisition of Hotels with Limited Operating History
The Newly-Developed Hotels have little operating history and the
Newly-Renovated Hotels have been newly renovated. The purchase prices of such
hotels are based upon projections by management as to the expected operating
results of such hotels, subjecting the Company to risks that such hotels may not
achieve anticipated operating results or may not achieve such results within
anticipated time frames. As a result, the Lessee may not generate enough net
operating income from such hotels to make the Initial Fixed Rent payments or,
after the First Adjustment Date or the Second Adjustment Date, as applicable, to
make the Base Rent payments. In addition, after the First Adjustment Date or
Second Adjustment Date, as applicable, room revenues may be less than required
to result in the payment of Percentage Rent at levels at a particular hotel that
provide the Company with its anticipated return on investment. In either case,
the amounts available for distribution to shareholders could be reduced.
Inability to Operate the Properties
As a result of its status as a REIT, the Company will not be able to
operate any hotels. The Company will be unable to make and implement strategic
business decisions with respect to its properties, such as decisions with
respect to the repositioning of a franchise, repositioning of food and beverage
operations and other similar decisions, even if such decisions are in the best
interests of a particular property. Accordingly, there can be no assurance that
the Lessee will operate the Initial Hotels in a manner that is in the best
interests of the Company.
Dependence on the Lessee
In order to generate revenues to enable it to make distributions to
shareholders, the Company will rely on the Lessee to make Rent payments. The
Lessee's obligations under the Percentage Leases, including the obligation to
make Rent payments, are unsecured. Reductions in revenues from the Initial
Hotels or in the net operating income of the Lessee may adversely affect the
ability of the Lessee to make such Rent payments and thus the Company's ability
to make anticipated distributions to its shareholders. Although failure on the
part of the Lessee to comply materially with the terms of a Percentage Lease
would give the Company the right to terminate any or all of the Percentage
Leases, to repossess the applicable properties and to enforce the payment
obligations under the Percentage Leases, the Company then would be required to
find another lessee. There can be no assurance that the Company would be able to
find another lessee or that, if another lessee were found, the Company would be
able to enter into a lease on favorable terms.
Newly-Organized Entities
The Company, the Partnership and the Lessee all have been recently
organized and have no operating histories. Although the officers and Trustees of
the Company have experience in developing, financing and operating hotels, most
of them have no experience in operating a REIT or a public company. See
"Management-Trustees and Officers."
Limited Numbers of Initial Hotels
The Company will own initially only ten hotels, three of which will be
operated as Holiday Inn Express(Registered Trademark) hotels, two as Hampton
Inn(Registered Trademark) hotels, two as Holiday Inn(Registered Trademark)
hotels, two as a Comfort Inn(Registered Trademark) hotels and one as a Clarion
Suites(Registered Trademark) hotel. Significant adverse changes in the
operations of any Initial Hotel could have a material adverse effect on the
Lessee's ability to make Rent payments and, accordingly, on the Company's
ability to make expected distributions to its shareholders.
Guarantors of Assumed Indebtedness
Mr. Shah and the partners of the Selling Partnerships personally guarantee
all of the indebtedness secured by the Initial Hotels, and the personal
bankruptcy of any of the guarantors would constitute a default under the related
loan documents.
Substantial Dilution
Purchasers of Common Shares sold in the Offering will experience immediate
and substantial dilution of $4.01, or 66.8% of the Offering Price, in the net
tangible book value per Common Share. See "Dilution." In addition, in the event
that any of the purchase prices of the Newly-Renovated Hotels or the
Newly-Developed
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<PAGE>
Hotels are increased on the First Adjustment Date or the Second Adjustment Date,
as applicable, owners of the Common Shares at such time will experience further
dilution.
Tax Risks
Failure to Qualify as a REIT
The Company intends to operate so as to qualify as a REIT for federal
income tax purposes. Although the Company has not requested, and does not expect
to request, a ruling from the Service that it qualifies as a REIT, the Company
will receive an opinion of its counsel, Hunton & Williams, that, based on
certain assumptions and representations, it will so qualify. Investors should be
aware, however, that opinions of counsel are not binding on the Service or any
court. The REIT qualification opinion only represents the view of counsel to the
Company based on counsel's review and analysis of existing law, which includes
no controlling precedent. Furthermore, both the validity of the opinion and the
continued qualification of the Company as a REIT will depend on the Company's
continuing ability to meet various requirements concerning, among other things,
the ownership of its outstanding shares, the nature of its assets, the sources
of its income, and the amount of its distributions to its shareholders. See
"Federal Income Tax Consequences-Taxation of the Company."
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to its shareholders
in computing its taxable income and would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, amounts available for distribution to shareholders would be reduced
for each of the years involved. Although the Company currently intends 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 Trustees,
with the consent of two-thirds of the shareholders, to revoke the REIT election.
See "Federal Income Tax Consequences."
REIT 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 net taxable income
(excluding any net capital gain). In addition, the Company will be subject to a
4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain
net income for that year, and (iii) 100% of its undistributed taxable income
from prior years. To the extent that the Company elects to retain and pay income
tax on its net long-term capital gains, such retained amounts will be treated as
having been distributed for purposes of the 4% excise tax.
The Company intends to make distributions to its shareholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income of the
Partnership, and the Company's available for distribution to shareholders will
consist primarily of its share of cash distributions from the Partnership.
Differences in timing between the recognition of taxable income and the receipt
of amounts available for distribution due to the seasonality of the hotel
industry could require the Company, through the Partnership, to borrow funds on
a short-term basis to meet the 95% distribution requirement and to avoid the
nondeductible excise tax. See "Risk Factors-Risk of Leverage." For federal
income tax purposes, distributions paid to shareholders may consist of ordinary
income, capital gains, nontaxable return of capital, or a combination thereof.
The Company will provide its shareholders with an annual statement as to its
designation of the taxability of distributions.
Distributions by the Partnership will be determined by the Trustees and
will be dependent on a number of factors, including the amount of the
Partnership's distributable cash, the Partnership's financial condition, any
decision by the Trustees to reinvest funds rather than to distribute such funds,
the Partnership's capital expenditures, the annual distribution requirements
under the REIT provisions of the Code and such other factors as the Trustees
deem relevant. See "Federal Income Tax Consequences-Requirements for
Qualification - Distribution Requirements."
The Price Being Paid for the Initial Hotels May Exceed Their Value
No arm's-length negotiations were conducted and no independent appraisals
were obtained in connection with the Formation Transactions. There can be no
assurance that the price to be paid by the Company, which is
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<PAGE>
approximately $47.3 million in the aggregate, will not exceed the fair market
value of the Initial Hotels acquired by the Company. The initial valuation of
the Company is based on a valuation of the Initial Hotels. The Units were
allocated among the Hersha Affiliates based upon their respective interests in
the Selling Partnerships.
Emphasis on Franchise Hotels
The Company intends to place particular emphasis in its acquisition
strategy on hotels similar to the Initial Hotels. The Company initially will own
five hotels licensed under the Holiday Inn/Holiday Inn Express franchise brand
and thus will be subject to risks inherent in concentrating investments in a
particular franchise brand, which could have an adverse effect on the Company's
lease revenues and amounts available for distribution to shareholders. These
risks include, among others, the risk of a reduction in hotel revenues following
any adverse publicity related to the franchise brand. See "Business and
Properties-Franchise Licenses."
Concentration of Investments in Pennsylvania
All of the Initial Hotels are located in Pennsylvania. As a result,
localized adverse events or conditions, such as an economic recession, could
have a significant adverse effect on the operations of the Initial Hotels, and
ultimately on the amounts available for distribution to shareholders.
Hotel Industry Risks
Operating Risks
The Initial Hotels are subject to all operating risks common to the hotel
industry. The hotel industry has experienced volatility in the past, as have the
Initial Hotels, and there can be no assurance that such volatility will not
occur in the future. These risks include, among other things, competition from
other hotels; over-building in the hotel industry that could adversely affect
hotel revenues; increases in operating costs due to inflation and other factors,
which increases may not be offset by increased room rates; dependence on
business and commercial travelers and tourism; strikes and other labor
disturbances of hotel employees; increases in energy costs and other expenses of
travel; and adverse effects of general and local economic conditions. These
factors could reduce revenues of the Initial Hotels and adversely affect the
Lessee's ability to make Rent payments, and therefore, the Company's ability to
make distributions to its shareholders.
Competition for Guests
The hotel industry is highly competitive. The Initial Hotels will compete
with other existing and new hotels in their geographic markets. Many of the
Company's competitors have substantially greater marketing and financial
resources than the Company and the Lessee. See "Business and
Properties-Competition."
Investment Concentration in Single Industry
The Company's current growth strategy is to acquire hotels primarily in
the upper-economy and mid-scale segments of the hotel industry. The Company will
not seek to invest in assets selected to reduce the risks associated with an
investment in that segment of the hotel industry, and, therefore, is subject to
risks inherent in concentrating investments in a single industry and in specific
market segments within that industry. The adverse effect on Rent under the
Percentage Leases and amounts available for distribution to shareholders
resulting from a downturn in the hotel industry in general or the upper-economy
and mid-scale segments in particular would be more pronounced than if the
Company had diversified its investments outside of the hotel industry or in
additional hotel market segments.
Seasonality of Hotel Business and the Initial Hotels
The hotel industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
The Initial Hotels' operations historically reflect this trend. The Company
believes that it will be able to make its expected distributions during its
initial year of operation through cash flow from operations. See "Distribution
Policy" and "Management's Discussion and Analysis of Financial Condition and
Result of Operations-Seasonality."
Risks of Operating Hotels under Franchise Licenses
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The continuation of the Franchise Licenses is subject to specified
operating standards and other terms and conditions. Holiday Inn
Express(Registered Trademark), Holiday Inn(Registered Trademark), Hampton
Inn(Registered Trademark), and Choice Hotels International, Inc.(Registered
Trademark) ("Choice Hotels"), the franchisor of Comfort Inns(Registered
Trademark) and Clarion Suites(Registered Trademark), periodically inspect their
licensed properties to confirm adherence to their operating standards. The
failure of the Partnership or the Lessee to maintain such standards respecting
the Initial Hotels or to adhere to such other terms and conditions could result
in the loss or cancellation of the applicable Franchise License. It is possible
that a franchisor could condition the continuation of a Franchise License on the
completion of capital improvements which the Trustees determine are too
expensive or otherwise not economically feasible in light of general economic
conditions or the operating results or prospects of the affected Initial Hotel.
In that event, the Trustees may elect to allow the Franchise License to lapse or
be terminated. The franchisors have agreed to amend the existing Franchise
Licenses to substitute the Lessee as the franchisee.
There can be no assurance that a franchisor will renew a Franchise License
at each option period. If a Franchise License is terminated, the Partnership and
the Lessee may seek to obtain a suitable replacement franchise, or to operate
the Initial Hotel independent of a Franchise License. The loss of a Franchise
License could have a material adverse effect upon the operations or the
underlying value of the related Initial Hotel because of the loss of associated
name recognition, marketing support and centralized reservation systems provided
by the franchisor. Although the Percentage Leases require the Lessee to maintain
the Franchise Licenses for each Initial Hotel, the Lessee's loss of a Franchise
License for one or more of the Initial Hotels could have a material adverse
effect on the Partnership's revenues under the Percentage Leases and the
Company's amounts available for distribution to shareholders. See "Business and
Properties-Franchise Licenses."
Operating Costs and Capital Expenditures; Hotel Renovation
Hotels, including the Initial Hotels, generally have an ongoing need for
renovations and other capital improvements, particularly in older structures,
including periodic replacement of furniture, fixtures and equipment. Under the
terms of the Percentage Leases, the Partnership is obligated to pay the cost of
expenditures for items that are classified as capital items under generally
accepted accounting principles that are necessary for the continued operation of
the Initial Hotels. If these expenses exceed the Company's estimate, the
additional cost could have an adverse effect on amounts available for
distribution to shareholders. 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 hotels. See "Business and the Properties-The
Percentage Leases."
Real Estate Investment Risks
General Risks of Investing in Real Estate
The Initial Hotels will be subject to varying degrees of risk generally
incident to the ownership of real property. The underlying value of the Initial
Hotels and the Company's income and ability to make distributions to its
shareholders are dependent upon the ability of the Lessee to operate the Initial
Hotels in a manner sufficient to maintain or increase revenues in excess of
operating expenses to enable the Lessee to make Rent payments. Hotel revenues
may be adversely affected by adverse changes in national economic conditions,
adverse changes in local market conditions due to changes in general or local
economic conditions and neighborhood characteristics, competition from other
hotels, 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, adverse changes in governmental rules and fiscal policies,
civil unrest, acts of God, including earthquakes, hurricanes and other natural
disasters (which may result in uninsured losses), acts of war, adverse changes
in zoning laws, and other factors that are beyond the control of the Company.
Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of the
Company to vary its portfolio in response to changes in economic and other
conditions will be limited. No assurances can be given that the fair market
value of any of the Initial Hotels will not decrease in the future.
Uninsured and Underinsured Losses
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Each Percentage Lease specifies comprehensive insurance to be maintained
on each of the Initial Hotels, including liability and fire and extended
coverage in amounts sufficient to permit the replacement of the Initial Hotels
in the event of a total loss, subject to applicable deductibles. Management of
the Company believes that such specified coverage is of the type and amount
customarily obtained by owners of hotels similar to the Initial Hotels.
Percentage Leases for hotels subsequently acquired by the Company will contain
similar provisions. However, there are certain types of losses, generally of a
catastrophic nature, such as earthquakes, floods and hurricanes, that may be
uninsurable or not economically insurable. Inflation, changes in building codes
and ordinances, environmental considerations, and other factors also might make
it infeasible to use insurance proceeds to replace the applicable hotel after
such applicable hotel 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 the applicable hotel.
Property Taxes
Each Initial Hotel is subject to real and personal property taxes. The
real and personal property taxes on hotel properties in which the Company
invests may increase or decrease as property tax rates change and as the
properties are assessed or reassessed by taxing authorities. If property taxes
increase, the Company's ability to make expected distributions to its
shareholders could be adversely affected.
Environmental Matters
Operating costs may be affected by the obligation to pay for the cost of
complying with existing environmental laws, ordinances and regulations, as well
as the cost of future legislation. Under various 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. The cost of
complying with environmental laws could materially adversely affect amounts
available for distribution to shareholders. Recent Phase I environmental
assessments have been obtained on all of the Initial Hotels. The purpose of
Phase I environmental assessments is to identify potential environmental
contamination that is made apparent from historical reviews of the Initial
Hotels, reviews of certain public records, preliminary investigations of the
sites and surrounding properties, and screening for the presence of hazardous
substances, toxic substances and underground storage tanks. The Phase I
environmental assessment reports have not revealed any environmental
contamination 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.
Compliance with Americans with Disabilities Act and other Changes in
Governmental Rules and Regulations
Under the Americans with Disabilities Act of 1993 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that the Initial
Hotels are substantially in compliance with these requirements, a determination
that the Company is not in compliance with the ADA could result in imposition of
fines or an award of damages to private litigants. In addition, changes in
governmental rules and regulations or enforcement policies affecting the use and
operation of the Hotels, including changes to building codes and fire and
life-safety codes, may occur. If the Company were required to make substantial
modifications at the Initial Hotels to comply with the ADA or other changes in
governmental rules and regulations, the Company's ability to make expected
distributions to its shareholders could be adversely affected.
Market for Common Shares
Prior to the Offering, there has been no public market for the Common
Shares. The Company will apply for listing of the Common Shares on The American
Stock Exchange. The Offering Price may not be indicative of the market price for
the Common Shares after the Offering. 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 establishing
the Offering Price. If accepted for listing, there can be no assurances that the
Company will continue to meet the criteria for continued listing of the Common
Shares on The American Stock Exchange.
Effect of Market Interest Rates on Price of Common Shares
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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 other financial
instruments. Thus, an increase in market interest rates will result in higher
yields on other financial instruments, which could adversely affect the market
price of the Common Stock.
Anti-takeover Effect of Ownership Limit, Staggered Board, Power to Issue
Additional Shares and Certain Provisions of Maryland Law
Ownership Limitation
The Declaration of Trust generally prohibits direct or indirect ownership
of more than 9.9% of the number of outstanding Common Shares or of any other
class of outstanding shares by any person (the "Ownership Limitation").
Generally, Common Shares owned by affiliated owners will be aggregated for
purposes of the Ownership Limitation. The Ownership Limitation could have the
effect of discouraging a change in control 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 interests. See "Description of Capital
Stock - Restrictions on Transfer" and "Federal Income Tax
Consequences-Requirements for Qualification."
Staggered Board
The Company's Board of Trustees is divided into two classes. The initial
terms of the first and second classes will expire in 1999 and 2000,
respectively. Beginning in 1999, Trustees of each class will be chosen for
two-year terms upon the expiration of their current terms and each year one
class of Trustees will be elected by the shareholders. 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 interest of the shareholders. See "Certain Provisions of Maryland
Law and of the Company's Declaration of Trust and Bylaws-Classification of the
Board of Trustees."
Issuance of Additional Shares
The Company's Declaration of Trust authorizes the Board of Trustees to (i)
amend the Declaration of Trust to increase or decrease the aggregate number of
shares of beneficial interest or the number of shares of beneficial interest of
any class that the Company has the authority to issue, (ii) cause the Company to
issue additional authorized but unissued Common or Preferred Shares and (iii)
classify or reclassify any unissued Common Shares and Preferred Shares and to
set the preferences, rights and other terms of such classified or unclassified
shares. See "Description of Shares of Beneficial Interest-Preferred Shares."
Future equity offerings may cause the purchasers of the Common Shares sold in
the Offering to experience further dilution. The Company has no current plans
for future equity offerings. Although the Board of Trustees has no such
intention at the present time, it could establish a series of Preferred Shares
that could, depending on the terms of such series, delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for the Common Shares or otherwise be in the best interest of the
shareholders. The Declaration of Trust and Bylaws of the Company also contain
other provisions that may 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 the Common Shares or otherwise be in the best interest of the
shareholders. See "Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws-Removal of Trustees," "-Control Share
Acquisitions" and "-Advance Notice of Trustees Nominations and New Business."
Maryland Business Combination Law
Under the Maryland General Corporation Law, as amended ("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 person who beneficially owns ten percent or more
of the voting power of the trust's shares (an "Interested Shareholder") or an
affiliate thereof 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 approved by two super-majority shareholder
votes 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. See
23
<PAGE>
"Certain Provisions of Maryland Law and the Company's Declaration of Trust and
Bylaws-Business Combinations."
Potential Adverse Effects of Leverage and Lack of Limits on Indebtedness
Upon completion of the Offering and the completion of the Formation
Transactions, the Company will assume the Assumed Indebtedness (in the aggregate
principal amount of approximately $11.7 million), which will be secured by some
of the Initial Hotels. The Company may borrow additional amounts from the same
or other lenders in the future, or may issue corporate debt securities in public
or private offerings. Certain of such additional borrowings may be secured by
the Hotels. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources" and "Policies and
Objectives with Respect to Certain Activities-Financing."
There also 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, including the Initial Hotels, to
foreclosure. Although the Company's policy is to limit consolidated indebtedness
to less than 55% of the total purchase prices paid by the Company for the hotels
in which it has invested, there is no limit on the Company's ability to incur
debt contained in the Declaration of Trust or Bylaws. The Assumed Indebtedness
will represent approximately 25% of the total purchase prices paid by the
Company for the Initial Hotels. The Assumed Indebtedness will limit the
Company's ability to acquire additional hotels without issuing equity
securities. See "-Growth Strategy-Competition for Acquisitions." See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Dependence Upon External Financing
The Company anticipates that its growth and acquisition strategies will be
largely financed through externally generated funds such as borrowings under the
Line of Credit and other secured and unsecured debt financing and from issuance
of equity securities. Because the Company must distribute 95% of its taxable
income to maintain its qualification as a REIT, the Company's ability to rely
upon income from operations or cash flow from operations to finance its growth
and acquisition activities will be limited. Accordingly, were the Company unable
to obtain the Line of Credit or other funds from borrowings or to access the
capital markets to finance its growth and acquisition activities, the Company's
ability to grow could be curtailed, cash available for distribution to
shareholders of the Company could be adversely affected and the Company could be
required to reduce distributions.
Assumption of Contingent Liabilities of Selling Partnerships
Because the Partnership is acquiring partnership interests in certain of
the Selling Partnerships, the Partnership will assume all contingent liabilities
of those Selling Partnerships. Certain of the Hersha Affiliates are managing
partners of the Selling Partnerships and have made representations and
warranties that the Selling Partnerships have no liabilities, debts or
obligations except for liabilities arising under operating agreements, equipment
leases, loan agreements or proration credits on the Closing Date. There is,
however, a risk that unforeseen liabilities could exist and could adversely
affect amounts available for distribution to shareholders.
Ability of Board of Trustees to Change Certain Policies
The major policies of the Company, including its policies with respect to
acquisitions, financing, growth, operations, debt limitation and distributions,
will be determined by the Trustees. The Trustees may amend or revise these and
other policies from time to time without a vote of the holders of the Common
Shares. The effect of any such changes may be positive or negative. Under the
Declaration of Trust, Company cannot change its policy of seeking to maintain
its qualification as a REIT without the approval of the holders of two-thirds of
the outstanding Common Shares. See "Policies and Objectives with Respect to
Certain Activities" and "Certain Provisions of Maryland Law and the Company's
Declaration of Trust and Bylaws."
Growth Strategy
Competition for Acquisitions
24
<PAGE>
There will be competition for investment opportunities in upper-economy
and mid-scale hotels from entities organized for purposes substantially similar
to the Company's objectives, as well as other purchasers of hotels. The Company
will be competing for such investment opportunities with entities that have
substantially greater financial resources than the Company, including access to
capital or better relationships with franchisors, sellers or lenders. The
Company's policy is to limit consolidated indebtedness to less than 55% of the
total purchase prices paid by the Company for the hotels in which it has
invested. See "Risk Factors-The Price Being Paid for the Initial Hotels May
Exceed Their Value." Because of the amount of the Assumed Indebtedness, the
success of the Company's acquisition strategy will depend primarily on its
ability to access additional capital through issuances of equity securities. The
Company's competitors may generally be able to accept more risk than the Company
can manage prudently and may be able to borrow the funds needed to acquire
hotels. 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. See "Business and Properties-Competition."
Acquisition Risks
The Company intends to pursue acquisitions of additional hotel properties.
Acquisitions entail risks that investments will fail to perform in accordance
with expectations and that estimates of the cost of improvements necessary to
market and acquire properties will prove inaccurate, as well as general
investment risks associated with any new real estate investment. The Company
anticipates that its growth and acquisition strategies will be largely financed
through externally generated funds such as borrowings under credit facilities
and other secured and unsecured debt financing and from issuance of equity
securities. Because the Company must distribute 95% of its taxable income to
maintain its qualification as a REIT, the Company's ability to rely upon income
from operations or cash flow from operations to finance its growth and
acquisition activities will be limited. Accordingly, were the Company unable to
obtain funds from borrowings or the capital markets to finance its growth and
acquisition activities, the Company's ability to grow could be curtailed,
amounts available for distribution to shareholders could be adversely affected
and the Company could be required to reduce distributions.
Reliance on Trustees and Management
Common shareholders 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. See "Description of Capital Stock-Common Shares" and "Certain
Provisions of Maryland Law and of the Company's Declaration of Trust and
Bylaws." The Trustees will be responsible for managing the Company. The Company
will rely upon the services and expertise of its Trustees for strategic business
direction.
In addition, there may be conflicting demands on Mr. Shah caused by his
overlapping management of the Company and Hersha Enterprises Ltd. Hersha
Enterprises Ltd. owns and operates properties other than the Initial Hotels, and
Mr. Shah, who serves as Chairman of the Board and Chief Executive Officer of the
Company and President of Hersha Enterprises, Ltd., may experience a conflict in
allocating his time between such entities.
Possible Adverse Effect of Shares Available for Future Sale on Price of
Common Shares
Sales of a substantial number of Common Shares, or the perception that
such sales could occur, could adversely affect prevailing market prices of the
Common Shares. In connection with the formation of the Company, approximately
3.5 million Units will be issued to the Hersha Affiliates in addition to Common
Shares offered by the Company in the Offering. See "Formation Transactions." The
holders of Units generally will not be permitted to offer, sell, contract to
sell or otherwise dispose of Common Shares, except in certain circumstances, for
one year after the closing of the Offering. See "Shares Available for Future
Sale" and "Underwriting." At the conclusion of such periods and upon the
subsequent redemption of Units, the Common Shares received therefor may be sold
in the public market pursuant to shelf registration statements that the Company
is obligated to file on behalf of limited partners of the Partnership, or
pursuant to any available exemptions from registration.
THE COMPANY
The Company has been established to own initially the ten Initial Hotels
and to continue the hotel acquisition and development strategies of Hasu P.
Shah, Chairman of the Board of Trustees and Chief Executive Officer of the
Company. The Company, formed in May 1998, is a self-advised Maryland real estate
investment trust that intends to qualify as a REIT for federal income tax
purposes. The Initial Hotels include three Holiday Inn Express(Registered
Trademark) hotels,
25
<PAGE>
two Hampton Inn(Registered Trademark) hotels, two Holiday Inn(Registered
Trademark) hotels, two Comfort Inn(Registered Trademark) hotels and one Clarion
Suites(Registered Trademark) hotel. The Initial Hotels are located in
Pennsylvania and contain an aggregate of 989 rooms. The Newly-Developed Hotels
are newly constructed and therefore have limited operating history. The
Newly-Renovated Hotels have been newly renovated and, as a result, the Company
believes that such hotels' future performance will improve significantly over
such hotels' prior operating histories.
The Company will contribute substantially all of the net proceeds from the
Offering to the Partnership in exchange for approximately a 43% partnership
interest in the Partnership. The Company will be the sole general partner of the
Partnership. Shortly after the closing of the Offering, the Partnership will
acquire, directly or through the partnerships that currently own the hotels,
100% of the equity interests in the Initial Hotels. Mr. Shah and the Hersha
Affiliates own the Selling Partnerships. Ownership of the land underlying two of
the Initial Hotels will be retained by certain Hersha Affiliates and will be
leased to the Partnership pursuant to separate ground leases, each with a
99-year term, and collectively providing for rent of $21,000 per year. See
"Certain Relationships and Transactions."
The Partnership will acquire the Initial Hotels in exchange for (i) Units,
which will be redeemable, subject to certain limitations, for an aggregate of
approximately 3.5 million Common Shares, with a value of approximately $21
million based on the Offering Price, and (ii) the assumption of approximately
$25.2 million of indebtedness related to the Initial Hotels, including the
Assumed Indebtedness and approximately $13.5 million that will be repaid
immediately after the acquisition of the Initial Hotels. See "Formation
Transactions." The purchase prices of the Newly-Renovated Hotels will be
adjusted on the First Adjustment Date. The purchase prices of the
Newly-Developed Hotels will be adjusted on the Second Adjustment Date. The
adjustments will be calculated by applying the initial pricing methodology to
such hotels' cash flows as shown on the Company's and the Lessee's audited
financial statements for the year ended on the First Adjustment Date or the
Second Adjustment Date, as applicable, and the adjustments must be approved by a
majority of the Independent Trustees. If the repricing produces a higher
aggregate value for such hotels, the Hersha Affiliates will receive an
additional number of Units that, when multiplied by the Offering Price, equals
the increase in value plus the value of any distributions that would have been
made with respect to such Units if such Units had been issued at the time of the
acquisition of such hotels. If, however, the repricing produces a lower
aggregate value for such hotels, the Hersha Affiliates will forfeit to the
Partnership that number of Units that, when multiplied by the Offering Price,
equals the decrease in value plus the value of any distributions made with
respect to such Units.
In order for the Company to qualify as a REIT, neither the Company nor the
Partnership may operate hotels. Therefore, the Initial Hotels will be leased to
the Lessee pursuant to the Percentage Leases. Each Percentage Lease has been
structured to provide anticipated rents at least equal to 12% of the purchase
price paid for the hotel, net of (i) property and casualty insurance premiums,
(ii) real estate and personal property taxes, and (iii) a reserve for furniture,
fixtures and equipment equal to 4% (6% for the Holiday Inn, Harrisburg, PA and
the Holiday Inn, Milesburg, PA) of gross revenues at the hotel. This pro forma
return is based on certain assumptions and historical revenues for the Initial
Hotels (including projected revenues for the Newly-Developed Hotels and the
Newly-Renovated Hotels) and no assurance can be given that future revenues for
the Initial Hotels will be consistent with prior performance or the estimates.
See "Risk Factors-Acquisition of Hotels with Limited Operating History." Until
the First Adjustment Date or the Second Adjustment Date, as applicable, the rent
on the Newly-Developed Hotels and the Newly-Renovated Hotels will be the Initial
Fixed Rents applicable to those hotels. After the First Adjustment Date or the
Second Adjustment Date, as applicable, rent will be computed with respect to the
Newly-Developed Hotels and the Newly-Renovated Hotels based on the percentage
rent formulas described herein. The Initial Hotels will be operated by the
Lessee. The Percentage Leases will have initial terms of five years and may be
extended for two additional five-year terms at the option of the Lessee.
See "Business and Properties-The Percentage Leases."
26
<PAGE>
The following table sets forth certain information with respect to the
Initial Hotels:
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1997
---------------------------------------------------------------------------------------------------------
Estimated
Lessee
Income Before Estimated Average
Number of Room Other Lease Lease Daily
Initial Hotels Rooms Revenue Revenue(1) Payments(2) Payments(3)(4) Occupancy Rate REVPAR(5)
----- ----------- ----------- ----------- ------------ ----- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Newly-Developed
Holiday Inn Express
Hershey, PA(6) ......... 85 210,612 $ 4,877 $ 80,985 $ 96,156 38.8% $75.62 $ 29.35
New Columbia, PA(7) .... 81 13,369 $ 253 (48,535) 6,653 9.0% $59.68 $ 5.39
Hampton Inn:
Carlisle, PA(8) ........ 95 659,861 8,421 293,368 303,029 53.5% $65.33 $ 34.93
Comfort Inn:
Harrisburg, PA(9) ...... 81
Newly-Renovated
Holiday Inn Express:
Harrisburg, PA(10) ..... 117 1,357,241 176,868 550,639 504,406 56.4% $56.33 $ 31.78
Holiday Inn:
Milesburg, PA .......... 118 1,254,070 220,684 579,756 524,750 52.0% $56.07 $ 29.13
Comfort Inn:
Denver, PA (11) ........ 45 658,285 0 271,167 262,234 54.7% $73.26 $ 40.08
Stabilized
Holiday Inn:
Harrisburg, PA ......... 196 3,103,820 1,787,958 $ 1,738,713 1,614,402 63.3% $68.22 $ 43.17
Hampton Inn:
Selinsgrove, PA (12) ... 75 1,271,943 46,148 705,488 657,471 71.9% $65.29 $ 46.96
Clarion Suites:
Philadelphia, PA ....... 96 2,350,702 319,950 1,026,785 976,102 73.7% $91.02 $ 67.09
----- ----------- ----------- ----------- ----------- ----- ------- --------
Total/weighted average .. 989 $10,879,903 $ 2,565,159 $ 5,198,366 $ 4,945,203 60.2% $68.27 $ 41.09
===== =========== =========== =========== =========== ===== ======= ========
</TABLE>
- -------------------------
(1) Represents restaurant revenue, telephone revenue and other revenue.
(2) Represents total revenue less the Lessee's expenses, including hotel
operating expenses but excluding lease payments. See "Selected Financial
Information-Lessee."
(3) Had the Newly-Developed Hotels been open for the entire twelve months
ended December 31, 1997, the total estimated lease payments for all of
the Initial Hotels would have been approximately $7 million.
(4) Represents payments of Rent by the Lessee calculated by applying the rent
provisions in the Percentage Leases using historical revenues of the
Initial Hotels as if January 1, 1997 was the beginning of the lease year.
In the case of the Newly-Developed Hotels and the Newly-Renovated Hotels,
the estimated lease payments reflect the Initial Fixed Rents for such
hotels pro-rated for the period in which each hotel was open.
(5) REVPAR is determined by dividing room revenue by available rooms for the
applicable period.
(6) This hotel opened in October 1997 and, thus, the data shown represent
approximately three months of operations.
(7) This hotel opened in December 1997 and, thus, the data shown represent
approximately one month of operations.
(8) This hotel opened in June 1997 and, thus, the data shown represent
approximately seven months of operations.
(9) This hotel opened in May 1998 and, thus, there are no data shown.
(10) The land underlying this hotel will be leased to the Partnership by
certain Hersha Affiliates for rent of $15,000 per year for 99 years.
(11) The land underlying this hotel will be leased to the Partnership by
certain Hersha Affiliates for rent of $6,000 per year for 99 years.
(12) A portion of the land adjacent to this hotel will be leased to a Hersha
Affiliate for $1 per year for 99 years.
27
<PAGE>
For further information regarding the Initial Hotels, see "Business and
Properties - The Initial Hotels" and " - The Percentage Leases."
GROWTH STRATEGY
The Company will seek to enhance shareholder value by increasing amounts
available for distribution to shareholders by acquiring additional hotels that
meet the Company's investment criteria as described below and by participating
in increased revenue from the Initial Hotels through the Percentage Leases.
Acquisition Strategy
The Company will emphasize limited service and full service hotels with
strong, national franchise affiliations in the upper-economy and mid-scale
market segments, or hotels with the potential to obtain such franchises. In
particular, the Company will consider acquiring limited service hotels such as
Comfort Inn(Registered Trademark), Best Western(Registered Trademark), Days
Inn(Registered Trademark), Fairfield Inn(Registered Trademark), Hampton
Inn(Registered Trademark), Holiday Inn(Registered Trademark) and Holiday Inn
Express(Registered Trademark) hotels, and limited service extended-stay hotels
such as Hampton Inn and Suites(Registered Trademark), Homewood Suites(Registered
Trademark), Main Stay Suites(Registered Trademark) and Residence Inn by
Marriott(Registered Trademark) hotels. Under the Bylaws, any transaction
involving the Company, including the purchase, sale, lease or mortgage of any
real estate asset, in which a Trustee or officer of the Company, or any
Affiliate thereof, has an interest (other than solely as a result of his status
as a Trustee, officer or shareholder of the Company) must be approved by a
majority of the Trustees, including a majority of the Independent Trustees.
Investment Criteria
The Company intends to focus predominantly on investments in hotels in the
eastern United States. Such investments may include hotels newly developed by
certain of the Hersha Affiliates. Pursuant to the Option Agreement, the
Partnership will have a two-year option to acquire any hotels acquired or
developed by the Hersha Affiliates within 15 miles of any of the Initial Hotels
or any subsequently acquired hotel. See "Certain Relationships and
Transactions-Option Agreement." The Company's policy with respect to
acquisitions of hotels (the "Acquisition Policy") is to acquire hotels for which
it expects to receive rents at least equal to 12% of the purchase price paid for
each hotel, net of (i) property and casualty insurance premiums, (ii) real
estate and personal property taxes, and (iii) a reserve for furniture, fixtures
and equipment equal to 4% (6% in the case of full-service hotels) of annual
gross revenues at each hotel. The Trustees, however, may change the Acquisition
Policy at any time without the approval of the Company's shareholders. The
Company expects to acquire hotels that meet one or more of the following
criteria:
o nationally-franchised hotels in locations with relatively high
demand for rooms, with relatively low supply of competing hotels and
with significant barriers to entry into the hotel business, such as
a scarcity of suitable hotel sites or zoning restrictions;
o poorly managed hotels, which could benefit from new management, new
marketing strategy and association with a national franchisor;
o hotels in a deteriorated physical condition that could benefit
significantly from renovations; and
o hotels in attractive locations that the Company believes could
benefit significantly by changing franchises to a brand the Company
believes is superior.
Financing
The Company's additional investments in hotels may be financed, in whole
or in part, with undistributed cash, subsequent issuances of Common Shares or
other securities, or borrowings. The Company is currently negotiating with
lenders to obtain the Line of Credit. A failure to obtain the Line of Credit
could adversely affect the Company's ability to finance its growth strategy. See
"Risk Factors-Dependence Upon External Financing." The Company's Debt Policy is
to limit consolidated indebtedness to less than 55% of the aggregate purchase
prices paid by the Company for the hotels in which it has invested. The
Trustees, however, may change the Debt Policy without the approval of the
Company's shareholders. The aggregate purchase prices paid by the Company for
the Initial Hotels is approximately $47.3 million. After the Formation
Transactions, the Company's indebtedness will be approximately $11.7 million,
which represents approximately 25% of the aggregate purchase price to be paid by
the Company for the Initial Hotels. Because of the Debt Policy and the amount of
the Assumed
28
<PAGE>
Indebtedness, the success of the Company's acquisition strategy will depend
primarily on its ability to access additional capital through issuances of
equity securities. See "Risk Factors-Risks of Leverage" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Internal Growth Strategy
The Percentage Leases are designed to allow the Company to participate in
growth in revenues at the Initial Hotels. See "Business and Properties-The
Percentage Leases." The Percentage Leases generally provide for the Lessee to
pay the greater of the Base Rent or Percentage Rent. The Percentage Rent for
each Initial Hotel is comprised of (i) a percentage of room revenues up to the
Threshold, (ii) a percentage of room revenues in excess of the Threshold but not
more than the Incentive Threshold, (iii) a percentage of room revenue in excess
of the Incentive Threshold and (iv) a percentage of revenues other than room
revenues. The Incentive Threshold is designed to provide incentive to the Lessee
to generate higher revenues at each hotel by lowering the percentage of revenue
paid as Percentage Rent once room revenues reach certain levels. In the case of
the Newly-Developed Hotels and the Newly-Renovated Hotels, the Lessee will pay
the Initial Fixed Rent until the First Adjustment Date or the Second Adjustment
Date, as applicable, after which the Lessee will pay the greater of Base Rent or
Percentage Rent. See "Business and Properties-The Initial Hotels" and "-The
Percentage Leases-Amounts Payable Under the Percentage Leases."
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $14.2 million (based on the Offering Price), after deducting
selling commissions and estimated offering expenses of $1.8 million. The Company
will contribute the net proceeds of the Offering to the Partnership in exchange
for approximately a 43% interest in the Partnership. The Partnership will use
the net proceeds as follows: (i) approximately $13.5 million to repay certain of
the outstanding indebtedness related to the Initial Hotels, including
approximately $7.5 million in debt owed to certain Hersha Affiliates and related
principally to the hotel development expenses in connection with the Initial
Hotels and (ii) approximately $0.7 million for costs associated with the
acquisition of the Initial Hotels. The Company currently has no agreement or
understanding to invest in any specific hotel other than the Initial Hotels.
Pending the use of proceeds referenced above, the net proceeds will be
invested in interest-bearing, short-term, investment grade securities or money
market accounts, which are consistent with the Company's intention to qualify as
a REIT. Such investments may include, for example, government and government
agency securities, certificates of deposit, interest-bearing bank deposits and
mortgage loan participations.
The indebtedness to be repaid with the net proceeds of the Formation
Transactions includes debt secured by some of the Initial Hotels as follows (in
thousands):
Estimated
Annual
Mortgages payable secured by Maturity Interest
the following Initial Hotels: Amount Date Rate
------- --------- -------
Holiday Inn, Milesburg, PA ............ $ 899 1999 8.00%
Clarion Suites, Philadelphia, PA ...... $ 1,593 2002/2010 9.50%
Holiday Inn, Harrisburg, PA ........... $ 3,049 2013 8.45%
Holiday Inn Express,
Harrisburg, PA ........................ $ 373 2012 8.35%
Amounts Due to Hersha Affiliates (1) .. $ 7,561 (2) 9.00%
-------
Total ................................. $13,475
=======
(1) Loans advanced by the Hersha Affiliates principally to fund hotel
development expenses in connection with the Initial Hotels.
(2) Payable on demand.
29
<PAGE>
DISTRIBUTION POLICY
After the Offering, the Company intends to make regular quarterly
distributions to its shareholders. The Company's ability to make distributions
will be dependent on the receipt of distributions from the Partnership and lease
payments from the Lessee with respect to the Initial Hotels. Initially, the
Partnership's sole source of revenue will be rent payments under the Percentage
Leases for the Initial Hotels. The Company must rely on the Lessee to generate
sufficient cash flow from the operation of the Initial Hotels to meet the
Lessee's rent obligations under the Percentage Leases. The Company intends to
make regular quarterly distributions to holders of the Common Shares initially
equal to $0.12 per share, which on an annualized basis would be equal to $0.48
per share or 8.0% of the Offering Price of $6.00 per share. The first
distribution, for the period from the closing of the Offering to September 30,
1998, is expected to be a pro rata distribution of the anticipated regular
quarterly distribution. Based on the Company's pro forma revenues less expenses
for the twelve months ended March 31, 1998, such distributions would represent
approximately 75% of the Company's cash available for distribution, and none of
such distributions is anticipated to represent a return of capital for federal
income tax purposes.
The Company believes that its basis for setting the initial distribution,
which is based on the Company's pro forma funds from operations for the twelve
months ended March 31, 1998, is reasonable. The Company considers funds from
operations to be an appropriate measure of the performance of an equity REIT in
that such calculation is a measure used by the Company to measure 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. Funds from operations, however, should not be
considered an alternative to net income or other measurements under generally
accepted accounting principles as an indicator of the Company's operating
performance or to cash flows from operating, investing or financing activities
as a measure of liquidity. The Company expects to maintain its initial
distribution rate for the remainder of 1998 unless actual results of operations,
economic conditions or other factors differ from the pro forma results for the
twelve months ended March 31, 1998. The Company's actual funds from operations
will be affected by a number of factors, including changes in occupancy or
average daily rate ("ADR") at the Initial Hotels.
The hotel business is seasonal in nature and, therefore, revenues of the
Initial Hotels in the first and fourth quarters are traditionally lower than
those in the second and third quarters. The Company believes that it will be
able to make its expected distributions for the first and fourth quarters of its
initial year of operation by drawing on the Line of Credit to fund any
shortfalls between cash available for distribution to common shareholders for
those quarters and the expected quarterly distributions for those quarters. See
"Risk Factors-Risk of Leverage" and "-Dependence Upon External Financing."
Thereafter, the Company expects to use excess cash flow from the second and
third quarters to fund any such shortfalls in the first and fourth quarters.
There are no assurances that cash available for distribution to the common
shareholders will be sufficient for the Company to make expected distributions
to common shareholders.
In order to maintain its qualification as a REIT, the Company must
distribute to its shareholders each year at least 95% of its taxable income
(which does not include 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.
Distributions made by the Company will be determined by the Trustees and
will depend on a number of factors, including the amount of funds from
operations, the Partnership'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 Trustees
deem relevant. For a discussion of the tax treatment of distributions to holders
of Common Shares, see "Federal Income Tax Consequences."
30
<PAGE>
The following table sets forth certain unaudited pro forma financial
information applicable to common shareholders of the Company (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Twelve Months Ended March 31, 1998
---------------------------------------------------
Adjustment for
Partial Year Pro Forma
Pro and Unopened As
Forma Hotels(1) Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net income .................................................... $ 954 543 $ 1,497
Depreciation and amortization,
net of minority interest portion ........................................ 573 201 774
Pro forma funds provided by
operating activities (2) ................................................ 1,527 744 2,271
Pro forma funds used in investing activities:
Additions to capital expenditure
reserves (3) ....................................................... (304) (67) (371)
Pro forma funds used in financing activities (4):
Principal payments on debt ......................................... (190) ____ (190)
----------- ----------- -----------
Estimated cash available for distribution ............................... $ 1,033 677 $ 1,710
=========== =========== ===========
Common Shares outstanding ............................................... 2,666,667 2,666,667
Estimated cash available for distribution per share ..................... $ .39 $ .64
Estimated initial annual distribution ................................... $ 1,280 $ 1,280
Estimated initial annual distribution per share ......................... $ .48 $ .48
Estimated dividend yield based upon Offering Price ...................... 8% 8%
Estimated payout ratio of cash available for distribution (5) ........... 124% 75%
</TABLE>
- ---------------------
(1) The pro forma net income for the twelve months ended March 31, 1998 only
includes revenues and expenses with respect to the Newly-Developed Hotels
for the portion of the pro forma period that the Newly-Developed Hotels
were completed and available for occupancy. The adjustment for partial
year and unopened hotels reflects the net increase in estimated cash
available for distribution as a result of the Company receiving the
Initial Fixed Rent for a full year with respect to the Newly-Developed
Hotels, after taking into account applicable expenses and additions to
capital expenditure reserves.
(2) Pro forma funds provided by operating activities excludes cash provided
by (used in) operating activities due to changes in working capital. The
Company does not believe that the excluded items are material to the
estimated cash available for distribution.
(3) Represents the Company's obligation under the Percentage Leases (adjusted
to exclude the minority interest obligation and to reflect the Company's
ownership percentage in the Partnership of approximately 43%) to reserve
and pay for capital improvements (including the replacement or
refurbishment of furniture, fixtures and equipment) on a pro forma basis
for the twelve months ended March 31, 1998. The Company anticipates that
cash flow from operations, borrowing capacity and reserves will be
sufficient to fund such obligation.
(4) Excludes distributions.
(5) Represents the anticipated initial aggregate annual distribution divided
by estimated cash available for distribution.
31
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma short-term debt and
capitalization of the Company as of March 31, 1998, as adjusted to give effect
to the sale on such date by the Company of the Common Shares in the Offering and
the use of the net proceeds therefrom as described under "Use of Proceeds."
Pro Forma
March 31, 1998
(In thousands)
---------------
Short-term debt.............................................. --
Long-term debt............................................... $11,753
Minority interest............................................ $ 8,917
Shareholders' Equity:
Preferred Shares, $.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding ............ --
Common Shares, $.01 par value,
50,000,000 shares authorized, 2,666,667 shares
issued and outstanding(1)................................. 27
Additional paid-in capital.................................. 6,864
-------
Total shareholders' equity.............................. $ 6,891
-------
Total capitalization................................. $27,561
=======
- ---------------------
(1) Excludes approximately 3.5 million Common Shares issuable upon redemption
of Units issued in the Formation Transactions, 250,000 Common Shares
issuable upon exercise of the Underwriter Warrants, 250,000 Common Shares
issuable upon the redemption of 250,000 Units issuable upon exercise of
the Hersha Warrants, 650,000 Common Shares reserved for issuance pursuant
to the Option Plan and ____ Common Shares reserved for issuance pursuant
to the Trustees' Plan. See "Formation Transactions," "Management-The
Option Plan" and "Underwriting."
32
<PAGE>
DILUTION
At March 31, 1998, the Offering Price exceeded the pro forma net tangible
book value per Common Share. The pro forma net tangible book value prior to the
Offering represents the owners' equity from the Selling Entities Combined
Balance Sheet of $3,274,000 less intangible assets of $1,397,000, resulting in
$1,877,000 or $.54 per share based upon approximately 3.5 million Units issuable
in the Formation Transactions. Therefore, the holders of Units issued in
connection with the Formation Transactions will realize an immediate increase in
the net book value of their Units, while purchasers of Common Shares in the
Offering will realize an immediate dilution in the net book value of their
Common Shares. The pro forma net tangible book value after the Offering is based
upon the pro forma consolidated shareholders' equity of $6,891,000 less
intangibles of $1,595,000 (included in the pro forma financial statements
included herein) resulting in pro forma book value of $5,296,000 or $1.99 per
share based on 2,666,667 shares outstanding immediately following the Offering.
Assumed initial public offering price per share(1) ...................... $6.00
Pro forma tangible net book value per share prior to the Offering $ .54
Increase attributable to purchase of Common Share ............... 1.45
Pro forma net tangible book value per share after the Offering .......... 1.99
-----
Dilution per share ...................................................... $4.01
=====
- ----------
(1) Before deducting selling commissions and estimated expenses of the Offering.
The following table sets forth the number of Common Shares to be sold by
the Company in the Offering, the total contributions to be paid to the Company
by purchasers of Common Shares in the Offering (assuming an Offering Price of
$6.00 per share), the number of Common Shares and Units previously outstanding
or to be issued in connection with the Formation Transactions, the net tangible
book value as of March 31, 1998 of the assets contributed to the Company and the
Partnership and the net tangible book value of the average contribution per
Common Share and Unit based on total contributions.
<TABLE>
<CAPTION>
Purchase Price/
Shares Issued by the Company Book Value of Total
and Units Issued by the Tangible Contributions to Purchase Price/
Partnership the Company Tangible Book
----------------------- ----------------------- Value of Contribution
Number Percent Amount Percent Per Share/Unit
--------- --------- --------- --------- --------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Common Shares Issued by the Company in the Offering ..... 2,666,667 43.59% $ 16,000 89.5% $ 6.00
Units Issued by the Partnership in the Formation
Transactions .......................................... 3,450,833 56.41% $ 1,877 10.5% $ .54
--------- --------- --------- --------- ---------
Total Common Shares and Units ....................... 6,117,500 100.00% $ 17,877 100.00%
========= ========= ========= =========
</TABLE>
33
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth (i) unaudited selected estimated revenue
and expenses and financial data for the Company and the Lessee for the years
ended December 31, 1997 and 1996, (ii) selected combined historical operating
and financial data for the Initial Hotels for each of the years in the five-year
period ended December 31, 1997. The selected combined historical operating and
financial data for the Initial Hotels for the five years ended December 31,
1997, have been derived from the historical combined financial statements of the
Selling Partnerships - Initial Hotels audited by Moore Stephens, P.C.,
independent public accountants, whose report with respect thereto is included
elsewhere in this Prospectus. The selected combined historical financial data
for each of the two years in the period ended December 31, 1997 are derived from
the audited statements of operations for each of these years. In the opinion of
management, the unaudited financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein.
The selected estimated revenue and expenses and financial data are
presented as if the Formation Transactions had occurred as of January 1, 1997
and carried forward through each interim period presented, and therefore
incorporates certain assumptions that are included in the Notes to the Condensed
Statements of Estimated Revenue and Expenses included elsewhere in this
Prospectus. The estimated and pro forma balance sheet data is presented as if
the Formation Transactions had occurred on March 31, 1998. The pro forma
information does not purport to represent what the Company's financial position
or the Company's or the combined Initial Hotels' results of operations would
actually have been if the Formation Transactions had, in fact, occurred on such
date or at the beginning of the year indicated, or to project the Company's or
the combined Initial Hotels' financial position or results of operations at any
future date or for any future period.
The historical financial information includes the ten Initial Hotels. The
Selling Partnerships have generated operating income before interest,
depreciation and amortization in each of the last five years; however, operating
income should not be considered as an alternative to net income as an indicator
of the Selling Partnerships - Initial Hotels' performance or to cash flow as to
a measure of liquidity.
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this Prospectus.
34
<PAGE>
Hersha Hospitality Trust
Unaudited Summary Estimated Revenue and Expenses and Financial Data(1) (In
thousands, except per share data and number of Common Shares)
Three Months Ended Year Ended
March 31, December 31,
1998 1997
---------- ----------
Estimated Revenue and Expenses:
Percentage Lease revenue (2) .................. $ 1,179 $ 4,945
Depreciation and amortization ................. 394 1,190
Interest expense (3) .......................... 246 873
Real estate and personal property
taxes and property and casualty
insurance ................................... 96 375
General and administrative .................... 84 335
Ground lease .................................. 5 21
---------- ----------
Total expenses ................................ $ 825 $ 2,794
========== ==========
Estimated income before minority
interest .................................... 354 2,151
Minority interest (4) ......................... 200 1,213
---------- ----------
Net income applicable to holders
of Common Shares ............................ $ 154 $ 938
========== ==========
Earnings per Common Share ..................... $ .06 $ .35
========== ==========
Weighted average number of Common
Shares outstanding ...................... 2,666,667 2,666,667
Other Data:
Funds from operations applicable to
holders of Common Shares (5) ................ $ 326 $ 1,456
Funds from operations (5) ..................... $ 748 $ 3,341
Net cash provided by operating activities (6) . $ 748 $ 3,341
Net cash used in investing activities (7) ..... $ 155 $ 665
Net cash used in financing activities (8) ..... $ 792 $ 3,073
March 31, 1998
-------------------------
Historical Pro Forma
---------- ----------
Balance Sheet Data:
Net investment in hotel properties ............ -- $ 25,966
Minority interest in Partnership .............. -- $ 8,917
Shareholders' equity .......................... -- $ 6,891
Total assets .................................. -- $ 27,561
Total debt .................................... -- $ 11,753
- ------------------
(notes on page 37)
35
<PAGE>
Hersha Hospitality Management, L.P.
Unaudited Summary Estimated Revenue and Expenses and Financial Data (1)
(In thousands)
Three Months Ended Year Ended
Estimated Revenue and Expenses: March 31, 1998 December 31, 1997
-------------- -----------------
Room revenue....................... $2,572 $10,880
Other revenue (9).................. 571 2,565
------ -------
Total revenue...................... $3,143 $13,445
------ -------
Hotel operating expenses (10)...... 2,032 8,449
Percentage Lease payments (2)...... $1,179 $ 4,945
------ -------
Net (loss) income.................. $ (68) $ 51
====== =======
Combined Selling Partnerships - Initial Hotels
Summary Combined Historical Operating and Financial Data
(In thousands)
Three Months Ended
March 31 Year Ended December 31
------------- -----------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Statement of Operations
Data:
Room revenue ................ $2,572 $1,659 $10,880 $7,273 $5,262
Other revenue (9) ........... 571 627 2,565 2,716 1,957
--- --- ----- ----- -----
Total revenue ............... $3,143 $2,286 $13,445 $9,989 $7,219
Hotel operating expenses(10). 2,236 1,830 9,173 8,172 6,250
Interest .................... 397 198 1,354 921 634
Depreciation and amortization 389 233 1,189 924 711
--- --- ----- --- ---
Net income (loss) $ 121 $ 25 $1,729 $ (28) $ (376)
====== ====== ====== ======= =======
- -------------------------
(notes on following page)
36
<PAGE>
(1) The estimated information does not purport to represent what the Company's
or the Lessee's financial position or results of operations would actually
have been if consummation of the Formation Transactions had, in fact,
occurred on such date or at the beginning of the periods indicated, or to
project the Company's or the Lessee's financial position or results of
operations at any future date or for any future period. Represents
estimated revenue and expenses as if (i) the Partnership recorded
depreciation and amortization, paid interest on remaining debt after the
Formation Transactions occurred, and paid real and personal property taxes
and property insurance as contemplated by the Percentage Leases, and (ii)
the Formation Transactions occurred as of the beginning of the periods
indicated.
(2) Represents Rent paid by the Lessee pursuant to the Percentage Leases,
which payments are calculated by applying the rent provisions in the
Percentage Leases to the historical revenues of the Stabilized Hotels. In
the case of the Newly-Developed Hotels and the Newly-Renovated Hotels, the
Percentage Lease revenues (or payments) equal the Initial Fixed Rents with
respect to those hotels pro-rated for the period in which each hotel was
open. There is no assurance that such revenues will reflect the actual
revenues of such hotels.
(3) Reflects the average weighted interest rate on the Assumed Indebtedness of
8.38% and 8.39% for the three months ended March 31, 1998 and the year
ended December 31, 1997, respectively.
(4) Calculated as 56.41% of estimated income before minority interest.
(5) In accordance with the resolution adopted by the Board of Governors of
NAREIT, funds from operations represents net income (computed in
accordance with generally accepted accounting principles), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. For the periods presented, estimated
depreciation and amortization and minority interest would have been the
only adjustments to estimated net income necessary to arrive at funds
from operation. Funds from operations should not be considered an
alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or to cash
flows from operating, investing or financing activities as a measure of
liquidity. The Company considers funds from operations to be an
appropriate measure of the performance of an equity REIT in that such
calculation is a measure used by the Company to measure 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. Although funds from operations has been
computed in accordance with the 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 working
capital changes, cash expenditures for capital improvements or debt
service with respect to the Initial Hotels and, therefore, does not
represent cash available for distribution to the shareholders of the
Company. For a complete presentation of cash available for distribution
to the shareholders of the Company, see "Distribution Policy." Under the
Percentage Leases, the Partnership is obligated to pay the costs of
certain capital improvements, real estate and personal property taxes and
property insurance, and to make available to the Lessee an amount equal
to 4% (6% for the Holiday Inn, Harrisburg, PA and the Holiday Inn,
Milesburg, PA) of gross revenues per quarter, on a cumulative basis, for
the periodic replacement or refurbishment of furniture, fixtures and
equipment at the Initial Hotels. The Company intends to cause the
Partnership to spend amounts in excess of the obligated amounts if
necessary to maintain the Franchise Licenses for the Initial Hotels and
otherwise to the extent that the Company deems such expenditures to be in
the best interests of the Company. See "Business and Properties-The
Percentage Leases."
(6) Pro forma funds provided by operating activities excludes cash provided by
(used in) operating activities due to changes in working capital.
(7) Represents improvements and additions to the Initial Hotels from funds to
be made available to the Lessee as provided in Note (6) above.
(8) Represents estimated initial distributions to be paid based on the
estimated initial annual distribution rate of $0.48 per share and
2,666,667 Common Shares and 3,450,833 Units outstanding plus the estimated
debt service on the Assumed Indebtedness.
(9) Represents restaurant revenue, telephone revenue and other revenue.
(10) Represents departmental costs and expenses, general and administrative,
repairs and maintenance, utilities, marketing, management fees, real
estate and personal property taxes, property and casualty insurance and
ground leases. The pro forma amounts exclude real estate and personal
property taxes, property and casualty insurance, ground leases and
management fees.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Upon consummation of the Formation Transactions, the Company will own
approximately a 43% general partnership interest in the Partnership. In order
for the Company to qualify as a REIT, neither the Company nor the Partnership
may operate hotels. Therefore, the Initial Hotels will be leased to the Lessee.
The Partnership's, and therefore the Company's, principal source of revenue will
be Rent paid by the Lessee under the Percentage Leases. See "Business and
Properties-The Percentage Leases." The Lessee's ability to perform its
obligations, including making Rent payments to the Partnership under the
Percentage Leases, will be dependent on the Lessee's ability to generate
sufficient room revenues and net cash flow from the operation of the Initial
Hotels, and any other hotels leased to the Lessee.
Results of Operations of the Initial Hotels
Comparison of Three Months Ended March 31, 1998 to the Three Months
Ended March 31, 1997
Room revenue for the Initial Hotels increased $912,376 or 55% to
$2,557,735 for the first quarter of 1998 from $1,659,359 in the comparable
period in 1997. This increase came through an addition of 22,860 available
room-nights with an overall increase of 13,029 room-nights sold. The increase in
room-nights available was a result of the opening of three hotels, which were
not opened in the first quarter of 1997. In addition, there was a 5% increase in
ADR to $63.75 from $60.75. REVPAR increased 11% to $31.68 from $28.45.
Hotel operating expenses increased by $456,126 or 25% to $2,284,925 but
decreased as a percentage of total revenue to 72% from 80%. Operating income
before interest expense, depreciation, and amortization increased by 99% to
$907,781 from $457,175.
Comparison of year ended December 31, 1997 to year ended December 31,
1996
Room revenue increased by $3,067,232 or 50% to $10,879,902 in 1997 from
$7,272,670 in 1996. The increase in revenue came through the addition of four
new hotels opening in 1997 and one hotel which was only open half of 1996 being
open for the entire 1997 period. These new properties added additional available
room-nights of 43,171. In addition, a 7% increase in occupancy to 60% from 53%
in 1996 as well as a 9% increase in ADR to $69.31 compared to $63.51 in 1996
augmented the available room-nights. REVPAR increased 25% to $41.78 from $33.48.
Hotel operating expenses increased by $1,001,043 or 12% to $9,173,647 but
decreased as a percentage of total revenue to 68% from 82%. Operating income
before interest expense, depreciation and amortization increased by 135% to
$4,271,414 from $1,816,537.
Comparison of year ended December 31, 1996 to year ended December 31,
1995
Room revenue increased $2,011,044 or 38% to $7,272,670 in 1996 from
$5,261,626 in 1995. The increase in revenue came through the opening of two
hotels in 1996 adding additional room-nights available of 41,168. In addition,
an overall increase in occupancy of 10% to 53% from 48% in 1995 as well as a 2%
increase in ADR to $63.51 compared to $62.40 in 1995 augmented the available
room-nights. REVPAR increased 12% to $33.48 from $29.89.
Hotel operating expenses increased by $1,923,208 or 31% to $8,712,604 but
decreased as a percentage of total revenue to 82% from 87%. Operating income
before interest expense, depreciation and amortization increased by 87% to
$1,816,537 from $969,769.
Liquidity and Capital Resources
The Company expects to meet its short-term liquidity requirement generally
through net cash provided by operations, existing cash balances and, if
necessary, short-term borrowings under the Line of Credit. The Company believes
that its net cash provided by operations will be adequate to fund both operating
requirements and payment of dividends by the Company in accordance with REIT
requirements. The Company expects to meet its long-term liquidity requirements,
such as scheduled debt maturities and property acquisitions, through long-term
secured and unsecured borrowings, the issuance of additional equity securities
of the Company or, in connection with acquisitions of hotel properties, issuance
of Units.
The Company is currently negotiating with various lenders to obtain a $10
million Line of Credit. The Line of Credit will be used to fund future
acquisitions and for working capital. A failure to obtain the Line of Credit
could adversely affect the Company's ability to finance its growth strategy. See
"Risk Factors-Dependence Upon External Financing." The Line of Credit may be
secured by certain of the Initial Hotels. The Company in the future may seek to
increase the amount of the Line of Credit, negotiate additional credit
facilities or issue corporate debt instruments. Any debt incurred or issued by
the Company may be secured or unsecured, long-term or short-term, fixed or
variable interest rate and may be subject to such other terms as the Trustees
deem prudent.
The Trustees will adopt the Debt Policy that limits consolidated
indebtedness of the Company to less than 55% of the aggregate purchase prices
paid by the Company for the hotels in which it has invested. However, the
Company's organizational documents do not limit the amount of indebtedness that
the Company may incur and the Trustees may modify the Debt Policy at any time
without shareholder approval. The Company intends to repay indebtedness incurred
under the Line of Credit from time to time, for acquisitions or otherwise, out
of cash flow and from the proceeds of issuances of Common Shares and other
securities of the Company. See "Risk Factors-Risks of Leverage" and "Policies
and Objectives with Respect to Certain Activities-Investment Policies" and
"-Financing."
The Company will invest in additional hotels only as suitable
opportunities arise. The Company will not undertake investments in such hotels
unless adequate sources of financing are available. The Bylaws require the
approval of a majority of the Trustees, including a majority of the Independent
Trustees, to acquire any additional hotel in which a Trustee or officer of the
Company, or any Affiliate thereof, has an interest (other than solely as a
result of his status as a Trustee, officer or shareholder of the Company). It is
expected that future investments in hotels will be dependent on and financed by,
in whole or in part, the proceeds from additional issuances of Common Shares or
other securities or borrowings. Because of the level of the Assumed
Indebtedness, the success of the Company's acquisition strategy will depend
primarily on its ability to access additional capital through issuances of
equity securities. The Company currently has no agreement or understanding to
invest in any hotel other than the Initial Hotels and there can be no assurance
that the Company will make any investments in any other hotels that meet its
investment criteria. See "Growth Strategy-Acquisition Strategy."
Pursuant to the Percentage Leases, the Partnership will be required to
make available to the Lessee 4% (6% for the Holiday Inn, Harrisburg, PA and the
Holiday Inn, Milesburg, PA) of gross revenues per quarter, on a cumulative
basis, for periodic replacement or refurbishment of furniture, fixtures and
equipment at each of the Initial Hotels. The Company believes that a 4% (6% for
the Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) percentage
set-aside is a prudent estimate for future capital expenditure requirements. The
Company intends to cause the Partnership to spend amounts in excess of the
obligated amounts if necessary to comply with the reasonable requirements of any
Franchise License and otherwise to the extent that the Company deems such
expenditures to be in the best interests of the Company. The Company will also
be obligated to fund the cost of certain capital improvements to the hotels.
Based on its experience in managing hotels, management of the Company believes
that amounts required to be set aside in the Percentage Leases will be
sufficient to meet required expenditures for furniture, fixtures and equipment
during the term of the Percentage Leases. The Company will use undistributed
cash to pay for the cost of capital improvements and any furniture, fixture and
equipment requirements in excess of the set aside referenced above from
undistributed cash. The Company anticipates entering into an arrangement similar
to the Percentage Leases with respect to future hotels in which it may invest.
See "Business and Properties-The Percentage Leases."
Inflation
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit the Lessee's ability to raise
room rates in the face of inflation and annual increases in ADR have failed to
keep pace with inflation.
Seasonality
The Initial Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates during the second and third quarters. This
seasonality can be expected to cause fluctuations in the Company's quarterly
lease revenue to the extent that it receives Percentage Rent.
Year 2000 Compliance
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 its
service providers do not properly address this problem prior to January 1, 2000.
Currently, the Company does not anticipate that the transition to the year 2000
will have any material impact on its performance. In addition, the Company has
sought assurances from the Lessee 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 service
providers have anticipated every step necessary to avoid any adverse effects on
the Company attributable to the Year 2000 Problem.
BUSINESS AND PROPERTIES
The Initial Hotels
Set forth below is certain descriptive information regarding the Initial
Hotels, each of which is currently managed by a Hersha Affiliate and owned by a
partnership in which one or more of the Hersha Affiliates own interests.
Holiday Inn Express (Riverfront), Harrisburg, Pennsylvania
Description. The Holiday Inn Express Riverfront, Harrisburg, Pennsylvania,
is located at 525 South Front Street. The hotel was opened in 1968, was
purchased in 1984 and was fully renovated in 1996. It is a 117-room, full
service hotel with non-smoking units available and with a lounge and adjacent
24-hour restaurant. Amenities include an outdoor pool, fitness center and
banquet and meeting facilities with a 200-person capacity.
Guest Profile and Local Competition. Approximately 25% of the hotel's
business is related to business from the Commonwealth of Pennsylvania. The
remainder of the hotel's business consists of tourists, overnight travelers and
people visiting local residents. The Company considers its primary competition
to be the Ramada Hotel on Second Street in Harrisburg, Pennsylvania.
Holiday Inn Express, Hershey, Pennsylvania
Description. The Holiday Inn Express, Hershey, Pennsylvania is located on
Walton Avenue, one and one half miles from Hershey Park. The hotel, which opened
in October 1997, is an 85-room limited service hotel. Amenities include an
indoor pool, hot tub, fitness center, business service center, meeting facility,
complimentary continental breakfast and 24-hour coffee. All rooms have one king
bed or two queen beds and some rooms have refrigerators, coffee makers and
microwaves.
Guest Profile and Local Competition. Approximately 30% of the hotel's
business is related to commercial activity from local business. The hotel's
group business, which accounts for approximately 5% of its business, is
generated from area institutions, local weddings, local social and sporting
events. The remainder of the hotel's business consists of transient guests,
visitors to area residents and demand generated by the hotel's proximity to
Hershey Park. The Company considers its primary competition to be the Comfort
Inn in Hershey, Pennsylvania.
Holiday Inn Express, New Columbia, Pennsylvania
Description. The Holiday Inn Express, New Columbia, Pennsylvania is
located at the intersection of Interstate 80 and Route 15. The hotel, which
opened in December 1997, is an 81-room limited service hotel. Amenities include
an indoor pool, hot tub, fitness center, meeting facility, complimentary
continental breakfast and 24-hour coffee. All rooms have one king bed or two
queen beds, some Jacuzzi suites are available and some rooms have refrigerators,
coffee makers and microwaves. The Holiday Inn Express in New Columbia,
Pennsylvania was ranked number one in its region for GSTS (Guest Satisfaction
Tracking System), for February and March of 1998. This award recognizes the
Holiday Inn Express in New Columbia as the leader in guest satisfaction and
product service out of 32 other Holiday Inns and Holiday Inn Express' in the
Eastern region.
Guest Profile and Local Competition. Approximately 80% of the hotel's
business is related to commercial activity from local business. As a result of
its proximity to ski resorts and nearby tourist attractions, recreational
travelers generate approximately 10% of the hotel's business. The remainder of
the hotel's business consists of overnight travelers and visitors to area
residents. The Company considers its primary competition to be the Comfort Inn
in New Columbia, Pennsylvania.
Hampton Inn, Carlisle, Pennsylvania
Description. The Hampton Inn, Carlisle, Pennsylvania is located at the
intersection of Route 11 and exit 16 off the Pennsylvania Turnpike. The hotel,
which opened in June 1997, is a 95-room limited service hotel. Amenities include
an indoor pool, hot tub, fitness center, meeting facilities, complimentary
continental breakfast and 24-hour coffee. All rooms have one king bed or two
queen beds, some Jacuzzi suites are available and some rooms have refrigerators,
coffee makers and microwaves.
Guest Profile and Local Competition. Approximately 50% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of overnight travelers and general demand
generated by the hotel's proximity to the Carlisle Fairgrounds and the Army War
College. The Company considers its primary competition to be the Holiday Inn in
Carlisle, Pennsylvania.
Hampton Inn, Selinsgrove, Pennsylvania
Description. The Hampton Inn, Selinsgrove, Pennsylvania is located on
Pennsylvania Routes 11 and 15. The hotel, which opened in September 1996, is a
75-room, three story, limited service hotel. Amenities include an indoor pool,
hot tub, fitness center, meeting facilities, complimentary continental breakfast
and 24-hour coffee. All rooms have one king bed or two queen beds, some Jacuzzi
suites are available and some rooms have refrigerators, coffee makers and
microwaves. The Hampton Inn in Selinsgrove was recently named one of the top
hotels in the entire Hampton Inn system, receiving the hotel chain's Circle of
Excellence Award. The award recognizes superior quality and guest satisfaction
and is the highest distinction a Hampton Inn hotel can receive.
Guest Profile and Local Competition. Approximately 80% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of pleasure travelers, transient guests and
demand generated by the hotel's proximity to area universities and Knoebels
Amusement park. The Company considers its primary competition to be the Best
Western near Selinsgrove, Pennsylvania.
Holiday Inn Hotel and Conference Center, Harrisburg, Pennsylvania
Description. The Holiday Inn Hotel and Conference Center, Harrisburg,
Pennsylvania is located at the intersection of the Pennsylvania Turnpike exit 18
and Interstate 83, ten minutes from downtown, Harrisburg International Airport
and Hershey Park. The hotel opened in 1970 as a Sheraton Inn and was converted
to a Ramada Inn in 1984. It was completely renovated and converted to a Holiday
Inn in September 1995. This hotel has 196 deluxe guest units and is a full
service hotel, including a full service restaurant as well as a nightclub.
Amenities include an indoor tropical courtyard with a pool and Jacuzzi as well
as a banquet and conference facility for up to 700 people.
Guest Profile and Local Competition. Approximately 40% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of overnight travelers visiting Hershey and
Harrisburg. The Company considers its primary competition to be the Radisson
Penn Harris in Camp Hill, Pennsylvania.
Holiday Inn, Milesburg, Pennsylvania
Description. The Holiday Inn, Milesburg/State College, Pennsylvania is
located at Exit 23, I-80 and US 50 North. The hotel opened in 1977 as a Sheraton
and was completely renovated in 1992. In 1996, the hotel was converted into a
Holiday Inn. It is a 118-room, full service hotel with a full service restaurant
and cocktail lounge. Amenities include an outdoor pool as well as banquet and
meeting facilities for 220 people.
Guest Profile and Local Competition. Approximately 20% of the hotel's
business is related to commercial activity from local businesses and demand
generated by local businesses. Approximately 80% of the hotel's business
consists of leisure travelers visiting the many tourist attractions around State
College and I-80. The Company considers its primary competition to be the Best
Western in Milesburg, Pennsylvania.
Comfort Inn, Denver, Pennsylvania
Description. The Comfort Inn, Denver, Pennsylvania is located at 2015
North Reading Road. This 45-room hotel was constructed in 1990 and renovated in
1995. All rooms have one king bed or two queen beds and non-smoking units are
available. The hotel is a full service hotel with a restaurant and cocktail
lounge. Amenities include hairdryers in all rooms, a fitness center and a
complimentary continental breakfast.
Guest Profile and Local Competition. Approximately 75% of the hotel's
business is comprised of leisure travelers and transient guests related to its
location at the crossroads of two major interstate highways. The remainder of
the hotel's business is due to commercial activity from local businesses and
people visiting area residents. The Company considers its primary competition to
be the Holiday Inn in Denver, Pennsylvania.
Comfort Inn, Harrisburg, Pennsylvania
Description. The Comfort Inn, Harrisburg, Pennsylvania is located 8 miles
north of Hershey, Pennsylvania at 7744 Linglestown Road off exit 27 of
Interstate 81. The hotel opened in May 1998. It is an 81-room limited service
hotel. Amenities include an indoor pool, hot tub, fitness center, meeting
facilities, complimentary continental breakfast and 24-hour coffee. All rooms
have one king bed or two queen beds and some Jacuzzi suites are available.
Guest Profile and Local Competition. Approximately 25% of the hotel's
business is related to commercial activity from local businesses. The hotel's
group business, which accounts for approximately 5% of its business, is
generated from area institutions, local weddings, local social and sporting
events. The remainder of the hotel's business consists of transient and
recreational travelers generated by its proximity to Hershey, Pennsylvania. The
Company considers its primary competition to be the Holiday Inn in Grantville,
Pennsylvania.
Clarion Suites, Philadelphia, Pennsylvania
Description. The Clarion Suites, Philadelphia, Pennsylvania is located at
1010 Race Street, one half block from the newly-built Philadelphia convention
center and six blocks from the Independence Hall historic district and the
Liberty Bell. The hotel is located in the historic Bentwood Rocking Chair
Company building, which was constructed in 1896 and converted to a Quality
Suites hotel in the 1980s. The hotel was purchased by a Hersha Affiliate as a
Ramada Suites in 1995 and substantially rehabilitated. The Hersha Affiliate
later converted the hotel to a Clarion Suites. The hotel has 96 executive suites
with fully-equipped kitchens and an eight-story interior corridor with Victorian
style architecture. The hotel has a lounge featuring light fare and a comedy
cabaret. Amenities include two large meeting rooms, boardrooms, a fitness room
and a complimentary continental breakfast.
Guest Profile and Local Competition. Approximately 20% of the hotel's
business is comprised of leisure travelers and transient guests related to its
close proximity to the historic district. The remainder of the hotel's business
is due to commercial activity from local businesses and people visiting area
residents. The Company considers its primary competition to be all Center City,
Philadelphia hotels.
<PAGE>
The following table sets forth certain information with respect to each
Initial Hotel:
Year Ended December 31,
---------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Holiday Inn Express - Harrisburg, PA
Occupancy 56.4% 40.7% 43.2% 44.9% 46.2%
ADR $56.33 $52.77 $48.05 $48.34 $45.72
REVPAR $31.78 $21.50 $20.74 $21.70 $21.13
Holiday Inn Express - Hershey, PA (1)
Occupancy 38.8%
ADR $75.62
REVPAR $29.35
Holiday Inn Express - New Columbia, PA (2)
Occupancy 9.0%
ADR $59.68
REVPAR $5.39
Hampton Inn - Carlisle, PA (3)
Occupancy 53.5%
ADR $65.33
REVPAR $34.93
Hampton Inn - Selinsgrove, PA (4)
Occupancy 71.9% 50.1%
ADR $65.29 $60.76
REVPAR $46.96 $30.43
Holiday Inn - Harrisburg, PA (5)
Occupancy 63.3% 58.9% 46.2%
ADR $68.22 $61.36 $56.97
REVPAR $43.17 $36.13 $26.31
Holiday Inn - Milesburg, PA
Occupancy 52.0% 48.4% 51.0% 55.3% 56.9%
ADR $56.07 $52.31 $51.59 $48.64 $42.27
REVPAR $29.13 $25.31 $26.29 $26.88 $24.02
Comfort Inn - Denver, PA
Occupancy 54.7% 53.5% 60.4% 60.4% 59.6%
ADR $73.26 $61.04 $50.68 $49.72 $48.79
REVPAR $40.08 $32.63 $30.66 $30.61 $29.06
Comfort Inn - Harrisburg, PA (6)
Occupancy
ADR
REVPAR
Clarion Suites, Philadelphia, PA
Occupancy 73.7% 60.2%
ADR $91.02 $86.10
REVPAR $67.04 $51.83
- ---------------
(1) This hotel opened in October 1997 and, thus, the data shown represent
approximately three months of operations.
(2) This hotel opened in December 1997 and, thus, the data shown represent
approximately one month of operations.
(3) This hotel opened in June 1997 and, thus, the data shown represent
approximately seven months of operations.
(4) This hotel opened in September 1996 and, thus, the data shown for 1996
represent approximately four months of operations.
(5) This hotel was converted to a Holiday Inn in September 1995 and, thus, the
data shown for 1995 represent approximately four months of operations.
(6) This hotel opened in May 1998 and, thus, there are no data shown.
The Percentage Leases
The following summary is qualified in its entirety by the Percentage
Leases, the form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Initial Hotels will be operated by the Lessee pursuant to the
Percentage Leases. The Company intends that future leases with respect to
additional hotels it may acquire will be similar to the Percentage Leases. The
Trustees, however, in their discretion, may alter any of these provisions with
respect to any proposed percentage lease, depending on the purchase price paid,
economic conditions and other factors deemed relevant at the time.
Percentage Lease Terms. Each Percentage Lease will have an initial
non-cancelable term of five years. All, but not less than all, of the Percentage
Leases for the Initial Hotels may be extended for an additional five-year term
at the Lessee's option. At the end of the first extended term, the Lessee, at
its option, may extend some or all of the Percentage Leases for the Initial
Hotels. The Percentage Leases are subject to earlier termination upon the
occurrence of defaults thereunder and certain other events described therein
(including, particularly, the provisions described herein under "-Damage to
Hotels," "-Condemnation of Hotel" and "-Termination of Percentage Leases on
Disposition of the Initial Hotels").
Amounts Payable Under the Percentage Leases. The Percentage Leases
generally provide for the Lessee to pay the greater of the Base Rent or
Percentage Rent. The Percentage Rent for each Initial Hotel is comprised of (i)
a percentage of room revenues up to the Threshold, (ii) a percentage of room
revenues in excess of the Threshold but less than the Incentive Threshold, (iii)
a percentage of room revenue in excess of the Incentive Threshold and (iv) a
percentage of revenues other than room revenues. The Incentive Threshold is
designed to provide an incentive to the Lessee to generate higher revenues at
each hotel. Until the First Adjustment Date or the Second Adjustment Date, as
applicable, the rent on the Newly-Developed Hotels and the Newly-Renovated
Hotels will be the Initial Fixed Rents applicable to those hotels. After the
First Adjustment Date or the Second Adjustment Date, as applicable, rent will be
computed with respect to the Newly-Developed Hotels and the Newly-Renovated
Hotels based on the percentage rent formulas described herein. The Lessee also
will be obligated to pay certain other amounts, including interest accrued on
any late payments or charges (the "Additional Charges"). Rent is payable
quarterly in arrears.
The following table sets forth (i) the Initial Fixed Rent, if applicable,
(ii) the annual Base Rent, (ii) the annual Percentage Rents formulas and (iv)
the pro forma rent that would have been paid for each Initial Hotel pursuant to
the terms of the Percentage Leases based on historical revenues, as if the
Company had owned the Initial Hotels and the Percentage Leases had been in
effect since January 1, 1997 (or, if the hotel was not open on January 1, 1997,
since the date the hotel opened).
<TABLE>
<CAPTION>
Initial Annual Annual Pro Forma Lease
Fixed Base Percentage Payment for Year Ended
Initial Hotel Rent Rent Rent Formula December 31, 1997
- ------------------- -------- -------- ------------------------------------- ---------------------
<S> <C> <C> <C> <C>
Newly-Developed
Holiday Inn Express
Hershey, PA...... $794,686 $364,000 42.1% of room revenue up to $1,479,523, $ 96,156
plus 65.0% room revenue in excess of
$1,479,523 but less than $1,740,615, plus
29.0% of room revenue in excess of
$1,740,615, plus 8.0% of all non-room revenue.
New Columbia, PA. 498,198 227,500 46.7% of room revenue up to $850,986, plus 65.0% 6,653
of room revenue in excess of $850,986 but
less than $1,001,160, plus 29.0% of room
revenue in excess of $1,001,160, plus 8.0% of
all non-room revenue.
Hampton Inn:
Carlisle, PA..... 699,062 325,000 42.3% of room revenue up to $1,293,906, 303,029
plus 65.0% of room revenue in excess of
$1,293,906 but less than $1,522,242, plus
29.0% of room revenue in excess of
$1,522,242, plus 8.0% of all non-room
revenue.
Comfort Inn:
Harrisburg, PA... 514,171 234,000 40.7% of room revenue up to $980,050, plus 0
65.0% of room revenue in excess of $980,050
but less than $1,153,000, plus 29.0% of room
revenue in excess of $1,153,000, plus 8.0% of
all non-room revenue.
Newly-Renovated
Holiday Inn Express:
Harrisburg, PA... 504,406 195,000 31.0% of room revenue up to $1,153,655, 504,406
plus 65.0% of room revenue in excess of
$1,153,655 but less than 1,357,241, plus
29.0% of room revenue in excess of
$1,357,241, plus 8.0% of all non-room
revenue.
Holiday Inn:
Milesburg, PA.... 524,750 214,500 36.1% of room revenue up to $1,065,960, 524,750
plus 65.0% of room revenue in excess of
$1,065,960 but less than $1,254,070, plus
31.0% of room revenue in excess of
$1,254,070, plus 8.0% of all non-room
revenue.
Comfort Inn:
Denver, PA....... 262,234 112,288 35.4% of room revenue up to 262,234
$559,542, plus 65.0% of room revenue in
excess of $559,542 but less than $658,285,
plus 29.0% of room revenue in excess of
$658,285, plus 8.0% of all non-room
revenue.
Stabilized
Holiday Inn:
Harrisburg, PA... n/a 675,921 44.3% of room revenue up to $2,638,247, 1,614,403
plus 65.0% of room revenue in excess of
$2,638,247 but less than $3,103,820, plus
31.0% of room revenue in excess of
$3,103,820, plus 8.0% of
all non-room revenue.
Hampton Inn:
Selinsgrove, PA.. n/a 308,469 49.0% of room revenue up to $1,081,152, 657,471
plus 65.0% of room revenue in excess of
$1,081,152 but less than $1,271,943, plus
29.0% of room revenue in excess of
$1,271,943, plus 8.0% of
all non-room revenue.
Clarion Suites:
Philadelphia, PA. n/a 418,593 36.1% of room revenue up to $1,998,097, 976,102
plus 65.0% of room revenue in excess of
$1,998,097 but less than $2,350,702, plus
29.0% of room revenue in excess of
$2,350,702, plus 8.0% of
all non-room revenue.
---------- -----------
Totals $3,075,271 $4,945,203
========== ===========
</TABLE>
Other than real estate and personal property taxes, ground lease rent
(where applicable), the cost of certain furniture, fixtures and equipment, and
certain capital expenditures, and property and casualty insurance premiums, all
of which are obligations of the Company, the Percentage Leases require the
Lessee to pay the operating expenses of the Initial Hotels (including insurance
other than property and casualty insurance, all costs and expenses and all
utility and other charges incurred in the operation of the Initial Hotels)
during the term of the Percentage Leases. The Percentage Leases also provide for
rent reductions and abatements in certain cases in the event of damage or
destruction or a partial taking of any Initial Hotel as described under "-Damage
to Hotels" and "-Condemnation of Hotel."
Maintenance and Modifications. Under the Percentage Leases, the Company
will make available to the Lessee for the replacement and refurbishment of
furniture, fixtures and equipment and other capital improvements determined in
accordance with generally accepted accounting principles in the Initial Hotels,
when and as deemed necessary by the Lessee, an amount equal to 4% (6% for the
Holiday Inn, Harrisburg, PA and the Holiday Inn, Milesburg, PA) of gross
revenues per quarter on a cumulative basis. The Company's obligation will be
carried forward to the extent that the Lessee has not expended such amount, and
any unexpended amounts will remain the property of the Company upon termination
of the Percentage Leases. Other than as described above, the Lessee is
responsible for all repair and maintenance of the Initial Hotels and any capital
improvements to the Initial Hotels.
The Lessee, at its expense, may make non-capital and capital additions,
modifications or improvements to the Initial Hotels, provided that such action
does not significantly alter the character or purposes of the Initial Hotels or
significantly detract from the value or operating efficiencies of the Initial
Hotels. All such alterations, replacements and improvements shall be subject to
all the terms and provisions of the Percentage Leases and will become the
property of the Company upon termination of the Percentage 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 the Rent under a Percentage
Lease not to qualify as "rents from real property" for REIT income test
purposes. See "Federal Income Tax Consequences-Requirements for
Qualification-Income Tests."
Insurance and Property Taxes. The Company is responsible for paying or
reimbursing the Lessee for 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 the Lessee), and all premiums for property and
casualty insurance. The Lessee is required to pay for all other insurance on the
Initial Hotels, 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 named
insured.
Assignment and Subleasing. The Lessee will not be permitted to sublet all
or any part of the Initial Hotels or assign its interest under any of the
Percentage Leases without the prior written consent of the Company. No
assignment or subletting will release the Lessee from any of its obligations
under the Percentage Leases.
Damage to Hotels. In the event of damage to or destruction of any Initial
Hotel covered by insurance that renders the Initial Hotel unsuitable for its
primary intended use, the Percentage Lease will terminate as of the date of the
casualty, neither the Company nor the Lessee shall have any further liability
under the Percentage Lease, and the Company will retain all insurance proceeds.
In the event of damage to or destruction of any Initial Hotel covered by
insurance that does not render the Initial Hotel unsuitable for its primary
intended use, the Company (or, at the election of the Company, the Lessee) will
restore the Initial Hotel, the Percentage Lease will not terminate, and the
Company will retain all insurance proceeds (if, however, the Lessee restores the
Initial Hotel, the insurance proceeds will be paid out by the Company to the
Lessee). If the cost of restoration exceeds the amount of insurance proceeds
received by the Company, the Company will contribute any excess amounts prior to
requiring the Lessee to commence work. In the event of damage to or destruction
of any Initial Hotel not covered by insurance, whether or not such damage or
destruction renders the Initial Hotel unsuitable for its primary intended use,
the Company at its option either (i) will restore the Initial Hotel at its cost
and expense and the Percentage Lease will not terminate or (ii) will terminate
the Percentage Lease and neither the Company nor the Lessee shall have any
further liability under the Percentage Lease. Any damage or destruction
notwithstanding, and provided the Percentage Lease has not been terminated, the
Lessee's obligation to pay Rent will remain unabated by any damage or
destruction that does not result in a reduction of gross revenues at the Initial
Hotel. If any damage or destruction results in a reduction of such gross
revenues, the Company will receive all loss of income insurance and the Lessee
will not have an obligation to pay Rent in excess of the amount of Percentage
Rent, if any, realizable from gross revenues generated by the operation of the
Initial Hotel during the existence of such damage or destruction.
Condemnation of Hotel. In the event of a total condemnation of any Initial
Hotel, or in the event of a partial taking that renders the Initial Hotel
unsuitable for its primary intended use, either the Company or the Lessee will
have the option to terminate the relevant Percentage Lease as of the date of
taking, and the Company and the Lessee will be entitled to their shares of the
condemnation award in accordance with the provisions of the Percentage Lease. In
the event of a partial taking that does not render the Initial Hotel unsuitable
for its primary intended use, the Company (or, at the Company's option, the
Lessee) will restore the untaken portion of the Initial Hotel to a complete
architectural unit and the Company shall contribute the cost of such restoration
in accordance with the provisions of the Percentage Lease. In the event of a
partial taking, the Base Rent will be abated taking into consideration, among
other factors, the number of usable rooms, the amount of square footage, or the
revenues affected by the partial taking.
Events of Default. Events of Default under the Percentage Leases
include, among others, the following:
(i) the failure by the Lessee to pay Initial Fixed Rent, Base Rent,
Percentage Rent or Additional Charges when due and the continuation of
such failure for a period of 10 days thereafter;
(ii) the failure by the Lessee to observe or perform any other term
of a Percentage Lease and the continuation of such failure for a period of
30 days after receipt by the Lessee of notice from the Company thereof,
unless such failure cannot be cured within such period and the Lessee
commences appropriate action to cure such failure within such 30 day
period and thereafter acts, with diligence, to correct such failure within
such time as is necessary, provided in no event shall such period exceed
120 days;
(iii) if the Lessee shall file a petition in bankruptcy or
reorganization pursuant to any federal or state bankruptcy law or any
similar federal or state law, or shall be adjudicated a bankrupt or shall
make an assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a
petition or answer proposing the adjudication of the Lessee as a bankrupt
or its reorganization pursuant to any federal or state bankruptcy law or
any similar federal or state law shall be filed in any court and the
Lessee shall be adjudicated a bankrupt and such adjudication shall not be
vacated or set aside or stayed within 60 days after the entry of an order
in respect thereof, or if a receiver of the Lessee or of the whole or
substantially all of the assets of the Lessee shall be appointed in any
proceeding brought by the Lessee or if any such receiver, trustee or
liquidator shall be appointed in any proceeding brought against the Lessee
and shall not be vacated or set aside or stayed within 60 days after such
appointment;
(iv) if the Lessee is liquidated or dissolved, or begins proceedings
toward such liquidation or dissolution, or in any manner ceases to do
business or permits the sale or divestiture of substantially all of its
assets;
(v) if the estate or interest of the Lessee in the Percentage Lease
or any part thereof is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in any proceeding (for this purpose, a
change in control if the Lessee constitutes an assignment of the lease);
(vi) if the Lessee voluntarily discontinues operations of any
Initial Hotel except as a result of damage, destruction or condemnation;
(vii) if the Franchise License with respect to an Initial Hotel is
terminated by the franchisor as a result of any action or failure to act
by the Lessee or its agents, other than the failure to complete
improvements required by a franchisor because the Partnership fails to pay
the costs of such improvements; or
(viii) the occurrence of an Event of Default occurs under any other
Percentage Lease between the Company and the Lessee.
If an Event of Default occurs and continues beyond any curative period,
the Company will have the option of terminating the Percentage Lease and any or
all other Percentage Leases by giving the Lessee 10 days' written notice of the
date for termination of the Percentage Leases and, unless such Event of Default
is cured prior to the termination date set forth in such notice, the Percentage
Leases shall terminate on the date specified in the Company's notice and the
Lessee shall be required to surrender possession of the affected Initial Hotel.
Termination of Percentage Leases on Disposition of the Initial Hotels. In
the event the Company enters into an agreement to sell or otherwise transfer an
Initial Hotel to a third party, the Company will have the right to terminate the
Percentage Lease with respect to such Initial Hotel if within six months after
the closing of such sale either (i) pays the Lessee the fair market value of the
Lessee's leasehold interest in the remaining term of the Percentage Lease to be
terminated, or (ii) offers to lease to the Lessee one or more substitute hotels
on terms that would create a leasehold interest in such hotels with a fair
market value equal to or exceeding the fair market value of the Lessee's
remaining leasehold interest under the Percentage Lease to be terminated.
Franchise License. The Lessee will be the licensee under the Franchise
Licenses on the Initial Hotels. See "Business and Properties-Franchise
Licenses."
Breach by Partnership. Upon notice from the Lessee that the Company has
breached the Lease, the Company will have 30 days to cure the breach or proceed
to cure the breach, which period may be extended in the event of certain
specified, unavoidable delays.
Inventory. All inventory required in the operation of the Initial Hotels
will be purchased and owned by the Lessee at its expense. The Company will have
the option to purchase all inventory related to a particular Initial Hotel at
fair market value upon termination of the Percentage Lease for that Initial
Hotel.
Franchise Licenses
Holiday Inn Express and Holiday Inn are registered trademarks of Holiday
Hospitality Corporation, Hampton Inn is a registered trademark of Promus Hotels,
and Comfort Inn and Clarion Suites are registered Trademarks of Choice Hotels.
The Company expects that the registered owners of the trademarks will approve
the change of the Franchise Licenses to the Lessee upon acquisition of the
Initial Hotels by the Partnership and will confirm that with respect to the
Initial Hotels the owner thereof is a licensee in good standing.
The Company anticipates that most of the additional hotels in which it
invests will be operated under Franchise Licenses. The Company believes that the
public's perception of quality associated with a franchisor is an important
feature in the operation of a hotel. Franchisors provide a variety of benefits
for franchisees, 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 franchisee must comply. The Franchise Licenses obligate the Lessee to
comply with the franchisors' 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 Lessee, display of signage, and the type, quality and age of furniture,
fixtures and equipment included in guest rooms, lobbies and other common areas.
<PAGE>
The following table sets forth certain information in connection with the
Franchise Licenses:
<TABLE>
<CAPTION>
Franchise
Hotel Effective Date Expiration Date Fee(1)
<S> <C>
Holiday Inn Express,
Harrisburg, PA May 2, 1996 May 2, 2006 8.00%
Holiday Inn Express, Hershey, PA September 30, 1997 September 30, 1997 8.00%
Holiday Inn Express,
New New Columbia, PA December 3, 1997 December 3, 2007 8.00%
Holiday Inn, Milesburg, PA February 25, 1997 February 25, 2007 8.00%
Holiday Inn, Harrisburg, PA September 29, 1995 September 29, 2005 7.50%
Hampton Inn, Carlisle, PA June 16, 1997 June 16, 2017 8.00%
Hampton Inn, Selinsgrove, PA September 9, 1996 September 9, 2016 8.00%
Comfort Inn, Denver, PA August 4, 1995 August 4, 2015 8.05%
Comfort Inn, Harrisburg, PA May 5, 1998 May 5, 2018 8.05%
Clarion Suites, Philadelphia, PA August 4, 1995 August 4, 2015 5.30%
</TABLE>
(1) Percentage of room revenues payable to the franchisors.
HOLIDAY INN EXPRESS(Registered Trademark) AND HOLIDAY INN(Registered
Trademark) ARE REGISTERED TRADEMARKS OF HOLIDAY HOSPITALITY CORPORATION. HOLIDAY
HOSPITALITY CORPORATION HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A
HOLIDAY INN EXPRESS OR HOLIDAY INN 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 HOSPITALITY CORPORATION (OR ANY OF
ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE PARTNERSHIP OR
THE COMMON SHARES OFFERED HEREBY.
HAMPTON INN(Registered Trademark) IS A REGISTERED TRADEMARK OF PROMUS
HOTELS. PROMUS HOTELS HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A
HAMPTON INN 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 PROMUS HOTELS (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR
DIVISIONS) OF THE COMPANY, THE PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.
COMFORT INN(Registered Trademark) AND CLARION SUITES(Registered Trademark)
ARE REGISTERED TRADEMARKS OF CHOICE HOTELS INTERNATIONAL. CHOICE HOTELS
INTERNATIONAL HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A COMFORT
INN FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL HOTEL IS NOT INTENDED AS, AND
SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY
CHOICE HOTELS INTERNATIONAL (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR
DIVISIONS) OF THE COMPANY, THE PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.
Operating Practices
The Company's management recognizes the need for aggressive, market
driven, creative management given the competition in the hospitality
industry. Each of the Initial Hotels will be managed by the Lessee under
separate Percentage Leases with the Partnership. The Lessee intends to
continue the management systems developed by the Hersha Affiliates. See "The
Lessee."
Employees
The Company intends to be self-advised and thus will utilize the services
of its officers rather than retain an advisor. See "Management-Trustees and
Executive Officers." The Lessee will employ approximately 350 people in
operating the Initial Hotels on behalf of the
Lessee.
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 that
arranges for the disposal or transports for disposal or treatment a hazardous
substance at a property owned by another may be liable for the costs of removal
or remediation of hazardous substances 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
Partnership or the Lessee may be potentially liable for any such costs.
Recent Phase I environmental assessments have been obtained on all of the
Initial Hotels. The Phase I environmental assessments were intended to identify
potential environmental contamination for which the Initial Hotels may be
responsible. The Phase I environmental assessments included historical reviews
of the Initial Hotels, reviews of certain public records, preliminary
investigations of the sites and surrounding properties, screening for the
presence of hazardous substances, toxic substances and underground storage
tanks, and the preparation and issuance of a written report. The Phase I
environmental assessments did not include invasive procedures, such as soil
sampling or ground water analysis.
The Phase I environmental assessments 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
environmental assessments do not reveal all environmental liabilities or that
there are material environmental liabilities of which the Company is unaware.
Moreover, no assurances 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 Company, the Partnership or the Lessee.
The Company believes that the Initial Hotels are in compliance in all
material respects with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters. Neither
the Company nor, to the knowledge of the Company, any of the current owners of
the Initial Hotels have been notified by any governmental authority of any
material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental matter in connection with any of its present
or former properties.
Competition
The hotel industry is highly competitive. Each of the Initial Hotels is
located in a developed area that includes other hotels, many of which are
competitive with the Initial Hotels in their locality. The number of competitive
hotels in a particular area could have a material adverse effect on revenues of
the Initial Hotels or at hotels acquired in the future. See "Business and
Properties-The Initial Hotels."
There will be competition for investment opportunities in upper-economy
and mid-scale hotels from entities organized for purposes substantially similar
to the Company's objectives as well as other purchasers of hotels. The Company
will be competing for such investment opportunities with entities which have
substantially greater financial resources than the Company, including access to
capital or better relationships with franchisors, lenders and sellers. The
Company's competitors may generally be able to accept more risk than the Company
can manage prudently and may be able to borrow the funds needed to acquire
hotels. 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. See "Risk Factors-Conflicts of
Interest-Competing Hotels Owned or to be Acquired by the Hersha Affiliates."
Insurance
The Company will keep in force comprehensive insurance, including
liability, fire, workers' compensation, extended coverage, rental loss and, when
available on reasonable commercial terms, flood and earthquake insurance, with
policy specifications, limits and deductibles customarily carried for similar
properties. Certain types of losses, however (generally of a catastrophic nature
such as acts of war, earthquakes, etc.), are either uninsurable or require such
substantial premiums that the cost of maintaining such insurance is economically
infeasible. Certain types of losses, such as those arising from subsidence
activity, are insurable only to the extent that certain standard policy
exceptions to insurability are waived by agreement with the insurer. See "Risk
Factors-Real Estate Investment Risks-Uninsured and Underinsured Losses." The
Company believes, however, that the Properties are adequately insured in
accordance with industry standards.
Depreciation
To the extent that the Partnership acquires the Initial Hotels or the
partnership interests in the Selling Partnerships in exchange for Units, the
Partnership's initial basis in each Initial Hotel for federal income tax
purposes should be the same as the Selling Partnerships' basis in such Initial
Hotel on the date of acquisition. Although the law is not entirely clear, the
Partnership intends to depreciate such depreciable hotel property for federal
income tax purposes over the same remaining useful lives and under the same
methods used by the Selling Partnerships. The Partnership's tax depreciation
deductions will be allocated among the partners in accordance with their
respective interests in the Partnership (except to the extent that the
Partnership is required under Code Section 704(c) to use a method for allocating
depreciation deductions attributable to the Initial Hotels or other contributed
properties that results in the Company receiving a disproportionately larger
share of such deductions). Because the Partnership's initial basis in the
Initial Hotels will be less than the fair market value of those hotels on the
date of acquisition, the Company's depreciation deductions may be less than they
otherwise would have been if the Partnership had purchased the Initial Hotels or
the partnership interests in the Selling Partnerships entirely for cash.
Legal Proceedings
Neither the Company nor the 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 Partnership or any of the
Initial Hotels. The Lessee has advised the Company that it currently is not
involved in any litigation. The Selling Partnerships have represented to the
Partnership that there is no material litigation pending, threatened against or
affecting the Initial Hotels.
Hersha Affiliates' Hotel Assets Not Acquired By The Company
The Hersha Affiliates own the following hotels, which are not being
acquired by the Company and are not subject to the Option Agreement: (i) Best
Western, Indiana, Pennsylvania (107) rooms and (ii) Comfort Inn, McHenry,
Maryland (76 rooms). In addition, the Hersha Affiliates own land in Carlisle,
Pennsylvania, Valley Forge, Pennsylvania and Frederick, Maryland that could be
used for hotel development. The Hampton Inn, Danville, Pennsylvania, the
Harrisburg Inn, Harrisburg, Pennsylvania and the land owned by Hersha Affiliates
in Carlisle, Pennsylvania are subject to the Option Agreement. See "Certain
Relationships and Transactions-Option Agreement."
Ground Leases
The land underlying the Holiday Inn Express in Harrisburg, Pennsylvania
and the Comfort Inn in Denver, Pennsylvania each will be leased to the
Partnership by certain Hersha Affiliates for aggregate rent of $21,000 per year
for 99 years. Also, a portion of the land adjacent to the Hampton Inn,
Selinsgrove, Pennsylvania will be leased to a Hersha Affiliate for $1 per year
for 99 years.
<PAGE>
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's policies with respect to
investment, financing, conflicts of interest and certain other activities that
have not been discussed elsewhere. The policies with respect to these activities
have been determined by the Trustees and may be amended or revised from time to
time at the discretion of the 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 and (ii) the Company
cannot take any action intended to terminate its qualification as a REIT without
the approval of the holders of two-thirds of the outstanding Common Shares.
Investment Policies
The Company's principal investment policy is to acquire hotels that offer
the potential for high current rates of return to the Company, a substantial
dividend to the Company's shareholders and long term increases in value. The
Company's business is focused solely on hotels. The Company's Acquisition Policy
is to acquire a hotel for which it expects to receive rents at least equal to
12% of the purchase price paid for the hotel, net of (i) property and casualty
insurance premiums, (ii) real estate and personal property taxes, and (iii) a
reserve for furniture, fixtures and equipment equal to 4% (6% for full-service
hotels) of gross revenues at the hotel. In the case of hotels with limited
operating history or that have been newly renovated, the Company intends to
institute a mechanism similar to the mechanism used for the Newly-Developed
Hotels and Newly-Renovated Hotels for establishing a minimum initial fixed rent
and adjusting the purchase price for each such hotel based upon the first two
years of operating history of such hotel after opening or completion of
renovation. The Trustees, however, may change the Acquisition Policy at any time
without the approval of the Company's shareholders. See "-Growth
Strategy-Acquisition Strategy" and "Risk Factors-Growth Strategy." The Company
has not developed a policy in connection with a limit on the number or amount of
mortgages that may be placed on any one piece of property owned by the Company.
Although the Company intends primarily to acquire hotels, it also may
participate with other entities in property ownership, through joint ventures or
other types of co-ownership. Equity investments may be subject to existing
mortgage financing and other indebtedness that may have priority over the equity
interest of the Company.
While the Company will emphasize equity investments in hotels, it may, in
its discretion, invest in mortgages and other real estate interests, including
securities of other REITs. The Company may invest in participating, convertible
or other types of mortgages if it concludes that by doing so it may benefit from
the cash flow or any appreciation in the value of the subject property. Such
mortgages are similar to equity participation, because they permit the lender to
either participate in increasing revenues from the property or convert some or
all of that mortgage to equity ownership interest. The Company does not
presently intend to invest in mortgages or real estate interests other than
hotels.
Financing
The Company's additional investments in hotels may be financed, in whole
or in part, with undistributed cash, subsequent issuances of Common Shares or
other securities, or borrowings. The Company is currently negotiating with
lenders to obtain the Line of Credit. A failure to obtain the Line of Credit
could adversely affect the Company's ability to finance its growth strategy. See
"Risk Factors-Dependence Upon External Financing." The Debt Policy will limit
consolidated indebtedness to less than 55% of the aggregate purchase prices paid
by the Company for the hotels in which it has invested. The Trustees, however,
may change the Debt Policy at any time without the approval of the Company's
shareholders. The aggregate purchase prices for the Initial Hotels is
approximately $47.3 million. After the Formation Transactions, the Assumed
Indebtedness will be approximately $11.7 million. Because of the Debt Policy and
the amount of the Assumed Indebtedness, the success of the Company's acquisition
strategy will depend primarily on its ability to access additional capital
through issuances of equity securities. See "Risk Factors-Risks of Leverage" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
The Company will invest in additional hotels only as suitable
opportunities arise. The Company will not undertake investments in such hotels
unless adequate sources of financing are available. The Bylaws require the
approval of a majority of the Trustees, including a majority of the Independent
Trustees, to acquire any additional hotel in which a Trustee or officer of the
Company, or any Affiliate thereof, has any interest (other than solely as a
result of his status as a Trustee, officer or shareholder of the Company). It is
expected that future investments in hotels will be dependent on and financed by
the proceeds from additional equity capital. The Trustees have 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.
Conflict of Interest Policies
The Company has adopted certain policies designed to minimize the effects
of potential conflicts of interest. In addition, the Partnership will enter into
the Option Agreement with certain of the Hersha Affiliates. The Trustees are
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.
Declaration of Trust and Bylaw Provisions
The Company's Declaration of Trust, with limited exceptions, requires that
at least three of the Company's Trustees be Independent Trustees. The
Declaration of Trust provides that such Independent Trustee requirement may not
be amended, altered, changed or repealed without the affirmative vote of at
least a majority of the members of the Trustees and the affirmative vote of the
holders of not less than two-thirds of the outstanding Common Shares (and other
shares of beneficial interest of the Company entitled to vote, if any exist).
The Bylaws require that any action pertaining to any transaction involving the
Company, including the purchase, sale, lease or mortgage of any real estate
asset, in which a Trustee or an officer of the Company, or any Affiliate
thereof, has an interest (other than solely as a result of his status as a
trustee, officer or shareholder of the Company, must be approved by a majority
of the Trustees, including a majority of the Independent Trustees.
The Option Agreement
Pursuant to the Option Agreement among Hasu P. Shah, Jay H. Shah, Neil
H. Shah, Bharat C. Mehta, Kanti D. Patel, Rajendra O. Gandhi, Kiran P. Patel,
David L. Desfor, Madhusudan I. Patni and Manahar Gandhi, each a Hersha
Affiliate, and the Partnership, the Partnership will have a two-year option
to acquire any hotels acquired or developed by the Hersha Affiliates within
15 miles of any of the Initial Hotels or any subsequently acquired hotel.
The Partnership
A conflict of interest may arise between the Company, as General Partner
of the Partnership, and the Hersha Affiliates as limited partners of the
Partnership, due to the differing potential tax liability to the Company and the
Hersha Affiliates from the sale of an Initial Hotel or refinancing or prepayment
of principal on any of the Assumed Indebtedness resulting from the differing tax
bases in the Initial Hotels of the Company, on the one hand, and the Hersha
Affiliates, on the other hand. The Bylaws provide that the Company's decisions
with respect to any transaction, including the disposition of an Initial Hotel
or refinancing or prepayment of principal on the Assumed Indebtedness, in which
a Trustee or officer of the Company, or any Affiliate thereof, has any interest
(other than solely as a result of his status as a Trustee, officer or
shareholder of the Company) must be approved by a majority of the Trustees,
including a majority of the Independent Trustees. The Partnership Agreement
gives the Company, as General Partner of the Partnership, full, complete and
exclusive discretion in managing and controlling the business of the Partnership
and in making all decisions affecting the business and assets of the
Partnership.
Provisions of Maryland Law
Pursuant to Maryland law (the jurisdiction under which the Company is
organized), each Trustee is required to discharge his duties in good faith, with
the care an ordinarily prudent person in a like position would exercise under
similar circumstances and in a manner he reasonably believes to be in the best
interest of the Company. In addition, under Maryland law, a transaction between
the Company and any of its Trustees or between the Company and a corporation,
firm or other entity in which a Trustee is a director or has a material
financial interest is not void or voidable solely because of the Trustee's
directorship or the Trustee's interest in the transaction if (i) the transaction
is authorized, approved or ratified, 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 shareholders entitled to
vote other than the votes of shares owned of record or beneficially by the
interested Trustee or corporation, firm or other entity, or (ii) the transaction
is fair and reasonable to the Company.
Policies with Respect to Other Activities
The Company has authority to offer shares of beneficial interest 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
"Shares Available for Future Sale," the Company may issue Common Shares to
holders of Units upon exercise of their Redemption Rights (as defined herein).
The Company has not issued Common Shares, interests or any other securities to
date, except in connection with the formation of the Company. The Company has no
outstanding loans to other entities or persons, including its officers and
Trustees. 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 Partnership for the
purpose of exercising control. The Company intends to make investments in such a
way that it will not be treated as an investment company under the Investment
Company Act of 1940, as amended.
At all times, the Company intends to make investments in such 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 Trustees, with the consent of the holders of
two-thirds of the outstanding Common Shares, determine that it is no longer in
the best interests of the Company to qualify as a REIT.
Working Capital Reserves
The Company initially will have minimal working capital reserves. In the
future, the Company intends to set aside undistributed cash in amounts that the
Trustees determine to be adequate to meet normal contingencies in connection
with the operation of the Company's business and investments. The Company
expects to obtain the Line of Credit, which may assist the Company in meeting
its distribution and working capital needs. A failure to obtain the Line of
Credit could adversely affect the Company's ability to finance its growth
strategy. See "Risk Factors-Dependence Upon External Financing."
FORMATION TRANSACTIONS
The Formation Transactions will be as follows:
o The Company will sell 2,666,667 Common Shares in the Offering,
including 166,667 Common Shares to be sold to the Hersha Affiliates,
at the Offering Price. The net proceeds to the Company from the
Offering will be contributed to the Partnership in exchange for
approximately a 43% general partnership interest in the Partnership.
o The Partnership will acquire the Initial Hotels by acquiring
either all of the partnership interests in the Selling
Partnerships or the Initial Hotels in exchange for (i) Units that
will be redeemable, subject to certain limitations, for an
aggregate of approximately 3.5 million Common Shares, with a
value of approximately $21 million based on the Offering Price
and (ii) the assumption of approximately $25.2 million in
indebtedness secured by all of the Initial Hotels, approximately
$13.5 million of which will be repaid with the proceeds of the
Offering. The purchase prices of the Newly-Developed Hotels and
the Newly-Renovated Hotels will be adjusted on the First
Adjustment Date or the Second Adjustment Date, as applicable, as
described in "The Company."
o The land underlying the Holiday Inn Express, Harrisburg,
Pennsylvania and the Comfort Inn, Denver, Pennsylvania each will be
leased to the Partnership by certain Hersha Affiliates for aggregate
rent of $21,000 per year for 99 years. Also, a portion of the land
adjacent to the Hampton Inn, Selinsgrove, Pennsylvania will be
leased to a Hersha Affiliate for $1 per year for 99 years.
o Each Initial Hotel will be leased to the Lessee pursuant to a
Percentage Lease. The Percentage Leases will have an initial
non-cancelable term of five years. All, but not less than all,
of the Percentage Leases may be extended for an additional
five-year term. At the end of the first extended term, the
Lessee, at its option, may extend some or all of the Percentage
Leases for the Initial Hotels. The Lessee will hold the
Franchise License for each Initial Hotel. See "Business and
Properties-The Percentage Leases."
o The Partnership and certain of the Hersha Affiliates will enter
into the Option Agreement, pursuant to which the Hersha
Affiliates will agree that, if they develop or own any hotels in
the future that are located within 15 miles of any Initial Hotel
or subsequently acquired hotel, the Hersha Affiliates will give
the Partnership the option to purchase such hotels for two
years. See "Risk Factors-Conflicts of Interest-Competing Hotels
Owned or to be Acquired by the Hersha Affiliates" and "Policies
and Objectives with Respect to Certain Activities-Conflict of
Interest Policies-The Option Agreement."
o The Company and the Lessee will enter into the Administrative
Services Agreement, pursuant to which the Hersha Affiliate will
provide certain administrative services in exchange for an annual
fee equal to $55,000, plus $10,000 for each hotel owned by the
Company.
o The Company has granted the Underwriter the Underwriter Warrants to
purchase 250,000 Common Shares for a period of five years at a price
per share equal to 165% of the Offering Price.
o The Partnership has granted 2744 Associates, L.P., which is a
Hersha Affiliate, the Hersha Warrants to purchase 250,000 Units
for a period of five years at a price per Unit equal to 165% of
the Offering Price.
Benefits to the Hersha Affiliates
As a result of the Formation Transactions, the Hersha Affiliates will
receive the following benefits:
o The Hersha Affiliates will receive approximately 3.5 million Units
in exchange for their interests in the Initial Hotels, which will
have a value of approximately $21 million based on the Offering
Price. The Units held by the Hersha Affiliates will be more liquid
than their current interests in the Selling Partnerships once a
public trading market for the Common Shares commences and after the
applicable holding periods expire.
o The Lessee, which is owned by the Hersha Affiliates, will hold
the Franchise Licenses for the Initial Hotels and will be
entitled to all revenues from the Initial Hotels after payment of
Rent under the Percentage Leases and other operating expenses.
The Company will pay certain expenses in connection with the
transfer of the Franchise Licenses to the Lessee. See "The
Lessee."
o Approximately $13.5 million of indebtedness owed by the Selling
Partnerships will be repaid with a portion of the proceeds of the
Offering. Approximately $7.5 million of such indebtedness is
owed to entities controlled by the Hersha Affiliates and relates
principally to hotel development expenses in connection with the
Initial Hotels. Certain of the Assumed Indebtedness is and will
remain guaranteed by the Hersha Affiliates. Upon the repayment
of such indebtedness, the Hersha Affiliates will be released from
the related guarantees. The Hersha Affiliates may receive
increased cash distributions from the operations of the Initial
Hotels as a result of the reduction of indebtedness on the
Initial Hotels.
o If the repricing on the First Adjustment Date or the Second
Adjustment Date, as applicable, produces a higher value for the
Newly-Developed Hotels or the Newly-Renovated Hotels, the Hersha
Affiliates will receive an additional number of Units that, when
multiplied by the Offering Price, equals the increase in value
plus the value of any distributions that would have been made in
connection with such Units if such Units had been issued in
connection with the acquisition of such hotels.
o The Lessee, which is owned by the Hersha Affiliates, will receive an
annual fee equal to $55,000, plus $10,000 for each hotel owned by
the Company for providing certain administrative services to the
Company.
o Certain tax consequences to the Hersha Affiliates from the
transfer of equity interests in the Initial Hotels will be
deferred.
o Messrs. Hasu P. Shah, K.D. Patel and Bharat C. Mehta will receive
$7,500 per year for serving as Trustees. Mr. Shah shall also be
entitled to receive a salary of not more than $100,000 per year
provided that the Common Shares have a closing price of $9.00 per
share or higher for 20 consecutive trading days and remain at or
above $9.00 per share.
o The Partnership has granted to 2744 Associates, L.P., which is a
Hersha Affiliate, the Hersha Warrants to purchase 250,000 Units
for a period of five years at a price per share equal to 165% of
the Offering Price.
o Certain of the Hersha Affiliates will receive a total of $21,000
per year pursuant to 99-year ground leases with respect to the
Holiday Inn Express, Harrisburg, Pennsylvania and the Comfort
Inn, Denver, Pennsylvania.
o A portion of the land adjacent to the Hampton Inn, Selinsgrove,
Pennsylvania will be leased to a Hersha Affiliate for $1 per year
for 99 years.
<PAGE>
MANAGEMENT
Trustees and Executive Officers
Initially, the Trustees will consist of seven members, three of whom are
Independent Trustees. All of the Trustees will serve staggered terms of two
years and the Trustees will be divided into two classes. Each Trustee in Class I
will hold office initially for a term expiring at the first annual meeting of
shareholders (1999) and each Trustee in Class II will hold office initially for
a term expiring at the second annual meeting of shareholders (2000). Certain
information regarding the Trustees and executive officers of the Company is set
forth below.
Name Age Position
Hasu P. Shah (Class II) 53 Chairman of the Board, Chief
Executive Officer and Trustee
Kiran P. Patel 48 Chief Financial Officer and
Treasurer
Bharat C. Mehta (Class II)* 53 Trustee
K.D. Patel (Class II)* 54 Trustee
L. McCarthy Downs,
III (Class I)* 45 Trustee
_______________(Class I)* __ Independent Trustee
_______________(Class II)* __ Independent Trustee
_______________(Class I)* __ Independent Trustee
* Has agreed to become a Trustee upon or immediately before the
consummation of the Offering.
Hasu P. Shah is the President and CEO of Hersha Enterprises, Ltd. and
has held that position since its inception in 1984. He started Hersha
Enterprises, Ltd. with the purchase of the 125-room Quality Inn Riverfront in
Harrisburg, Pennsylvania which he converted to a 117-room Holiday Inn
Express. Recently the "Central Penn Business Journal" honored Hersha
Enterprises, Ltd. as one of the Fifty Fastest Growing Companies in 1997 in
central Pennsylvania. His interest in construction and renovations of hotels
initiated the development of Hersha Construction Company for the construction
and renovation of new properties and Hersha Hotel Supply Company to supply
furniture, fixtures and equipment supplies to the properties. Mr. Shah and
his wife, Hersha, are active members of the community. Mr. Shah serves on
the Board of Directors of several organizations including the Pennsylvania
State University Capital Campus in Harrisburg, Pennsylvania, the Harrisburg
Foundation, Human Enrichment by Love and Peace (H.E.L.P.), the Capital Region
Chamber of Commerce and the Vraj Hindu Temple. Mr. Shah received a Bachelors
of Science degree in Chemical Engineering from Tennessee Technical University
and obtained a Masters degree in Administration from Pennsylvania State
University.
K.D. Patel has been a principal of Hersha Enterprises, Ltd. since
1989. Mr. Patel currently serves as the President of the Lessee. He has
received national recognition from Holiday Inn Worldwide for the successful
management of Hersha's Holiday Inn Express Hotels. In 1996, Mr. Patel was
appointed by Holiday Inn Worldwide to serve as an advisor on its Sales and
Marketing Committee. Prior to joining Hersha Enterprises, Ltd., Mr. Patel
was employed by Dupont Electronics in New Cumberland, Pennsylvania from 1973
to 1990. He is a member of the Board of Directors of a regional chapter of
the American Red Cross and serves on the Advisory Board of Taneytown Bank and
Trust. Mr. Patel received a Bachelor of Science degree in Mechanical
Engineering from the M.S. University of India and a Professional Engineering
License from the Commonwealth of Pennsylvania in 1982.
Bharat C. Mehta has been a principal of Hersha Enterprises, Ltd. since
1985. Mr. Mehta currently serves as President of Hersha Health Care
Management Division of Hersha Enterprises, Ltd. Mr. Mehta worked as a
chemical engineer from 1967 to 1984 for Lever Brothers Corporation (UniLever,
a multinational company). He also worked for the Pennsylvania Department of
Environmental Services in the Bureau of Water Quality Management as Chief of
the Program Planning and Evaluation Section. He is a member of his local
chapter of the Rotary Club. Mr.
57
<PAGE>
Mehta received a Bachelor of Science degree in Chemical Engineering from the
Worcester Polytechnic Institute in Massachusetts and earned a Masters degree
from Pennsylvania State University.
Kiran P. Patel has been a principal of Hersha Enterprises, Ltd. since
1993. Mr. Patel is currently the partner in charge of Hersha's Land
Development and Business Services Divisions. Prior to joining Hersha
Enterprises, Ltd., Mr. Patel was employed by AMP Incorporated, in Harrisburg,
Pennsylvania. Mr. Patel serves on various Boards for community service
organizations. Mr. Patel received a Bachelor of Science degree in Mechanical
Engineering from M.S. University of India and obtained a Masters of Science
degree in Industrial Engineering from the University of Texas in Arlington.
L. McCarthy Downs, III, is the Senior Vice President and Manager of the
Corporate Finance Department of the Underwriter. He has held the position since
1990 and has been involved in several public and private offerings, including
offerings for Humphrey Hospitality Trust, Inc. and Independent Property
Operators of America, LLC. Prior to 1990, Mr. Downs was employed by another
investment banking and brokerage firm for seven years. Mr. Downs received a
Bachelor of Science degree in Business Administration from The Citadel and
obtained an M.B.A. from The College of William and Mary.
Audit Committee
The Audit Committee will consist of the three 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 internal accounting controls. The Audit
Committee will establish procedures to monitor compliance with the REIT
provisions of the Code and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and such other laws and regulations applicable to the Company.
Compensation Committee
The Compensation Committee will consist of the three Independent Trustees.
The Compensation Committee will determine compensation for the Company's
executive officers and administer the Hersha Hospitality Trust Option Plan (the
"Option Plan").
Compensation
Each Trustee will initially be paid $15,000 per year for those residing
outside the State of Pennsylvania and $7,500 per year for those residing in the
State of Pennsylvania, payable in quarterly installments. In addition, the
Company will reimburse all Trustees for reasonable out-of-pocket expenses
incurred in connection with their services on the Board of Trustees. No officers
of the Company shall be entitled to receive any additional salary or bonus for
serving as a Trustee except that the Chairman of the Board of Trustees shall be
entitled to receive a salary of not more than $100,000 per year provided that
the Common Shares have a bid price of $9.00 per share or higher for 20
consecutive trading days and remains at or above $9.00 per share. Each
Independent Trustee who is a member of the Board on the effective date of the
Offering will receive on that date an option to purchase _______ Common Shares
at the Offering Price. The options will be granted under the Hersha Hospitality
Trust Non-Employee Trustees' Option Plan (the "Trustees' Plan"), which may be
amended by the Board to provide for other awards, including awards to future
Independent Trustees. The options will become exercisable in three annual
installments beginning on the first anniversary of the date of grant, subject to
restrictions described below under "The Trustees' Plan."
Exculpation and Indemnification
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by the Maryland REIT Law.
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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 shareholder, Trustee or officer or (b) any individual
who, while a Trustee 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
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. 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 shareholder, Trustee or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
Trustee 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.
The Declaration of Trust and Bylaws also permit the Company to indemnify and
advance expenses to any person who served 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 indemnity 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, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In accordance with the MGCL, the
Bylaws of the Company require it, as a condition to advancing expenses, to
obtain (a) a written affirmation by the Trustee 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 him 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 Option Plan
The Board of Trustees has adopted, and the current sole shareholder of the
Company has approved, the Option Plan for the purpose of attracting and
retaining executive officers and employees. The Option Plan will be administered
by the Board of Trustees prior to the Offering and by the Compensation Committee
of the Board of Trustees, or its delegate, following the Offering. The
Compensation Committee may not delegate its authority with respect to option
awards to individuals subject to Section 16 of the Exchange Act. As used in this
summary, the term "Administrator" means the Board of Trustees, the Compensation
Committee or its delegate, as appropriate.
Officers and other employees of the Company are eligible to participate in
the Option Plan. The Administrator selects the individuals who will participate
in the Option Plan ("Participants").
The Option Plan authorizes the issuance of options to purchase up to 650,000
Common Shares. The Plan provides for the grant of (i) options intended to
qualify as incentive stock options under Section 422 of the Code, and (ii)
options not intended to so qualify ("nonqualified options"). Code Section 422
imposes various requirements in order for an option to qualify as an ISO,
including allowing a maximum five-year term of the option and an option price
not less than the fair market value of the underlying shares on the date of
grant. In addition, under Code Section 422, no Participant may receive ISOs
(under all incentive share option plans of the Company and its parent or
subsidiary corporations) that are first exercisable in any calendar year for
Common
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Shares having an aggregate fair market value (determined as of the date the ISO
is granted) that exceeds $100,000 (the "$100,000 Limit"). To the extent options
first become exercisable by a Participant in any calendar year for a number of
Common Shares in excess of the $100,000 Limit, they will be treated as
nonqualified options.
The principal difference between options qualifying as ISOs under Code
Section 422 and nonqualified options is that a Participant generally will not
recognize ordinary income at the time an ISO is granted or exercised, but rather
at the time the Participant disposes of shares acquired under the ISO. In
contrast, the exercise of a nonqualified option generally is a taxable event
that requires the Participant to recognize, as ordinary income, the difference
between the shares' fair market value and the option price. The employer will
not be entitled to a federal income tax deduction on account of the grant or the
exercise of an ISO, whereas the employer is entitled to a federal income tax
deduction on account of the exercise of a nonqualified option equal to the
ordinary income recognized by the Participant. The employer may claim a federal
income tax deduction on account of certain dispositions of shares acquired upon
the exercise of an ISO.
Options under the Option Plan may be awarded by the Administrator, and the
Administrator will determine the option exercise period and any conditions on
exercisability. The options granted under the Option Plan will be exercisable
only if (i) the Company obtains a per share closing price on the Common Shares
of $9.00 or higher for 20 consecutive trading days and (ii) the closing price on
the Common Shares for the prior trading day was $9.00 or higher. In addition, no
option granted under the Option Plan may be exercised more than five years after
the date of grant. The exercise price for options granted under the Option Plan
will be determined by the Compensation Committee at the time of grant, but will
not be less than the fair market value of the Common Shares on the date of
grant. No Participant may be granted, in any calendar year, options for more
than ______ Common Shares.
An option may be exercised for any number of Common Shares up to the full
number for which the option could be exercised. A Participant will have no
rights as a shareholder with respect to Common Shares subject to an option until
the option is exercised. Any Common Shares subject to options which are
forfeited (or expire without exercise) pursuant to the terms established at the
time of grant will again be available for grant under the Option Plan. Payment
of the exercise price of an option granted under the Option Plan may be made in
cash, cash equivalents acceptable to the Compensation Committee or, if permitted
by the option agreement, by exchanging Common Shares having a fair market value
equal to the option exercise price.
No option award may be granted under the Option Plan more than 10 years
after the earlier of the date that the Board of Trustees adopted, or the
shareholder of the Company approved, the Plan. The Board may amend or terminate
the Option Plan at any time, but an amendment will not become effective without
shareholder approval if the amendment increases the number of shares that may be
issued under the Option Plan (other than equitable adjustments upon certain
corporate transactions). No amendment will affect a Participant's outstanding
award without the Participant's consent.
On the effective date of the Offering, the Company will grant options
under the Option Plan for an aggregate of _______ Common Shares, including
options [description of awards to officers].
The Trustees' Plan
Prior to the Offering, the Board of Trustees will also adopt, and the
Company's sole shareholder will approve, the Trustees' Plan to provide
incentives to attract and retain Independent Trustees. The Trustees' Plan
authorizes the issuance of up to ________ Common Shares.
The Trustees' Plan provides for the grant of a nonqualified option for
______ Common Shares to each Independent Trustee of the Company who is a member
of the Board on the effective date of the Offering. The exercise price of each
such option will be equal to the Offering Price. Each such option shall become
exercisable for ______ shares on each of the first and second anniversaries of
the date of grant and for ______ shares on the third anniversary of the date of
grant, provided that the Trustee is a member of the Board on the applicable
anniversary. Notwithstanding the foregoing, an option granted under the
Trustees' Plan will be exercisable only if (i) the Company obtains a per share
closing price on the Common Shares of $9.00 for 20 consecutive trading days and
(ii) the closing price per share for the prior trading day was $9.00 or higher.
Options issued under the Trustees' Plan are exercisable for five years from the
date of grant.
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A Trustee's outstanding options will become fully exercisable if the
Trustee ceases to serve on the Board due to death or disability. All awards
granted under the Trustees' Plan shall be subject to Board or other approval
sufficient to provide exempt status for such grants under Section 16 of the
Exchange Act, as that section and Rules thereunder are in effect from time to
time. No option may be granted under the Trustees' Plan more than 10 years after
the date that the Board of Trustees approved the Plan. The Board may amend or
terminate the Trustees' Plan at any time but an amendment will not become
effective without shareholder approval if the amendment increases the number of
shares that may be issued under the Trustees' Plan (other than equitable
adjustments upon certain corporate transactions).
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company and the Partnership have entered into a number of transactions
with the Hersha Affiliates in connection with the organization of the Company
and the acquisition of the Initial Hotels. The officers and Trustees of the
Company collectively own 35% of the Lessee. The Lessee is entitled to all income
from the hotels after payment of operating expenses and lease payments. There
are no assurances that the terms of these transactions are as favorable as those
that the Company could have received from third parties. See "Risk Factors
- -Conflicts of Interest" and "Formation Transactions."
Repayment of Indebtedness and Guarantees by Mr. Shah and the Hersha Affiliates
Approximately $13.5 million of indebtedness owed by the Selling
Partnerships will be repaid with a portion of the proceeds of the Offering.
Approximately $7.5 million of such indebtedness is owed to entities controlled
by the Hersha Affiliates and relates principally to hotel development expenses
in connection with the Initial Hotels. Certain of the Assumed Indebtedness is
and will remain guaranteed by the Hersha Affiliates. Upon the repayment of such
indebtedness, the Hersha Affiliates will be released from the related
guarantees. The Hersha Affiliates may receive increased cash distributions from
the operations of the Initial Hotels as a result of the reduction of
indebtedness on the Initial Hotels. Mr. Shah and the partners of the Selling
Partnerships guarantee all of the Assumed Indebtedness, and the personal
bankruptcy of any of the guarantors would constitute a default under the related
loan documents.
Hotel Ownership and Management
Subject to the terms of the Option Agreement, the Hersha Affiliates could
acquire additional hotels that may not be acquired subsequently by the
Partnership. See "Policies and Objectives with Respect to Certain
Activities-Conflict of Interest Policies-The Option Agreement" and "Risk
Factors-Conflicts of Interest-Competing Hotels Owned or to be Acquired by the
Hersha Affiliates."
Option Agreement
Hasu P. Shah, Jay H. Shah, Neil H. Shah, Bharat C. Mehta, Kanti D.
Patel, Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor, Madhusudan I.
Patni and Manahar Gandhi, each a Hersha Affiliate, and the Partnership will
enter into the Option Agreement. Pursuant to the Option Agreement, the
Partnership will have an option to acquire any hotels acquired or developed
by the Hersha Affiliates within 15 miles of any of the Initial Hotels or any
subsequently acquired hotel, including the Hampton Inn, Danville,
Pennsylvania, the Harrisburg Inn, Harrisburg, Pennsylvania and the land owned
by Hersha Affiliates in Carlisle, Pennsylvania. With respect to the Hampton
Inn, Danville, Pennsylvania, the Partnership and the Hersha Affiliate that
owns the hotel have agreed that if the option is exercised by the
Partnership, they will use a purchase price methodology similar to the
methodology used for the Newly-Developed Hotels and have agreed to fix the
rent until the hotel has two years of operating history. In addition, the
Partnership has agreed that, if the option is exercised by the Partnership,
it will issue Units valued at $6.00 per Unit as consideration for the
purchase of the hotel. See "Policies and Objectives with Respect to Certain
Activities-Conflict of Interest Policies-The Option Agreement."
THE LESSEE
The Lessee is a recently-formed Pennsylvania limited partnership. The
Lessee will lease each Initial Hotel pursuant to a separate Percentage Lease.
The Partnership intends to lease to the Lessee additional hotels acquired by the
Partnership on terms and conditions substantially similar to the Percentage
Leases applicable to the Initial Hotels.
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The Lessee's ability to perform its obligations, including making Rent payments
under the Percentage Leases, will be dependent on the Lessee's ability to
generate sufficient net cash flow from the operation of the Initial Hotels and
any other hotels leased to the Lessee. The Lessee's obligations under the
Percentage Leases are unsecured. Mr. Shah will not guarantee the Lessee's
obligations under the Percentage Leases, but the Percentage Leases will contain
cross-default provisions. Accordingly, the Lessee's failure to make required
payments under any of the Percentage Leases will allow the Company to terminate
any or all of the Percentage Leases. The Hersha Affiliates own 100% of the
Lessee and certain Hersha Affiliates serve as officers of the Company.
Consequently, they have a conflict of interest regarding the enforcement of the
Percentage Leases. See "Risk Factors-Conflicts of Interest-No Arm's-Length
Bargaining on Percentage Leases, Contribution Agreements, Administrative
Services Agreement and Option Agreement" and "Business and Properties."
The Lessee will provide all employees and perform all marketing,
accounting and management functions necessary to operate the Initial Hotels
pursuant to the Percentage Leases. The Lessee has in-house programs for
accounting and the management and marketing of the Initial Hotels. The Lessee
intends to utilize its sales management program to coordinate, direct and manage
the sales activities of personnel located at the hotels.
Management of the Lessee
Certain information regarding the management of the Lessee is set forth
below:
Name Age Position
K.D. Patel 54 President
Jay H. Shah 30 Vice President, General Counsel
and Secretary
Rajendra O. Gandhi 49 Vice President
David L. Desfor 37 Controller
Tracy L. Kundey 37 Director of Operations
K.D. Patel, biographical information for whom is set forth under
"Management-Trustees and Executive Officers," will serve as President of the
Lessee.
Jay H. Shah will serve as Vice President, Secretary and General Counsel
of the Lessee. Mr. Shah is a principal and general counsel for Hersha
Enterprises, Ltd. Mr. Shah also takes an active role in the firm's
development and construction activities. He also serves on the Choice Hotels
International Franchise Board. Mr. Shah was employed by Coopers & Lybrand
LLP as a tax consultant in 1995 and 1996 and previously served the late
Senator John Heinz as a Legislative Assistant. He also was employed by the
Philadelphia District Attorney's office and two Philadelphia-based law
firms. Mr. Shah received a Bachelor of Science degree from the Cornell
University School of Hotel Administration, a Masters degree from the Temple
University School of Business Management and a Law degree from Temple
University School of Law.
Rajendra O. Gandhi will serve as Vice President of the Lessee. Mr.
Gandhi has been a principal of Hersha Enterprises, Ltd. since 1986. Mr.
Gandhi currently serves as President of Hersha Hotel Supply, Inc., which
provides furnishings, case goods and interior furnishing materials to hotels
and nursing homes in several states. Mr. Gandhi is a graduate of the
University of Bombay, India and obtained an MBA degree from the University of
West Palm Beach, Florida.
David L. Desfor will serve as Vice President of the Lessee. Mr. Desfor
has been a principal of Hersha Enterprises, Ltd. since 1991. Mr. Desfor is
currently the Controller of Hersha Enterprises, Ltd. Mr. Desfor is a
graduate of East Stroudsburg University with a Bachelor of Science degree in
Hotel Management.
Tracy L. Kundey will serve as the Director of Operations of the
Lessee. Mr. Kundey was previously with Wellsprings Management Group, Inc., a
company that he founded with a partner. He held the position of President
responsible for all aspects of a hospitality management company. Mr. Kundey
has 19 years of experience in the hospitality industry ranging from front
desk attendant to Corporate Rooms Division Manager. He is a Certified Hotel
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Administrator and Certified Rooms Division Executive. Mr. Kundey has a
Bachelors of Science Degree from Eastern Washington University.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Shares by (i) each Trustee of the Company, (ii)
each executive officer of the Company and (iii) by all Trustees and executive
officers of the Company as a group immediately following completion of the
Formation Transactions. Unless otherwise indicated, all shares are owned
directly and the indicated person has sole voting and investment power. The
number of shares represents the number of Common Shares the person is expected
to hold plus the number of Common Shares into which Units expected to be held by
the person may be redeemed in certain circumstances.
Number of Shares Percent of
Name of Beneficial Beneficially Owned(1) Class(1)
- ------------------ --------------------- --------
Hasu P. Shah(2) 638,867(3) 19.3%
K.D. Patel 369,300 12.2%
Bharat C. Mehta 670,400 20.1%
Kiran P. Patel 256,600(3) 8.8%
------- ----
Total for all officers and Trustees 1,935,167 42.1%
--------- -----
---------------------
(1) Assumes that all Units held by the person are redeemed for Common Shares.
The total number of shares outstanding used in calculating the percentage
assumes that none of the Units held by other persons are redeemed for
Common Shares. Such Units generally are not redeemable for Common Shares
until at least one year following the acquisition of the Initial Hotels.
(2) Prior to the Offering, the Company will repurchase 100 Common Shares
currently owned by Mr. Shah at his cost of $100.
(3) Includes 49,667 Common Shares expected to be purchased in the Offering.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the terms of the shares of beneficial interest
of the Company does not purport to be complete and is subject to and
qualified in its entirety 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. See "Additional Information."
General
The Declaration of Trust of the Company provides that the Company may
issue up to 50,000,000 Common Shares of beneficial interest, $0.01 par value per
share ("Common Shares"), and 10,000,000 preferred shares of beneficial interest,
$0.01 par value per share ("Preferred Shares"). Upon completion of this Offering
and the related transactions, 2,666,667 Common Shares will be issued and
outstanding and no Preferred Shares will be issued and outstanding. As permitted
by the Maryland statute governing real estate investment trusts formed under the
laws of that state (the "Maryland REIT Law"), the Declaration of Trust contains
a provision permitting the Board of Trustees, without any action by the
shareholders of the Company, to amend the Declaration of Trust to increase or
decrease the aggregate number of shares of beneficial interest or the number of
shares of any class of shares of beneficial interest that the Company has
authority to issue.
Both the Maryland REIT Law and the Company's Declaration of Trust provide
that no shareholder of the Company will be personally liable for any obligation
of the Company solely as a result of his status as a shareholder of the Company.
The Company's Bylaws further provide that the Company shall indemnify each
shareholder against any claim or liability to which the shareholder may become
subject by reason of his being or having been a
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shareholder or former shareholder and that the Company shall pay or reimburse
each shareholder or former shareholder for all legal and other expenses
reasonably incurred by him in connection with any claim or liability. 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 or series
of beneficial interest and to the provisions of the Company's Declaration of
Trust regarding the restriction of the transfer of shares of beneficial
interest, holders of Common Shares are entitled to receive dividends on shares
if, as and when authorized and declared by the Board of Trustees of the Company
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.
Subject to the provisions of the Declaration of Trust regarding the
restriction of the 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 such Common Shares 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 will not be able
to elect any trustees.
Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of Shares of beneficial interest,
Common Shares have equal dividend, distribution, liquidation and other rights.
Under the Maryland REIT Law, a Maryland REIT generally cannot dissolve,
amend its declaration of trust or merge unless approved by the affirmative vote
of 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 the
votes entitled to be cast on the matter) is set forth in the REIT's Declaration
of Trust. The Company's Declaration of Trust provides for approval by a majority
of all the votes entitled to be cast on the matter in all situations permitting
or requiring action by the shareholders except with respect to: (a) the
intentional disqualification of the Company as a REIT or revocation of its
election to be taxed as a REIT (which requires the affirmative vote of
two-thirds of the number of Common Shares entitled to vote on such matter at a
meeting of the shareholders of the Company); (b) the election of trustees (which
requires a plurality of all the votes cast at a meeting of shareholders of the
Company at which a quorum is present); (c) the removal of trustees (which
requires the affirmative vote of the holders of two-thirds of the outstanding
voting shares of the Company); (d) the amendment or repeal of the Independent
Trustee provision in the Declaration of Trust (or any other provision of Article
V thereof relating to the Trustees) (which requires the affirmative vote of
two-thirds of the outstanding shares entitled to vote on the matter); (e) the
amendment of the Declaration of Trust by shareholders (which requires the
affirmative vote of a majority of votes entitled to be cast on the matter,
except under certain circumstances specified in the Declaration of Trust that
require the affirmative vote of two-thirds of all the votes entitled to be cast
on the matter); and (f) the dissolution of the Company (which requires the
affirmative vote of two-thirds 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 Trustees. As permitted by the
Maryland REIT Law, the Declaration of Trust contains a provision permitting the
Trustees, without any action by the shareholders of the Trust, to amend the
Declaration of Trust to increase or decrease the aggregate number of shares of
beneficial interest or the number of shares of any class of shares of beneficial
interest that the Company has authority to issue.
Preferred Shares
The Declaration of Trust authorizes the Board of Trustees to classify any
unissued Preferred Shares and to reclassify any previously classified but
unissued Preferred Shares of any series from time to time in one or more series,
as authorized by the Board of Trustees. Prior to issuance of shares of each
series, the Board of Trustees is required by the Maryland REIT Law and the
Company's Declaration of Trust to set for each such series, subject
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to the provisions of the Company's Declaration of Trust regarding the
restriction on transfer of shares of beneficial interest, the terms, the
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 of Trustees 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 might 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.
Classification or Reclassification of Common Shares or Preferred Shares
The Company's Declaration of Trust authorizes the Board of Trustees to
classify or reclassify any unissued Common Shares or Preferred Shares into one
or more classes or series of shares of beneficial interest by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or distributions, qualifications or
terms or conditions of redemption of such new class or series of shares of
beneficial interest.
Restrictions on Transfer
The Declaration of Trust, subject to certain exceptions described below,
provides that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.9% of (i) the number of
outstanding Common Shares or (ii) the number of outstanding Preferred Shares of
any class or series of Preferred Shares (the "Ownership Limitation"). For this
purpose, a person includes a "group" and a "beneficial owner" as those terms are
used for purposes of Section 13(d)(3) of the Exchange Act. Any transfer of
Common or Preferred Shares that would (i) result in any person owning, directly
or indirectly, Common or Preferred Shares in excess of the Ownership Limitation,
(ii) result in the Common and Preferred Shares being owned by fewer than 100
persons (determined without reference to any rules of attribution), (iii) result
in the Company being "closely held" within the meaning of Section 856(h) of the
Code, or (iv) cause the Company to own, actually or constructively, 10% or more
of the ownership interests in a tenant of the Company's or the Partnership's
real property, within the meaning of Section 856(d)(2)(B) of the Code, will be
null and void, and the intended transferee will acquire no rights in such Common
or Preferred Shares.
Subject to certain exceptions described below, any Common Shares or
Preferred Shares the purported transfer of which would (i) result in any person
owning, directly or indirectly, Common Shares or Preferred Shares in excess of
the Ownership Limitation, (ii) result in the Common Shares and Preferred Shares
being owned by fewer than 100 persons (determined without reference to any rules
of attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, or (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's or the Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, will be designated as "Shares-in-Trust" and
transferred automatically to a trust (a "Trust") effective on the day before the
purported transfer of such Common Shares or Preferred Shares. The record holder
of the Common or Preferred Shares that are designated as Shares-in-Trust (the
"Prohibited Owner") will be required to submit such number of Common Shares or
Preferred Shares to the Company for registration in the name of the Trust (the
"Record Holder"). The Trustee will be designated by the Company, but will not be
affiliated with the Company. The beneficiary of a Trust (the "Beneficiary") will
be one or more charitable organizations that are named by the Company.
Shares-in-Trust will remain issued and outstanding Common Shares or
Preferred Shares and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Record Holder will receive all
dividends and distributions on the Shares-in-Trust and will hold such dividends
or distributions in trust for the benefit of the Beneficiary. The Record Holder
will vote all Shares-in-Trust. The Record Holder will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in a transfer to another
Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Record Holder the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) the record date of which was on or after the date that such shares became
Shares-in-Trust. The Prohibited Owner generally will receive from the Record
Holder the lesser of (i) the price per share such Prohibited Owner paid for the
Common Shares or Preferred Shares that were designated as Shares-in-Trust (or,
in the case of a gift or devise, the Market Price (as defined below) per share
on the date of such transfer) or (ii) the price per share
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received by the Record Holder from the sale of such Shares-in-Trust. Any amounts
received by the Record Holder in excess of the amounts to be paid to the
Prohibited Owner will be distributed to the Beneficiary.
The Shares-in-Trust will 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 created such Shares-in-Trust (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept such
offer for a period of 90 days after the later of (i) the date of the purported
transfer which resulted in such Shares-in-Trust or (ii) the date the Company
determines in good faith that a transfer resulting in such Shares-in-Trust
occurred.
"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last quoted price
as reported by The American Stock Exchange. "Trading Day" shall mean a day on
which the principal national securities exchange on which the Common or
Preferred Shares are listed or admitted to trading is open for the transaction
of business or, if the Common or Preferred Shares are not listed or admitted to
trading on any national securities exchange, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
Any person who acquires or attempts to acquire Common or Preferred Shares
in violation of the foregoing restrictions, or any person who owned Common or
Preferred Shares that were transferred to a Trust, will be required (i) to give
immediately written notice to the Company of such event and (ii) to provide to
the Company such other information as the Company may request in order to
determine the effect, if any, of such transfer on the Company's status as a
REIT.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding Common and Preferred Shares must, within 30 days after December 31
of each year, provide to the Company a written statement or affidavit stating
the name and address of such direct or indirect owner, the number of Common and
Preferred Shares owned directly or indirectly, and a description of how such
shares are held. In addition, each direct or indirect shareholder shall provide
to the Company such additional information as the Company may request in order
to determine the effect, if any, of such ownership on the Company's status as a
REIT and to ensure compliance with the Ownership Limitation.
The Ownership Limitation generally will not apply to the acquisition of
Common or Preferred Shares by an underwriter that participates in a public
offering of such shares. In addition, the Trustees, upon receipt of advice of
counsel or other evidence satisfactory to the Trustees, in their sole and
absolute discretion, may, in their sole and absolute discretion, exempt a person
from the Ownership Limitation under certain circumstances. The foregoing
restrictions will continue to apply until (i) the 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 and (ii) there is an affirmative vote of
two-thirds of the number of Common and Preferred Shares entitled to vote on such
matter at a regular or special meeting of the shareholders of the Company.
All certificates representing Common or Preferred Shares will bear a
legend referring to the restrictions described above.
The Ownership Limitation could have the effect of discouraging a change in
control or other transaction in which holders of some, or a majority, of shares
of Common Shares might receive a premium for their shares of Common Shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
Other Matters
The transfer agent and registrar for the Company's Common Shares will be
First Union National Bank of North Carolina, Charlotte, North Carolina.
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S DECLARATION
OF TRUST AND BYLAWS
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The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company is subject to and qualified in
its entirety by reference to Maryland law and to the Declaration of Trust and
Bylaws of the Company.
Classification of the Board of Trustees
The Bylaws provide that the number of trustees of the Company may be
established by the Board of Trustees but may not be fewer than three nor more
than nine. At the closing of the Offering, there will be seven Trustees. The
Trustees may increase or decrease the number of Trustees by a vote of at least
80% of the members of the Board of Trustees, provided that the number of
Trustees shall never be less than the number required by Maryland law and that
the tenure of office of a Trustee shall not be affected by any decrease in the
number of Trustees. Any vacancy will be filled, including a vacancy created by
an increase in the number of Trustees, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining Trustees.
Pursuant to the Declaration of Trust, the Board of Trustees is divided
into two classes of Trustees, the initial terms expiring in 1999 and 2000,
respectively. Beginning in 1999, Trustees of each class are chosen for two-year
terms upon the expiration of their current terms and each year one class of
Trustees will be elected by the shareholders. The Company believes that
classification of the Board of Trustees will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Trustees. Holders of Common Shares will have no right to cumulative voting in
the election of Trustees. Consequently, at each annual meeting of shareholders,
the holders of a majority of the Common Shares will be able to elect all of the
successors of the class of Trustees whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent trustees more time consuming and difficult. More than
one annual meeting will generally be required to effect a change in a majority
of the Board of Trustees. The staggered terms of Trustees may reduce the
possibility of a tender offer or an attempt to change control of the Company or
other transaction that might involve a premium price for holders of Common
Shares, even though a tender offer, change in control or other transaction might
be in the best interest of the shareholders.
Removal of Trustees
The Declaration of Trust provides that a Trustee may be removed with or
without cause upon the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of Trustees. This provision, when coupled
with the provision in the Bylaws authorizing the Board of Trustees to fill
vacant trusteeships, precludes shareholders from removing incumbent Trustees,
except upon a substantial affirmative vote, and filling the vacancies created by
such removal with their own nominees.
Business Combinations
Under the MGCL, as applicable to Maryland REITs, certain "business
combinations" (including a merger, consolidation, share exchange or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland REIT and any person who beneficially owns ten
percent or more of the voting power of the trust's shares or an affiliate of the
trust who, at any time within the two-year period prior to the date in question,
was an Interested Shareholder or an affiliate thereof 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 (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of beneficial interest of the trust and (b)
two-thirds of the votes entitled to be cast by holders of voting shares of the
trust other than shares held by the Interested Shareholder with whom (or with
whose affiliate) the business combination is to be effected, 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 shares.
These provisions of Maryland law do not apply, however, to business combinations
that are approved or exempted by the board of trustees of the trust prior to the
time that the Interested Shareholder becomes an Interested Shareholder.
Control Share Acquisitions
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The MGCL contains control share acquisition provisions. The Bylaws of the
Company contain a provision opting out of these provisions, but there can be no
assurance that such Bylaw provision will not be amended or eliminated at any
time in the future.
The MGCL, as applicable to Maryland REITs that have not opted out of the
provisions, provides that control shares (as defined below) of a Maryland REIT
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 of beneficial interest owned by the acquiror, by
officers or by trustees who are employees of the trust. "Control Shares" are
voting shares of beneficial interest which, if aggregated with all other such
shares of beneficial interest 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.
Amendment
The Declaration of Trust may be amended with the approval of at least a
majority of all of the votes entitled to be cast on the matter, provided, that
certain provisions of the Declaration of Trust regarding (i) the Company's Board
of Trustees, (ii) the restrictions on transfer of the Common Shares and the
Preferred Shares, (iii) amendments to the Declaration of Trust by the Trustees
and the shareholders of the Company and (iv) the termination of the Company may
not be amended, altered, changed or repealed without the approval of two-thirds
of all of the votes entitled to be cast on these matters. In addition, the
Declaration of Trust may be amended by the Board of Trustees, without
shareholder approval to conform the Declaration of Trust to the Maryland REIT
law. The Company's Bylaws may be amended or altered exclusively by the Board of
Trustees.
Limitation of Liability and Indemnification
The Maryland REIT Law permits a Maryland REIT to include in its
Declaration of Trust a provision limiting the liability of its trustees and
officers to the trust and its shareholders for money damages except for
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action. The Declaration of
Trust of the Company contains such a provision which limits such liability to
the maximum extent permitted by 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 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, partner of such real
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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 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 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 a party to the proceeding by
reason of his service in that capacity, or (b) any individual who, while a
Trustee 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 any 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 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 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 REIT 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, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for
expenses. In accordance with the MGCL, the Bylaws of the Company require it, as
a condition to advancing 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 him 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.
Operations
The Company is generally prohibited from engaging in certain activities,
including acquiring or holding property or engaging in any activity that would
cause the Company to fail to qualify as a REIT.
Dissolution of the Company
Pursuant to the Company's Declaration of Trust, and subject to the
provisions of any class or series of shares of beneficial interest of the
Company then outstanding, the shareholders of the Company, at any meeting
thereof, may dissolve the Company by the affirmative vote of two-thirds of all
of the votes entitled to be cast on the matter.
Advance Notice of Trustees Nominations and New Business
The Bylaws of the Company provide that (a) 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 (i) pursuant to the Company's notice of the meeting, (ii) by the Board
of Trustees or (iii) 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 (b)
with respect to special meetings of 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 (i) pursuant to the Company's notice of the meeting, (ii) by
the Board of Trustees or (iii) 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.
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Possible Anti-takeover Effect of Certain Provisions of Maryland Law and of
the Declaration of Trust and Bylaws
The business combination provisions and, if the applicable provision in
the Bylaws is rescinded, the control share acquisition provisions of the MGCL,
the provisions of the Declaration of Trust on classification of the Board of
Trustees, the removal of Trustees and the restrictions on the transfer of shares
of beneficial interest and the advance notice provisions of the Bylaws could
have the affect 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.
Maryland Asset Requirements
To maintain its qualification as a Maryland REIT, the Maryland REIT Law
requires at least 75% of the value of the Company's assets to be held, directly
or indirectly, 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 the
Company from using or applying land for farming, agricultural, horticultural or
similar purposes.
SHARES AVAILABLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have 2,666,667
Common Shares outstanding and approximately 3.5 million Shares reserved for
issuance upon redemption of Units. The Common Shares issued in the Offering will
be freely tradeable by persons other than "affiliates" of the Company without
restriction under the Securities Act, subject to certain limitations on
ownership set forth in the Declaration of Trust. See "Description of Shares of
Beneficial Interest-Restrictions on Transfer."
Pursuant to the Partnership Agreement, the Hersha Affiliates that own the
Selling Partnerships (collectively, the "Limited Partners") will receive the
right to redeem their Units (the "Redemption Right") in exchange for cash or, at
the election of the Company, Common Shares on a one-for-one basis. The
Redemption Rights generally may be exercised by the Limited Partners at any time
after one year following the acquisition of the Initial Hotels with respect to
the Units issued in connection with the Stabilized Hotels and at any time after
the First Adjustment Date or Second Adjustment Date, as applicable, with respect
to the Units issued in connection with the Newly-Developed Hotels and the
Newly-Renovated Hotels, in whole or in part. See "The Partnership
Agreement-Redemption Rights." Any amendment to the Partnership Agreement that
would affect the Redemption Rights would require the consent of Limited Partners
holding more than 50% of the Units held by Limited Partners (except the
Company).
Common Shares issued to holders of Units upon exercise of the Redemption
Rights 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.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted 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 preceding the date on which notice
of the sale is filed with the Securities and Exchange Commission (the
"Commission"). Sales under Rule 144 also are subject to certain manner of sale
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 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 three months preceding
a sale, such person would be 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.
Under certain circumstances, the Company has agreed to file a registration
statement with the Commission covering the resale of any Common Shares issued to
a Limited Partner upon redemption of Units. The Limited Partners may request
such a registration if the Limited Partners, as a group, request registration of
at least 250,000 Common Shares; provided however, that only two such
registrations may occur each year. Upon such request, the
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Company will use its best efforts to have the registration statement declared
effective and to keep it effective for a period of 180 days. In addition, the
Limited Partners will have "piggyback" registration rights, subject to certain
volume and marketing limitations imposed by the Underwriter. If, during the
prior two years there has not been an opportunity for a piggyback registration,
the Limited Partners holding Units redeemable for at least 50,000 Common Shares
may request a registration of those shares. Upon effectiveness of such
registration statement, those persons who receive Common Shares upon redemption
of Units may sell such shares in the secondary market without being subject to
the volume limitations or other requirements of Rule 144. The Company will bear
expenses incident to its registration requirements, except that such expenses
shall not include any selling commissions, Commission or state securities
registration fees, transfer taxes or certain other fees or taxes relating to
such shares. Registration rights may be granted to future sellers of hotels to
the Partnership who may receive, in lieu of cash, Common Shares, Units or other
securities convertible into Common Shares.
Prior to the date of this Prospectus, there has been no public market for
the Common Shares. Listing of the Common Shares on the American Stock Exchange
is expected to commence following the completion of the Offering. No prediction
can be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Shares, or the
perception that such sales could occur, may affect adversely prevailing market
prices of the Common Shares. See "Risk Factors-Market for Common Shares" and
"The Partnership Agreement-Transferability of Interests."
For a description of certain restrictions on transfers of Common Shares
held by certain shareholders of the Company, see "Underwriting."
PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement, and the descriptions
of certain provisions thereof set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
Management
The Partnership has been organized as a Virginia limited partnership
pursuant to the terms of the Partnership Agreement. Pursuant to the Partnership
Agreement, the Company, as the sole general partner of the Partnership, will
have full, exclusive and complete responsibility and discretion in the
management and control of the Partnership, and the Limited Partners will have no
authority in their capacity as Limited Partners to transact business for, or
participate in the management activities or decisions of, the Partnership.
However, any amendment to the Partnership Agreement that would affect the
Redemption Rights will require the consent of Limited Partners holding more than
50% of the Units held by such partners.
Transferability of Interests
The Company may not voluntarily withdraw from the Partnership or transfer
or assign its interest in the Partnership unless the transaction in which such
withdrawal or transfer occurs results in the Limited Partners receiving property
in an amount equal to the amount they would have received had they exercised
their Redemption Rights immediately prior to such transaction, or unless the
successor to the Company contributes substantially all of its assets to the
Partnership in return for a general partnership interest in the Partnership.
With certain limited exceptions, the Limited Partners may not transfer their
interests in the Partnership, in whole or in part, without the written consent
of the Company, which consent the Company may withhold in its sole discretion.
The Company may not consent to any transfer that would cause the Partnership to
be treated as a corporation for federal income tax purposes.
Capital Contribution
The Company will contribute to the Partnership substantially all the net
proceeds of the Offering as its initial capital contribution in exchange for
approximately a 43% general partnership interest in the Partnership. Although
the Partnership will receive substantially all the net proceeds of the Offering,
the Company will be deemed to have made a capital contribution to the
Partnership in the amount of substantially all the gross proceeds of the
Offering and the Partnership will be deemed simultaneously to have paid the
Underwriter's selling commissions and other expenses paid or incurred in
connection with the Offering. The Hersha Affiliates will become Limited Partners
in the Partnership and collectively will own approximately a 57% limited
partnership interest in the Partnership. The
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value of each Limited Partner's capital contribution shall equal its pro rata
share of the value of the interests received by the Partnership. The Partnership
Agreement provides that if the Partnership requires additional funds at any time
or from time to time in excess of funds available to the Partnership from
borrowing or capital contributions, the Company may borrow such funds from a
financial institution or other lender and lend such funds to the Partnership on
the same terms and conditions as are applicable to the Company's borrowing of
such funds. Under the Partnership Agreement, the Company generally is obligated
to contribute the proceeds of an offering of shares of beneficial interest as
additional capital to the Partnership. Moreover, the Company is authorized to
cause the Partnership to issue partnership interests for less than fair market
value if the Company has concluded in good faith that such issuance is in the
best interests of the Company and the Partnership. If the Company so contributes
additional capital to the Partnership, the Company will receive additional Units
and the Company's percentage interest in the Partnership will be increased on a
proportionate basis based upon the amount of such additional capital
contributions and the value of the Partnership at the time of such
contributions. Conversely, the percentage interests of the Limited Partners will
be decreased on a proportionate basis in the event of additional capital
contributions by the Company. In addition, if the Company contributes additional
capital to the Partnership, the Company will revalue the property of the
Partnership to its fair market value (as determined by the Company) and the
capital accounts of the partners will be adjusted to reflect the manner in which
the unrealized gain or loss inherent in such property (that has not been
reflected in the capital accounts previously) would be allocated among the
partners under the terms of the Partnership Agreement if there were a taxable
disposition of such property for such fair market value on the date of the
revaluation.
Redemption Rights
Pursuant to the Partnership Agreement, the Limited Partners will receive
the Redemption Rights, which will enable them to cause the Partnership to redeem
their interests in the Partnership in exchange for cash or, at the option of the
Company, Common Shares on a one-for-one basis. The redemption price will be paid
in cash in the discretion of the Company or in the event that the issuance of
Common Shares to the redeeming Limited Partner would (i) result in any person
owning, directly or indirectly, Common Shares in excess of the Ownership
Limitation, (ii) result in the shares of beneficial interest of the Company
being owned by fewer than 100 persons (determined without reference to any rules
of attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, (iv) cause the Company to own, actually
or constructively, 10% or more of the ownership interests in a tenant of the
Company's or the Partnership's real property, within the meaning of Section
856(d)(2)(B) of the Code, or (v) cause the acquisition of Common Shares by such
redeeming Limited Partner to be "integrated" with any other distribution of
Common Shares for purposes of complying with the Securities Act. With respect to
the Units issued in connection with the acquisition of the Stabilized Hotels,
the Redemption Rights may be exercised by the Limited Partners at any time after
one year following the acquisition of the Stabilized Hotels. With respect to the
Units issued in connection with the acquisition of the Newly-Developed Hotels
and the Newly-Renovated Hotels, the Redemption Rights may not be exercised by
the Limited Partners until after the First Adjustment Date or Second Adjustment
Date, as applicable. In all cases, however, (i) each Limited Partner may not
exercise the Redemption Right for fewer than 1,000 Units or, if such Limited
Partner holds fewer than 1,000 Units, all of the Units held by such Limited
Partner, (ii) each Limited Partner may not exercise the Redemption Right for
more than the number of Units that would, upon redemption, result in such
Limited Partner or any other person owning, directly or indirectly, Common
Shares in excess of the Ownership Limitation and (iii) each Limited Partner may
not exercise the Redemption Right more than two times annually. The aggregate
number of Common Shares initially issuable upon exercise of the Redemption
Rights will be approximately 3.5 million. The number of Common Shares issuable
upon exercise of the Redemption Rights will be adjusted upon the revaluation on
the First Adjustment Date and the Second Adjustment Date or the occurrence of
share splits, mergers, consolidations or similar pro rata share transactions,
which otherwise would have the effect of diluting or increasing the ownership
interests of the Limited Partners or the shareholders of the Company.
Operations
The Partnership Agreement requires that the Partnership be operated in a
manner that will enable the Company to satisfy the requirements for being
classified as a REIT, to avoid any federal income or excise tax liability
imposed by the Code (other than any federal income tax liability associated with
the Company's retained capital gains), and to ensure that the Partnership will
not be classified as a "publicly traded partnership" for purposes of Section
7704 of the Code.
In addition to the administrative and operating costs and expenses
incurred by the Partnership, the Partnership will pay all administrative costs
and expenses of the Company (the "Company Expenses") and the Company Expenses
will be treated as expenses of the Partnership. The Company Expenses generally
will include (A) all expenses relating
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to the formation and continuity of existence of the Company, (B) all expenses
relating to the public offering and registration of securities by the Company,
(C) all expenses associated with the preparation and filing of any periodic
reports by the Company under federal, state or local laws or regulations, (D)
all expenses associated with compliance by the Company with laws, rules and
regulations promulgated by any regulatory body and (E) all other operating or
administrative costs of the Company incurred in the ordinary course of its
business on behalf of the Partnership. The Company Expenses, however, will not
include any administrative and operating costs and expenses incurred by the
Company that are attributable to hotel properties that are owned by the Company
directly. The Company initially will not own any hotel directly.
Distributions
The Partnership Agreement provides that the Partnership will distribute
cash from operations (including net sale or refinancing proceeds, but excluding
net proceeds from the sale of the Partnership's property in connection with the
liquidation of the Partnership) on a quarterly (or, at the election of the
Company, more frequent) basis, in amounts determined by the Company in its sole
discretion, to the partners in accordance with their respective percentage
interests in the Partnership. Upon liquidation of the Partnership, after payment
of, or adequate provision for, debts and obligations of the Partnership,
including any partner loans, any remaining assets of the Partnership will be
distributed to all partners with positive capital accounts in accordance with
their respective positive capital account balances. If the Company has a
negative balance in its capital account following a liquidation of the
Partnership, it will be obligated to contribute cash to the Partnership equal to
the negative balance in its capital account.
Allocations
Income, gain and loss of the Partnership for each fiscal year generally
will be allocated among the partners in accordance with their respective
interests in the Partnership, subject to compliance with the provisions of Code
Sections 704(b) and 704(c) and Treasury Regulations promulgated
thereunder.
Term
The Partnership will continue until December 31, 2050, or until sooner
dissolved upon (i) the bankruptcy, dissolution or withdrawal of the Company
(unless the Limited Partners elect to continue the Partnership), (ii) the sale
or other disposition of all or substantially all the assets of the Partnership,
(iii) the redemption of all Units (other than those held by the Company, if any)
or (iv) an election by the General Partner.
Tax Matters
Pursuant to the Partnership Agreement, the Company will be the tax matters
partner of the Partnership and, as such, will have authority to handle tax
audits and to make tax elections under the Code on behalf of the Partnership.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material federal income tax consequences
that may be relevant to a prospective holder of Common Shares. Hunton & Williams
has acted as counsel to the Company and has reviewed this summary and is of the
opinion that the discussion contained herein fairly summarizes the federal
income tax consequences that are likely to be material to a holder of the Common
Shares. The discussion does not address all aspects of taxation that may be
relevant to particular shareholders in light of their personal investment or tax
circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations (except as discussed below), financial
institutions or broker-dealers, and, except as discussed below, foreign
corporations and persons who are not citizens or residents of the United States)
subject to special treatment under the federal income tax laws.
The statements in this discussion and the opinion of Hunton & Williams are
based on current provisions of the Code, existing, temporary, and currently
proposed Treasury Regulations, the legislative history of the Code, existing
administrative rulings and practices of the Service, and judicial decisions. No
assurance can be given that future legislative, judicial, or administrative
actions or decisions, which may be retroactive in effect, will not affect the
accuracy of any statements in this Prospectus with respect to the transactions
entered into or contemplated prior to the effective date of such changes.
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EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND SALE OF THE
COMMON SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
The Company currently has in effect an election to be taxed as a
pass-through entity under subchapter S of the Code, but intends to revoke its S
election on the day prior to the closing of the Offering. The Company plans to
make an election to be taxed as a REIT under sections 856 through 860 of the
Code, effective for its short taxable year beginning on the date of revocation
of its S election and ending on December 31, 1998. The Company believes that,
commencing with such taxable year, it will be organized 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, but no assurance can be given
that the Company will operate in a manner so as to qualify or remain qualified
as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retrospectively.
Hunton & Williams has acted as counsel to the Company in connection with
the Offering and the Company's election to be taxed as a REIT. In the opinion of
Hunton & Williams, commencing with the Company's short taxable year ending
December 31, 1998, and assuming that the elections and other procedural steps
described in this discussion of "Federal Income Tax Consequences" are completed
by the Company in a timely fashion, the Company will be organized in conformity
with the requirements for qualification as a REIT, and its proposed method of
operation will enable it to meet the requirements for qualification and taxation
as a REIT under the Code. Investors should be aware, however, that opinions of
counsel are not binding upon the Service or any court. It must be emphasized
that Hunton & Williams' opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters, including representations regarding the nature of the Company's
properties, the Percentage Leases, and the future conduct of the Company's
business. Such factual assumptions and representations are described below in
this discussion of "Federal Income Tax Consequences" and are set out in the
federal income tax opinion that will be delivered by Hunton & Williams at the
closing of the Offering. Moreover, such qualification and taxation as a REIT
depend upon the Company's ability to meet on a continuing basis, through actual
annual operating results, distribution levels, and share ownership, the various
qualification tests imposed under the Code discussed below. Hunton & Williams
will not review the Company's compliance with those tests on a continuing basis.
Accordingly, no assurance can be given that the actual results of the Company's
operation for any particular taxable year will satisfy such requirements. For a
discussion of the tax consequences of failure to qualify as a REIT, see
"-Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to its shareholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and shareholder levels)
that generally results from an investment in a corporation. However, the Company
will be subject to federal income tax in the following circumstances. 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 undistributed items of tax preference. Third, if the Company has (i) net
income from the sale or other disposition of "foreclosure property" that is held
primarily for sale to customers in the ordinary course of business or (ii) other
non-qualifying income from foreclosure property, it 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 should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% gross income test, multiplied by a fraction intended to reflect the
Company's profitability. Sixth, if the Company should fail 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, and (iii)
any undistributed taxable income from prior periods, the Company
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would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. To the extent that the Company elects to
retain and pay income tax on its net long-term capital gain, such retained
amounts will be treated as having been distributed for purposes of the 4% excise
tax. 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 asset) in the hands of the C corporation
and the Company recognizes gain on the disposition of such asset during the
10-year period beginning on the date on which such asset was acquired by the
Company, then to the extent of such asset's "built-in gain" (i.e., the excess of
the fair market value of such asset at the time of acquisition by the Company
over the adjusted basis in such asset at such time), such gain will be subject
to tax at the highest regular corporate rate applicable (as provided in Treasury
Regulations that have not yet been promulgated). The results described above
with respect to the recognition of "built-in gain" assume that the Company would
make an election pursuant to IRS Notice 88-19 if it were to make any such
acquisition.
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 860 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) not
more than 50% in value of the outstanding shares of beneficial interest of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of each taxable year
(the "5/50 Rule"); (vii) that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the Service that must be met in
order to elect and to maintain REIT status; (viii) that uses a calendar year for
federal income tax purposes and complies with the recordkeeping requirements of
the Code and Treasury Regulations; and (ix) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (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) will not apply until after the
first taxable year for which an election is made by the Company to be taxed as a
REIT. The Company anticipates issuing sufficient Common Shares with sufficient
diversity of ownership pursuant to the Offering to allow it to satisfy
requirements (v) and (vi). In addition, the Company's Declaration of Trust
provides for restrictions regarding ownership and transfer of the Common Shares
that are intended to assist the Company in continuing to satisfy the share
ownership requirements described in (v) and (vi) above. Such transfer
restrictions are described in "Description of Shares of Beneficial
Interest-Restrictions on Transfer."
For purposes of determining share ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes is considered an individual, although a trust that is a qualified trust
under Code section 401(a) is not considered an individual and the beneficiaries
of such trust are treated as holding shares of a REIT in proportion to their
actuarial interests in the trust for purposes of the 5/50 Rule.
The Company does not currently have any corporate subsidiaries, nor will
it have any corporate subsidiaries immediately after completion of the Offering,
although it may have corporate subsidiaries in the future. Code section 856(i)
provides that a corporation that is a "qualified REIT subsidiary" shall not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a "qualified REIT subsidiary" shall be treated
as assets, liabilities, and items of income, deduction, and credit of the REIT.
A "qualified REIT subsidiary" is a corporation, all of the capital stock of
which is owned by the REIT. Thus, in applying the requirements described herein,
any "qualified REIT subsidiaries" acquired or formed by the Company will be
ignored, and all assets, liabilities, and items of income, deduction, and credit
of such subsidiaries will be treated as assets, liabilities and items of income,
deduction, and credit of the Company.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
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 and asset tests, described below. Thus, the Company's proportionate
share of the assets, liabilities and items of income of the Partnership will be
treated as assets and gross income of the Company for purposes of applying the
requirements described herein.
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Income Tests
In order for the Company to maintain its qualification as a REIT, there
are two requirements relating to the Company's gross income that must be
satisfied annually. First, at least 75% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year must consist of
defined types of income 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 temporary investment
income. Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property or temporary investments, and from dividends, other types of
interest, and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. The specific application of these tests to the
Company is discussed below.
Rents received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based 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 "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the Company, or an owner of 10% or more of the Company, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the Company generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" who is adequately compensated and from
whom the Company derives no revenue. The "independent contractor" requirement,
however, does not apply with respect to certain de minimis services or to the
extent the services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant."
Pursuant to the Percentage Leases, the Lessee will lease from the
Partnership the land, buildings, improvements, furnishings and equipment
comprising the Initial Hotels for a five-year period. The Percentage Leases
provide that the Lessee will be obligated to pay to the Partnership (i) the Rent
and (ii) certain other Additional Charges. The Percentage Rent is calculated by
multiplying fixed percentages by the gross room and other revenues for each of
the Initial Hotels. The Rent accrues and is required to be paid monthly. Until
the First Adjustment Date or the Second Adjustment Date, as applicable, the rent
on the Newly-Developed Hotels and the Newly-Renovated Hotels will be the Initial
Fixed Rents applicable to those hotels. After the First Adjustment Date or the
Second Adjustment Date, as applicable, rent will be computed with respect to the
Newly-Developed Hotels and the Newly-Renovated Hotels based on the Percentage
Rent formulas described herein.
In order for the Rent and the Additional Charges to constitute "rents from
real property," the Percentage 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 Percentage
Leases are true leases depends on an analysis of all the surrounding facts and
circumstances. In 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).
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 does not bear 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
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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 Company believes that the Percentage Leases will be treated as true
leases for federal income tax purposes. Such belief is based, in part, on the
following facts: (i) the Partnership and the Lessee intend for their
relationship to be that of a lessor and lessee and such relationship will be
documented by lease agreements, (ii) the Lessee will have the right to exclusive
possession and use and quiet enjoyment of the Initial Hotels during the term of
the Percentage Leases, (iii) the Lessee will bear the cost of, and be
responsible for, day-to-day maintenance and repair of the Initial Hotels, other
than the cost of capital expenditures that are classified as capital items under
generally accepted accounting principles which are necessary for the continued
operation of the Initial Hotels and will dictate how the Initial Hotels are
operated, maintained, and improved, (iv) the Lessee will bear all of the costs
and expenses of operating the Initial Hotels (including the cost of any
inventory used in their operation) during the term of the Percentage Leases
(other than real and personal property taxes, property and casualty insurance,
and the cost of replacement or refurbishment of furniture, fixtures and
equipment, to the extent such costs do not exceed the allowance for such costs
provided by the Partnership under each Percentage Lease), (v) the Lessee will
benefit from any savings in the costs of operating the Initial Hotels during the
term of the Percentage Leases, (vi) in the event of damage or destruction to an
Initial Hotel, the Lessee will be at economic risk because it will be obligated
either (A) to restore the property to its prior condition, in which event it
will bear all costs of such restoration in excess of any insurance proceeds or
(B) to purchase the Initial Hotel for an amount generally equal to the fair
market value of the property, less any insurance proceeds, (vii) the Lessee will
indemnify the Partnership, as applicable, against all liabilities imposed on the
Partnership during the term of the Percentage Leases by reason of (A) injury to
persons or damage to property occurring at the Initial Hotels or (B) the
Lessee's use, management, maintenance or repair of the Initial Hotels, (viii)
the Lessee is obligated to pay substantial fixed rent for the period of use of
the Initial Hotels and (ix) the Lessee stands to incur substantial losses (or
reap substantial gains) depending on how successfully it operates the Initial
Hotels.
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 Percentage Leases that discuss whether such
leases constitute true leases for federal income tax purposes. If the Percentage
Leases are recharacterized as service contracts or partnership agreements,
rather than true leases, part or all of the payments that the Partnership
receives from the Lessee may not be considered rent or may 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 test and, as a result, would lose its REIT status.
In order for the Rent to constitute "rents from real property," several
other requirements also must be satisfied. One requirement is that the Rent
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
Rent received under the Percentage Lease. The Rent attributable to the personal
property in an Initial Hotel is the amount that bears the same ratio to total
rent for the taxable year as the average of the adjusted bases of the personal
property associated with the 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"). With respect to
each Initial Hotel, the initial adjusted bases of the personal property in such
hotel will be less than 15% of the initial adjusted bases of both the real and
personal property comprising such Hotel. Furthermore, the Partnership will not
acquire additional personal property for an Initial Hotel to the extent that
such acquisition would cause the Adjusted Basis Ratio for that hotel to exceed
15%. There can be no assurance, however, that the Service would not assert that
the adjusted basis of the personal property acquired by the Partnership exceeded
the adjusted basis claimed by the Partnership, or that a court would not uphold
such assertion. If such a challenge were successfully asserted, the Company
could fail the Adjusted Basis Ratio as to one or more of the Initial Hotels,
which in turn potentially could cause it to fail to satisfy the 95% or 75% gross
income test and thus lose its REIT status.
Another requirement for qualification of the Rent as "rents from real
property" is that the Percentage Rent must not be based in whole or in part on
the income or profits of any person. The Percentage 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 Percentage Leases are entered
into, (ii) are not renegotiated during the term of the Percentage Leases in a
manner that has the effect of basing Percentage Rent on income or profits, and
(iii) conform with normal business practice. More generally, the Percentage Rent
will not qualify as "rents from real property" if, considering the Percentage
Leases and all the surrounding circumstances, the arrangement does not conform
with normal business
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practice, but is in reality used as a means of basing the Percentage Rent on
income or profits. Since the Percentage Rent is based on fixed percentages of
the gross revenues from the Initial Hotels that are established in the
Percentage Leases, and the Company has represented that the percentages (i) will
not be renegotiated during the terms of the Percentage Leases in a manner that
has the effect of basing the Percentage Rent on income or profits and (ii)
conform with normal business practice, the Percentage 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 hotels 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 Rent as "rents from real
property" is that the Company must not own, actually or constructively, 10% or
more of the ownership interests in the Lessee. The constructive ownership rules
generally provide that, if 10% or more in value of the shares of beneficial
interest in the Company are owned, directly or indirectly, by or for any person,
the Company is considered as owning the shares owned, directly or indirectly, by
or for such person. The Company initially will not own, actually or
constructively, any interest in the Lessee. The Limited Partners of the
Partnership, including Mr. Shah, who is a partner of the Lessee, may acquire
Common Shares by exercising their Redemption Rights. The Partnership Agreement,
however, provides that a redeeming Limited Partner will receive cash, rather
than Common Shares, at the election of the Company or if the acquisition of
Common Shares by such partner would cause the Company to own, actually or
constructively, 10% or more of the ownership interests in a tenant of the
Company's or the Partnership's real property, 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 or Preferred Shares that would
cause the Company to own, actually or constructively, 10% or more of the
ownership interests in a tenant of the Company's real property, within the
meaning of section 856(d)(2)(B) of the Code. Thus, the Company should never own,
actually or constructively, 10% of more of the Lessee. Furthermore, the Company
has represented that, with respect to other hotels that it acquires in the
future, it will not rent any property to a Related Party Tenant.
A fourth requirement for qualification of the Rent 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 itself does not derive or receive any income. However, the
Company may furnish or render a de minimis amount of "noncustomary services" to
the tenants of an Initial Hotel other than through an independent contractor as
long as the amount that the Company receives that is attributable to such
services does not exceed 1% of its total revenue from the Initial Hotel. For
that purpose, the amount attributable to the Company's noncustomary services
will be at least equal to 150% of the Company's cost of providing the services.
Provided that the Percentage Leases are respected as true leases, the Company
should satisfy that requirement because the Partnership will not perform any
services other than customary ones for the Lessee. Furthermore, the Company has
represented that, with respect to other hotels that it acquires in the future,
it will not perform noncustomary services with respect to the tenant of the
property. As described above, however, if the Percentage Leases are
recharacterized as service contracts or partnership agreements, the Rent likely
would be disqualified as "rents from real property" because the Company would be
considered to furnish or render services to the occupants of the Initial Hotels
and to manage or operate the Initial Hotels other than through an independent
contractor who is adequately compensated and from whom the Company derives or
receives no income.
If the Rent does not qualify as "rents from real property" because the
rents attributable to personal property exceed 15% of the total Rent from an
Initial Hotel for a taxable year, the portion of the Rent that is attributable
to personal property will not be qualifying income for purposes of either the
75% or 95% gross income test. Thus, if the Rent attributable to personal
property, plus any other non-qualifying income, during the taxable year exceeds
5% of the Company's gross income during the year, the Company would lose its
REIT status. If, however, the Rent does not qualify as "rents from real
property" because either (i) the Percentage Rent is considered based on income
or profits of the Lessee, (ii) the Company owns, actually or constructively, 10%
or more of the Lessee, or (iii) the Company furnishes noncustomary services
(other than certain de minimis 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 Rent 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 test.
In addition to the Rent, the Lessee is required to pay to the Partnership
the Additional Charges. To the extent that the Additional Charges represent
either (i) reimbursements of amounts that the Lessee is obligated to pay to
third parties or (ii) penalties for nonpayment or late payment of such amounts,
the Additional Charges should qualify as "rents from real property." To the
extent, however, that the Additional Charges represent interest that is accrued
on
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the late payment of the Rent or the Additional Charges, the Additional Charges
should not qualify as "rents from real property," but instead 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.
The net income derived from any prohibited transaction is subject to a
100% tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held primarily
for sale to customers in the ordinary course of a trade or business. All
inventory required in the operation of the Initial Hotels will be purchased by
the Lessee or its designee as required by the terms of the Percentage Leases.
Accordingly, the Company believes that no asset owned by the Company or the
Partnership will be held for sale to customers and that a sale of any such asset
will not be in the ordinary course of business of the Company or the
Partnership. Whether property is held "primarily for sale to customers in the
ordinary course of a trade or business" depends, however, on the facts and
circumstances in effect from time to time, including those related to a
particular property. Nevertheless, the Company and the Partnership will attempt
to comply with the terms of safe-harbor provisions in the Code prescribing when
asset sales will not be characterized as prohibited transactions. Complete
assurance cannot be given, however, that the Company or the Partnership can
comply with the safe-harbor provisions of the Code or avoid owning property that
may be characterized as property held "primarily for sale to customers in the
ordinary course of a trade or business."
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), less expenses directly connected with
the production of such income. However, gross income from such foreclosure
property will be qualifying income for purposes of the 75% and 95% gross income
tests. "Foreclosure property" is defined as any real property (including
interests in 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 in
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. As a result of
the rules with respect to foreclosure property, if the Lessee defaults on its
obligations under a Percentage Lease for a Hotel, the Company terminates the
Lessee's leasehold interest, and the Company is unable to find a replacement
lessee for such Hotel within 90 days of such foreclosure, gross income from
hotel operations conducted by the Company from such Hotel would cease to qualify
for the 75% and 95% gross income tests. 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.
It is possible that, from time to time, the Company or the Partnership
will enter into hedging transactions with respect to one or more of its assets
or liabilities. Any such hedging transactions could take a variety of forms,
including interest rate swap contracts, interest rate cap or floor contracts,
futures or forward contracts, and options. To the extent that the Company or the
Partnership enters into an interest rate swap or cap contract, option, futures
contract, forward rate agreement or similar financial instrument to reduce its
interest rate risk with respect to indebtedness incurred or to be incurred to
acquire or carry real estate assets, any periodic income or gain from the
disposition of such contract should be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. To the extent that the
Company or the Partnership hedges with other types of financial instruments or
in other situations, it may not be entirely clear how the income from those
transactions will be treated for purposes of the various income tests that apply
to REITs under the Code. The Company intends to structure any hedging
transactions in a manner that does not jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% and 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
Those relief provisions will be generally available if the Company's failure to
meet such tests is due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its 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 those relief provisions. As
discussed above in "Federal Income Tax Consequences-Taxation of the Company,"
even if those relief provisions apply, a 100% tax would be imposed with respect
to the gross income attributable to the greater of the amount by which the
Company fails the 75% or 95% gross income test, multiplied by a fraction
intended to reflect the Company's profitability.
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Asset Tests
The Company, at the close of each quarter of its taxable year, also must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets," or, in cases where the Company raises new capital through share or
long-term (at least five-year) debt offerings, temporary investments in stock or
debt instruments during the one-year period following the Company's receipt of
such capital. The term "real estate assets" includes interests in real property,
interests in mortgages on real property to the extent the principal balance of
the mortgage does not exceed the value of the associated real property, and
shares of other REITs. For purposes of the 75% asset test, the term "interest in
real property" includes an interest in land and improvements thereon, such as
buildings or other inherently permanent structures (including items that are
structural components of such buildings or structures), a leasehold in real
property, and an option to acquire real property (or a leasehold in real
property). 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 and the Company may not own more than
10% of any one issuer's outstanding voting securities (except for its ownership
interests in the Partnership or any qualified REIT subsidiary).
For purposes of the asset tests, the Company will be deemed to own its
proportionate share of the assets of the Partnership, rather than its
partnership interest in the Partnership. The Company has represented that, as of
the date of the Offering, (i) at least 75% of the value of its total assets will
be represented by real estate assets, cash and cash items (including
receivables), and government securities and (ii) it will not own any securities
that do not satisfy the 75% asset test. In addition, the Company has represented
that it will not acquire or dispose, or cause the Partnership to acquire or
dispose, of assets in the future in a way that would cause it to violate either
asset test.
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Company's assets and
the asset test requirements arose from changes in the market values of its
assets and was not wholly or partly caused by an acquisition of non-qualifying
assets. If the condition described in clause (ii) of the preceding sentence were
not satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the quarter in which it arose.
Distribution Requirements
The Company, in order to qualify as a REIT, 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 its "REIT taxable income" (computed
without regard to the dividends paid deduction and its 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 in
the taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
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 thereon at regular ordinary and capital
gains corporate tax rates. Furthermore, if the Company should fail 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 income for such year,
and (iii) any undistributed taxable income from prior periods, the Company would
be subject to a 4% nondeductible excise tax on the excess of such required
distribution over the amounts actually distributed. The Company may elect to
retain and pay income tax on its net long-term capital gains, as described in
"-Taxation of Taxable U.S. Shareholders." Any such retained amount would be
treated as having been distributed by the Company for purposes of the 4% excise
tax. The Company intends to make timely distributions sufficient to satisfy all
annual distribution requirements.
It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. For example, it is possible
that, from time to time, the Company may be allocated a share of net capital
gain attributable to the sale of depreciated property that exceeds its allocable
share of cash attributable to that sale. Therefore, the Company may have less
cash available for distribution than is necessary to meet its annual 95%
distribution requirement or to avoid corporate income tax or the excise tax
imposed on certain undistributed income. In such a situation, the Company may
find it necessary to arrange for short-term (or possibly long-term) borrowings
or to raise funds through the issuance of additional Common or Preferred Shares.
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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 its shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Although the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends, it
will be required to pay to the Service interest based upon the amount of any
deduction taken for deficiency dividends.
Recordkeeping Requirement
Pursuant to applicable Treasury Regulations, the Company must maintain
certain records and request on an annual basis certain information from its
shareholders designed to disclose the actual ownership of its outstanding
shares. The Company intends to comply with such requirements.
Partnership Anti-Abuse Rule
The United States Treasury Department has issued a final regulation (the
"Anti-Abuse Rule"), under the partnership provisions of the Code (the
"Partnership Provisions") that authorizes the Service, in certain "abusive"
transactions involving partnerships, to disregard the form of the transaction
and recast it for federal tax purposes as the Service deems appropriate. The
Anti-Abuse Rule applies where a partnership is formed or utilized in connection
with a transaction (or series of related transactions) with a principal purpose
of substantially reducing the present value of the partners' aggregate federal
tax liability in a manner inconsistent with the intent of the Partnership
Provisions. The Anti-Abuse Rule states that the Partnership Provisions are
intended to permit taxpayers to conduct joint business (including investment)
activities through a flexible economic arrangement that accurately reflects the
partners' economic agreement and clearly reflects the partners' income without
incurring any entity-level tax. The purposes for structuring a transaction
involving a partnership are determined based on all of the facts and
circumstances, including a comparison of the purported business purpose for a
transaction and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal tax liability
through the use of a partnership does not, by itself, establish inconsistency
with the intent of the Partnership Provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partnership interest.
The limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, some of the limited partners have the right,
beginning two years after the formation of the partnership, to require the
redemption of their limited partnership interests in exchange for cash or REIT
stock (at the REIT's option) equal to the fair market value of their respective
interests in the partnership at the time of the redemption. The example
concludes that the use of the partnership is not inconsistent with the intent of
the Partnership Provisions and, thus, cannot be recast by the Service. The
Company believes that the Anti-Abuse Rule will not have any adverse impact on
its ability to qualify as a REIT. However, the Redemption Rights do not conform
in all respects to the redemption rights described in the foregoing example.
Moreover, the Anti-Abuse Rule is extraordinarily broad in scope and is applied
based on an analysis of all of the facts and circumstances. As a result, there
can be no assurance that the Service will not attempt to apply the Anti-Abuse
Rule to the Company. If the conditions of the Anti-Abuse Rule are met, the
Service is authorized to take appropriate enforcement action, including
disregarding the Partnership for federal tax purposes or treating one or more of
its partners as nonpartners. Any such action potentially could jeopardize the
Company's status as a REIT.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable
year, and the 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. Distributions to the shareholders in any year in which
the Company fails to qualify will not be deductible by the Company nor will they
be required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders will be taxable as
ordinary income and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. 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 the Company ceased to qualify as a REIT. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
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Taxation of Taxable U.S. Shareholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends or retained capital gains)
will be taken into account by such U.S. shareholders as ordinary income and will
not be eligible for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. shareholder" means a holder of
Common Shares that for U.S. federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate whose income from sources without
the United States is includible in gross income for U.S. federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States or (iv) any trust with respect to which (A) a U.S.
court is able to exercise primary supervision over the administration of such
trust and (B) one or more U.S. persons have the authority to control all
substantial decisions of the trust. Distributions that are designated as capital
gain dividends will be taxed as long-term capital gains (to the extent they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held his Common Shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. The Company may elect to retain and
pay income tax on its net long-term capital gains. In that case, the Company's
shareholders would include in income their proportionate share of the Company's
undistributed long-term capital gains. In addition, the shareholders would be
deemed to have paid their proportionate share of the tax paid by the Company,
which would be credited or refunded to the shareholders. Each shareholder's
basis in his shares would be increased by the amount of the undistributed
long-term capital gain included in the shareholder's income, less the
shareholder's share of the tax paid by the Company.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a 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 such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
shareholder's Common Shares, such distributions will be included in income as
long-term capital gain (or short-term capital gain if the Common Shares has been
held for one year or less) assuming the Common Shares are capital assets in the
hands of the shareholder. In addition, any distribution declared by the Company
in October, November, or December of any year and payable to a shareholder of
record on a specified 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,
provided that the distribution is actually paid by the Company during January of
the following calendar year.
Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of the Company. Instead, such losses
would be carried over by the Company for potential offset against its future
income (subject to certain limitations). Taxable distributions from the Company
and gain from the disposition of the Common Shares will not be treated as
passive activity income and, therefore, shareholders generally will not be able
to apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which the shareholder is a limited partner) against such
income. In addition, taxable distributions from the Company and gain from the
disposition of Common Shares generally will be treated as investment income for
purposes of the investment interest limitations. The Company will notify
shareholders after the close of the Company's taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income,
return of capital, and capital gain.
Taxation of Shareholders on the Disposition of the Common Shares
In general, any gain or loss realized upon a taxable disposition of the
Common Shares by a shareholder who is not a dealer in securities will be treated
as long-term capital gain or loss if the Common Shares have been held for more
than one year and otherwise as short-term capital gain or loss. However, any
loss upon a sale or exchange of Common Shares by a shareholder who has held such
shares for six months or less (after applying certain holding period rules),
will be treated as a long-term capital loss to the extent of distributions from
the Company required to be treated by such shareholder as long-term capital
gain. All or a portion of any loss realized upon a taxable disposition of the
Common Shares may be disallowed if other Common Shares are purchased within 30
days before or after the disposition.
Capital Gains and Losses
A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The maximum tax rate on net capital gains applicable to
noncorporate taxpayers is 28% for sales and exchanges of assets held for more
than one year but not more than 18 months, and 20% for sales and exchanges of
assets held for more than 18 months. The maximum tax rate on long-
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term capital gain from the sale or exchange of "section 1250 property" (i.e.,
depreciable real property) held for more than 18 months is 25% to the extent
that such gain would have been treated as ordinary income if the property were
"section 1245 property." With respect to distributions designated by the Company
as capital gain dividends and any retained capital gains that the Company is
deemed to distribute, the Company may designate (subject to certain limits)
whether such a dividend or distribution is taxable to its noncorporate
stockholders at a 20%, 25% or 28% rate. Thus, the tax rate differential between
capital gain and ordinary income for noncorporate taxpayers may be significant.
In addition, the characterization of income as capital or ordinary may affect
the deductibility of capital losses. Capital losses not offset by capital gains
may be deducted against a noncorporate taxpayer's ordinary income only up to a
maximum annual amount of $3,000. Unused capital losses may be carried forward.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate rates. A corporate taxpayer can deduct capital losses only to the
extent of capital gains, with unused losses being carried back three years and
forward five years.
Information Reporting Requirements and Backup Withholding
The Company will report to its U.S. Shareholders and the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
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, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A shareholder who does not provide the Company with
his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any shareholders
who fail to certify their nonforeign status to the Company. The Service has
issued final regulations regarding the backup withholding rules as applied to
non-U.S. Shareholders. Those regulations alter the current system of backup
withholding compliance and will be effective for distributions made after
December 31, 1999. See "-Taxation of Non-U.S. Shareholders."
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions by a REIT to an exempt employee pension trust
do not constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension trust.
Based on that ruling, amounts distributed by the Company to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of Common Shares with debt, a portion of its income
from the Company will constitute UBTI pursuant to the "debt-financed property"
rules. Furthermore, social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under paragraphs (7), (9), (17), and (20),
respectively, of Code section 501(c) are subject to different UBTI rules, which
generally will require them to characterize distributions from the Company as
UBTI. In addition, in certain circumstances, a pension trust that owns more than
10% of the Company's shares of beneficial interest is required to treat a
percentage of the dividends from the Company as UBTI (the "UBTI Percentage").
The UBTI Percentage is the gross income derived from an unrelated trade or
business (determined as if the Company were a pension trust) divided by the
gross income of the Company for the year in which the dividends are paid. The
UBTI rule applies to a pension trust holding more than 10% of the Company's
shares of beneficial interest only if (i) the UBTI Percentage is at least 5%,
(ii) the Company qualifies as a REIT by reason of the modification of the 5/50
Rule that allows the beneficiaries of the pension trust to be treated as holding
shares of beneficial interest of the Company in proportion to their actuarial
interests in the pension trust, and (iii) either (A) one pension trust owns more
than 25% of the value of the Company's shares of beneficial interest or (B) a
group of pension trusts individually holding more than 10% of the value of the
Company's shares of beneficial interest collectively owns more than 50% of the
value of the Company's shares of beneficial interest.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no
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attempt will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO
AN INVESTMENT IN THE COMMON SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends or retained capital
gains will be treated as dividends of ordinary income to the extent that they
are made out of current or accumulated earnings and profits of the Company. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. 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
federal income tax at graduated rates, in the same manner as U.S. Shareholders
are taxed with respect to such distributions (and also may be subject to the 30%
branch profits tax in the case of a Non-U.S. Shareholder that is a foreign
corporation). The Company expects to withhold U.S. income tax at the rate of 30%
on the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any 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 with the Company claiming that the
distribution is effectively connected income. The Service has issued final
regulations that modify the manner in which the Company complies with the
withholding requirements. Those regulations are effective for distributions made
after December 31, 1999. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a shareholder to the
extent that such distributions do not exceed the adjusted basis of the
shareholder's Common Shares, but rather will reduce the adjusted basis of such
shares. To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a Non-U.S. Shareholder's
Common Shares, such distributions will give rise to tax liability if the
Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale
or disposition of his Common Shares, as described below. Because it generally
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the entire amount of any distribution normally will be subject to withholding at
the same rate as a dividend. However, amounts so withheld are refundable to the
extent it is determined subsequently that such distribution was, in fact, in
excess of current and accumulated earnings and profits of the Company.
The Company is required to withhold 10% of any distribution in excess of
the Company's current and accumulated earnings and profits. Consequently,
although the Company intends to withhold at a rate of 30% on the entire amount
of any distribution, to the extent that the Company does not do so, any portion
of a distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.
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 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Shareholder as if such gain were effectively
connected with a U.S. business. Non-U.S. Shareholders thus would be taxed at the
normal capital gain rates applicable to U.S. shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Distributions subject to FIRPTA also may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty relief or exemption. The Company is required
to withhold 35% of any distribution that could be designated by the Company as a
capital gains dividend. The amount withheld is creditable against the Non-U.S.
Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Common Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. However, because the Common Shares will be
publicly traded, no assurance can be given that the Company will be a
"domestically controlled REIT." Furthermore, gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if (i) investment in the Common Shares is
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 certain other conditions apply, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. However, a Non-U.S. Shareholder that owned, actually
or constructively, 5% or less of the Common Shares at all times during a
specified testing period will not be subject to tax under FIRPTA if the Common
Shares are "regularly traded" on an
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established securities market. If the gain on the sale of the Common Shares were
to be subject to taxation 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 applicable alternative minimum tax, a special alternative minimum
tax in the case of nonresident alien individuals, and the possible application
of the 30% branch profits tax in the case of foreign corporations).
Other Tax Consequences
The Company, the Partnership, or the Company's shareholders may be subject
to state or local taxation in various state or local jurisdictions, including
those in which it or they own property, transact business, or reside. The state
and local tax treatment of the Company and its shareholders may not conform to
the federal income tax consequences discussed above. CONSEQUENTLY, PROSPECTIVE
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE
AND LOCAL TAX LAWS ON AN INVESTMENT IN THE COMPANY.
Tax Aspects of the Partnership
The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investment in the
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws. Because 100% of the interests in
the subsidiary partnerships of the Partnership are owned, directly and
indirectly, by the Partnership, the subsidiary partnerships will not be treated
as entities separate from the partnership for federal income tax purposes.
Accordingly, this discussion does not cover the classification of the subsidiary
partnerships as partnerships for federal income tax purposes.
Classification as a Partnership
The Company will be entitled to include in its income its distributive
share of the Partnership's income and to deduct its distributive share of the
Partnership's losses only if the Partnership is classified for federal income
tax purposes as a partnership rather than as an association taxable as a
corporation. An entity will be classified as a partnership rather than as a
corporation for federal income tax purposes if the entity (i) is treated as a
partnership under Treasury regulations relating to entity classification (the
"Check-the-Box Regulations") and (ii) is not a "publicly traded" partnership.
In general, under the Check-the-Box Regulations, an unincorporated entity
with at least two members may elect to be classified either as an association
taxable as a corporation or as a partnership. If such an entity fails to make an
election, it generally will be treated as a partnership for federal income tax
purposes. The Partnership intends to be classified as a partnership and the
Company has represented that the Partnership will not elect to be treated as an
association taxable as a corporation for federal income tax purposes under the
Check-the-Box Regulations.
A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). A publicly traded partnership
will be treated as a corporation for federal income tax purposes unless at least
90% of such partnership's gross income for a taxable year consists of
"qualifying income" under section 7704(d) of the Code, which generally includes
any income that is qualifying income for purposes of the 95% gross income test
applicable to REITs (the "90% Passive-Type Income Exception"). See
"-Requirements for Qualification-Income Tests." The U.S. Treasury Department has
issued regulations (the "PTP Regulations") that provide limited safe harbors
from the definition of a publicly traded partnership. Pursuant to one of those
safe harbors (the "Private Placement Exclusion"), interests in a partnership
will not be treated as readily tradable on a secondary market or the substantial
equivalent thereof if (i) all interests in the partnership were issued in a
transaction (or transactions) that was not required to be registered under the
Securities Act, and (ii) the partnership does not have more than 100 partners at
any time during the partnership's taxable year. In determining the number of
partners in a partnership, a person owning an interest in a flow-through entity
(i.e., a partnership, grantor trust or S corporation) that owns an interest in
the partnership is treated as a partner in such partnership only if (a)
substantially all of the value of the owner's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (b) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the 100-partner
limitation. The Partnership qualifies for the Private Placement Exclusion. If
the Partnership is considered a publicly traded partnership under the PTP
Regulations because it is deemed to have more than 100 partners, the Partnership
should not be treated as a corporation because it should be eligible for the 90%
Passive-Type Income Exception.
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The Partnership has not requested, and does not intend to request, a
ruling from the Service that it will be classified as a partnership for federal
income tax purposes. Instead, at the closing of the Offering, Hunton & Williams
will deliver its opinion that the Partnership will be treated for federal income
tax purposes as a partnership and not as an association taxable as a
corporation. Unlike a tax ruling, an opinion of counsel is not binding upon the
Service, and no assurance can be given that the Service will not challenge the
status of the Partnership as a partnership for federal income tax purposes. If
such challenge were sustained by a court, the Partnership would be treated as a
corporation for federal income tax purposes, as described below. The opinion of
Hunton & Williams will be based on existing law, which is to a great extent the
result of administrative and judicial interpretation. No assurance can be given
that administrative or judicial changes would not modify the conclusions
expressed in the opinion.
If for any reason the Partnership was taxable as a corporation, rather
than as a partnership, for federal income tax purposes, the Company would not be
able to qualify as a REIT. See "-Requirements for Qualification-Income Tests"
and "-Requirements for Qualification-Asset Tests." In addition, any change in
the Partnership's status for tax purposes might be treated as a taxable event,
in which case the Company might incur a tax liability without any related cash
distribution. See "-Requirements for Qualification-Distribution Requirements."
Further, items of income and deduction of the Partnership would not pass through
to its partners, and its partners would be treated as shareholders for tax
purposes. Consequently, the Partnership would be required to pay income tax at
corporate tax rates on its net income, and distributions to its partners would
constitute dividends that would not be deductible in computing the Partnership's
taxable income.
Income Taxation of the Partnership and its Partners
Partners, Not the Partnership, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. Rather, the Company will be
required to take into account its allocable share of the Partnership's income,
gains, losses, deductions, and credits for any taxable year of the Partnership
ending within or with the taxable year of the Company, without regard to whether
the Company has received or will receive any distribution from the Partnership.
Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under section 704(b) of the Code if they do
not comply with the provisions of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder. If an allocation is not recognized for
federal income tax purposes, the item subject to the allocation will be
reallocated in accordance with the partners' interests in the partnership, which
will be determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such item.
The Partnership's allocations of taxable income, gain and loss are intended to
comply with the requirements of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to
section 704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner such that the contributor is charged with, or benefits
from, 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. The Treasury Department has issued
regulations requiring partnerships to use a "reasonable method" for allocating
items affected by section 704(c) of the Code and outlining several reasonable
allocation methods. The Partnership generally will elect to use the traditional
method for allocating Code section 704(c) items with respect to the hotels it
acquires in exchange for Units.
Under the Partnership Agreement, depreciation or amortization deductions
of the Partnership generally will be allocated among the partners in accordance
with their respective interests in the Partnership, except to the extent that
the Partnership is required under Code section 704(c) to use a method for
allocating tax depreciation deductions attributable to the Initial Hotels or
other contributed properties that results in the Company receiving a
disproportionately large share of such deductions. In addition, gain on the sale
of an Initial Hotel will be specially allocated to the Limited Partners to the
extent of any "built-in" gain with respect to such Initial Hotel for federal
income tax purposes. Depending on the allocation method elected under Code
section 704(c), it is possible that the Company (i) may be allocated lower
amounts of depreciation deductions for tax purposes with respect to contributed
hotels than would be allocated to the Company if such hotels were to have a tax
basis equal to their fair market value at the time of contribution and (ii) may
be allocated taxable gain in the event of a sale of such contributed hotels in
excess of the economic profit allocated to the Company as a result of such sale.
These allocations may cause the
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Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the 95% distribution
requirement, although the Company does not anticipate that this event will
occur. The foregoing principles also will affect the calculation of the
Company's earnings and profits for purposes of determining which portion of the
Company's distributions is taxable as a dividend. The allocations described in
this paragraph may result in a higher portion of the Company's distributions
being taxed as a dividend than would have occurred had the Company purchased the
Initial Hotels for cash.
Basis in Partnership Interest. The Company's adjusted tax basis in its
partnership interest in the Partnership generally will be equal to (i) the
amount of cash and the basis of any other property contributed to the
Partnership by the Company, (ii) increased by (A) its allocable share of the
Partnership's income and (B) its allocable share of indebtedness of the
Partnership, and (iii) reduced, but not below zero, by (A) the Company's
allocable share of the Partnership's loss and (B) the amount of cash distributed
to the Company, including constructive cash distributions resulting from a
reduction in the Company's share of indebtedness of the Partnership.
If the allocation of the Company's distributive share of the Partnership's
loss would reduce the adjusted tax basis of the Company's partnership interest
in the Partnership below zero, the recognition of such loss will be deferred
until such time as the recognition of such loss would not reduce the Company's
adjusted tax basis below zero. To the extent that the Partnership's
distributions, or any decrease in the Company's share of the indebtedness of the
Partnership (such decrease being considered a constructive cash distribution to
the partners), would reduce the Company's adjusted tax basis below zero, such
distributions (including such constructive distributions) will constitute
taxable income to the Company. Such distributions and constructive distributions
normally will be characterized as capital gain, and, if the Company's
partnership interest in the Partnership has been held for longer than the
long-term capital gain holding period (currently one year), the distributions
and constructive distributions will constitute long-term capital gain.
Depreciation Deductions Available to the Partnership. Immediately after
the Offering, the Company will make a cash contribution to the Partnership in
exchange for a partnership interest in the Partnership. The Partnership's
initial basis in each Initial Hotel for federal income tax purposes should be
the same as the Selling Partnership's basis in that hotel on the date of
acquisition. Although the law is not entirely clear, the Partnership intends to
depreciate such depreciable hotel property for federal income tax purposes over
the same remaining useful lives and under the same methods used by the Selling
Partnership. The Partnership's tax depreciation deductions will be allocated
among the partners in accordance with their respective interests in the
Partnership (except to the extent that the Partnership is required under Code
section 704(c) to use a method for allocating depreciation deductions
attributable to the Initial Hotels or other contributed properties that results
in the Company receiving a disproportionately large share of such deductions).
To the extent the Partnership acquires additional hotel properties for cash, the
Partnership's initial basis in the properties for federal income tax purposes
generally will be equal to the purchase price paid by the Partnership. The
Partnership plans to depreciate such depreciable hotel property for federal
income tax purposes under MACRS. Under MACRS, the Partnership generally will
depreciate such furnishings and equipment over a seven-year recovery period
using a 200% declining balance method and a half-year convention. If, however,
the Partnership places more than 40% of its furnishings and equipment in service
during the last three months of a taxable year, a mid-quarter depreciation
convention must be used for the furnishings and equipment placed in service
during that year. Under MACRS, the Partnership generally will depreciate
buildings and improvements over a 39-year recovery period using a straight line
method and a mid-month convention.
Sale of the Company's or the Partnership's Property
Generally, any gain realized by the Company or the Partnership on the sale
of property held for more than one year will be long-term capital gain, except
for any portion of such gain that is treated as depreciation or cost recovery
recapture. Any gain recognized on the disposition of the Initial Hotels will be
allocated first to the Limited Partners under section 704(c) of the Code to the
extent of their "built-in gain" on those hotels for federal income tax purposes.
The Limited Partners' "built-in gain" on the Initial Hotels sold will equal the
excess of the Limited Partners' proportionate share of the book value of the
Initial Hotels over the Limited Partners' tax basis allocable to the Initial
Hotels at the time of the sale. Any remaining gain recognized by the Partnership
on the disposition of the Initial Hotels will be allocated among the partners in
accordance with their respective percentage interests in the Partnership. The
Board of Trustees has adopted a policy that any decision in connection with any
transaction involving the Company, including the purchase, sale lease or
mortgage of any real estate asset, in which a Trustee or officer of the Company,
or any Affiliate thereof, has any interest (other than solely as a result of his
status as a Trustee, officer or shareholder of the Company) must be approved by
a majority of the Trustees,
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including a majority of the Independent Trustees. See "Risk Factors-Conflicts of
Interest-Conflicts Relating to Sales or Refinancing of Initial Hotels."
Any gain realized on the sale of any property held by the Company or the
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Company's or the Partnership's trade or business
will be treated as income from a prohibited transaction that is subject to a
100% penalty tax. See "-Requirements for Qualification-Income Tests." Such
prohibited transaction income also may have an adverse effect upon the Company's
ability to satisfy the income tests for REIT status. See "-Requirements For
Qualification-Income Tests" above. The Company, however, does not presently
intend to acquire or hold or to allow the Partnership to acquire or hold any
property that represents inventory or other property held primarily for sale to
customers in the ordinary course of the Company's or the Partnership's trade or
business.
UNDERWRITING
The Company has engaged the Underwriter exclusively to sell 2,500,000
Common Shares on a "best efforts all-or-none" basis. The Offering is being made
without a firm commitment by the Underwriter, which has no obligation or
commitment to purchase any of the Common Shares. The Company will pay the
Underwriter a selling commission of $0.48 per share. The Company intends to sell
166,667 Common Shares directly to certain Hersha Affiliates at the Offering
Price and no selling commission will be payable to the Underwriter with respect
to such shares.
Unless sooner withdrawn or canceled, the Offering will continue until the
earlier of the date on which all the Common Shares offered hereby are sold or
[__________________] (the "Offering Termination Date"). Until the Closing Date,
all proceeds from the sale of the Common Shares will be deposited in escrow with
First Union National Bank of North Carolina, Charlotte, North Carolina (the
"Escrow Agent"). Proceeds deposited in escrow with the Escrow Agent may not be
withdrawn prior to the Closing Date or the Offering Termination Date. If the
Offering is withdrawn or canceled or if all of the Common Shares offered hereby
are not sold and all proceeds therefrom are received by the Company on or prior
to the Offering Termination Date, all proceeds will be returned by the Escrow
Agent without interest to the persons from which they are received promptly
after such withdrawal or cancellation.
Pursuant to the Underwriting Agreement, the obligations of the Underwriter
to solicit offers to purchase the shares and of investors solicited by the
Underwriter to purchase the Common Shares are subject to approval of certain
legal matters by counsel to the Underwriter and to various other conditions
which are customary in transactions of this type, including that, as of the
closing date of the Offering, there shall not have occurred (i) a suspension or
material limitation in trading in securities generally on the New York Stock
Exchange or The American Stock Exchange; (ii) a general moratorium on commercial
banking activities in Virginia or New York, (iii) the engagement by the United
States in hostilities which have resulted in the declaration of a national
emergency or war if any such event would have such a materially adverse effect,
in the Underwriter's reasonable judgment, as to make it impracticable or
inadvisable to proceed with the solicitation of offers to consummate the
offering on the terms and in the manner contemplated herein; or (iv) such a
material adverse change in general economic, political, financial or
international conditions affecting financial markets in the United States having
a material adverse impact on trading prices of securities in general, as, in the
Underwriter's reasonable judgment, makes it inadvisable to proceed with the
solicitation of offers to purchase the shares or to consummate the offering with
respect to investors solicited by the Underwriter on the terms and conditions
contemplated herein. The Company has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act.
The Company has granted the Underwriter the Underwriter Warrants to
purchase 250,000 Common Shares for a period of five years at a price per share
equal to 165% of the Offering Price. Until ____________, 2003, the Company has
agreed to file with the Commission a shelf registration statement covering the
resale of the Underwriter Warrants and all of the Common Shares that may be
issued upon exercise of the Underwriter Warrants ("Warrant Shares") in the event
that the holders of at least 50,000 Underwriter Warrants (or Warrant Shares)
request such registration. The first such registration shall be at the Company's
expense. The holders of Underwriter Warrants and/or Warrant Shares may also
request piggyback registration of the Underwriter Warrants and Warrant Shares at
the Company's expense for a period ending ____________, 2005. Upon any of such
requests, the Company will use its best efforts to have such registration
statement declared effective and to keep it effective for a period of 180 days.
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The Company has granted the Underwriter a right of first refusal, for a
period of three years following consummation of the Offering, to act as
underwriter or sales agent with respect to any future offering by the Company or
the Partnership of any debt or equity securities. This right of first refusal,
by limiting the ability of the Company and the Partnership to use other
potential underwriters or selling agents, might have the effect of limiting the
access of the Company and the Partnership to capital markets.
Pursuant to the Underwriter's right to designate two Trustees to serve on
the Board of Trustees of the Company, L. McCarthy Downs, III and
____________________________ have agreed to serve as Trustees. Mr. Downs and
_____________ each will receive $15,000 per year for serving as a Trustee of the
Company.
The Underwriter may, at its election, employ other brokers, dealers or
underwriters in connection with the solicitation of subscriptions to purchase
Common Shares. The Underwriter may allow, and such dealers may allow, a
concession not in excess of $_______ per share to certain brokers and dealers.
The Underwriter does not intend to sell the Common Shares to any accounts
over which it exercises discretionary authority.
Prior to the Offering, there has been no public market for the Common
Shares. The initial public offering price is anticipated to be $6.00 per
share. See "Risk Factors-Market for Common Shares."
The Company and the Limited Partners have agreed, subject to certain
limited exceptions, not to offer, sell, contract to sell or otherwise dispose of
any Common Shares (or any securities convertible into, or exercisable or
exchangeable for shares in the Company) for a period of 90 days after the date
of this Prospectus, without the prior written consent of the Underwriter.
The Company will apply for listing of the Common Shares on The American
Stock Exchange under the trading symbol "HT."
EXPERTS
The balance sheet of the Company as of May 27, 1998 and of the Lessee as
of May 27, 1998 included in this Prospectus, and the Combined Financial
Statements and financial statement schedule of the Selling Partnerships Initial
Hotels as of December 31, 1997 and 1996 for each of the three years in the
period ended December 31, 1997 included in this Prospectus, have been audited by
Moore Stephens, P.C., independent certified public accountants, as set forth in
their reports thereon included elsewhere herein and in the Registration
Statement. Such Balance Sheets, Combined Financial Statements and financial
statement schedule are included in reliance upon such reports given on their
authority as experts in accounting and auditing.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
the Company by Hunton & Williams. In addition, the description of federal income
tax consequences contained in the section of the Prospectus entitled "Federal
Income Tax Consequences" is based on the opinion of Hunton & Williams. Certain
legal matters related to this Offering will be passed upon for the Underwriter
by Willcox & Savage, P.C. Hunton & Williams and Willcox & Savage, P.C. will rely
on the opinion of Ballard Spahr Andrews & Ingersoll, LLP as to certain matters
of Maryland law.
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ADDITIONAL INFORMATION
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 of the
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. 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 statement being 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.
The Registration Statement and the exhibits and schedules forming a part
thereof filed by the Company with the Commission can be inspected and copies
obtained from the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a website that
contains reports, proxy and information statements and other information
regarding registrants that file documents with the Commission, including the
Company, and the address is http://www.sec.gov.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus.
"5/50 Rule" means the requirement in the Code that not more than 50% in
value of the outstanding shares of beneficial interest of the Company be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of each taxable year.
"Acquisition Policy" means the Company's policy to acquire a hotel for
which it expects to receive rents at least equal to 12% of the purchase price
paid for the hotel, not of (i) property and casualty insurance premiums, (ii)
real estate and personal property taxes, and (iii) a reserve for furniture,
fixtures and equipment equal to 4% of gross revenues at the hotel.
"ADA" means the Americans with Disabilities Act of 1990.
"Additional Charges" means certain amounts payable by the Lessee in
connection with Percentage Leases, including interest accrued on any late
payments or charges.
"ADR" means average daily room rate.
"Affiliate" means (i) any person directly or indirectly owning,
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with power to vote, by such other person, (iii) any person
directly or indirectly controlling, controlled by, or under common control with
such other person, (iv) any executive officer, director, trustee or general
partner of such other person, and (v) any legal entity for which such person
acts as an executive officer, director, trustee or general partner. The term
"person" means and includes any natural person, corporation, partnership,
association, limited liability company or any other legal entity. An indirect
relationship shall include circumstances in which a person's spouse, children,
parents, siblings or mothers-, fathers-, sisters- or brothers-in-law is or has
been associated with a person.
"Assumed Indebtedness" means that certain indebtedness in the aggregate
approximate principal amount of approximately $11.7 million secured by Initial
Hotels, to be assumed by the Partnership in the Formation Transactions and to
remain outstanding after the application of the net proceeds of the Offering.
"Base Rent" means the fixed obligation of the Lessee to pay a sum certain
in monthly Rent under each of the Percentage Leases.
"Beneficiary" means the beneficiary of a Trust.
"Board of Trustees" means the Board of Trustees of the Company.
"Bylaws" means the Bylaws of the Company.
"Choice Hotels" means Choice Hotels International, Inc.
"Closing Date" means the closing date of the Offering.
"Closing Price" means the last sale price quoted on the American Stock
Exchange.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Shares" means the common shares of beneficial interest, par value
$.01 per share, of the Company.
"Company" means Hersha Hospitality Trust, a Maryland real estate
investment trust.
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"Debt Policy" means the Company's policy to limit consolidated
indebtedness to less than 55% of the aggregate purchase price paid by the
Company for the hotels in which it has invested.
"Declaration of Trust" means the Declaration of Trust of the Company,
as amended and restated.
"FIRPTA" means Foreign Investment in Real Property Tax Act of 1980, as
amended.
"First Adjustment Date" means December 31, 1999.
"Formation Transactions" means the principal transactions in connection
with the formation of the Company as a REIT, the Offering and the acquisition of
the Initial Hotels.
"Franchise Licenses" means the franchise licenses held by the Lessee
for the Initial Hotels.
"Funds From Operations" means net income, (computed in accordance with
generally accepted accounting principles), excluding gains, or losses, from debt
restructuring or sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
"General Partner" means Hersha Hospitality Trust, as the sole general
partner of the Partnership.
"Hersha Affiliates" means Hasu P. Shah; Jay H. Shah; Neil H. Shah;
Bharat C. Mehta; Kanti D. Patel; Rajendra O. Gandhi; Kiran P. Patel; David L.
Desfor; Madhusudan I. Patni; Manahar Gandhi; Shree Associates; JSK
Associates; Shanti Associates; Shreeji Associates; Kunj Associates; Devi
Associates; Shreenathji Enterprises, Ltd.; 2144 Associates; 144 Associates,
344 Associates, 544 Associates and 644 Associates, joint tenants doing
business as 2544 Associates; the Lessee and their Affiliates, collectively
owning 100% of the interests of the Selling Partnerships.
"Hersha Warrants" means warrants that the Partnership has granted to 2744
Associates, L.P., which is a Hersha Affiliate, to purchase 250,000 Units for a
period of five years at a price per Unit equal to $165% of the Offering Price.
"Independent Trustee" means a Trustee of the Company who is not an
officer, director or employee of the Company, any lessee of the Company's or the
Partnership's properties or any underwriter or placement agent of the shares of
beneficial interest of the Company that has been engaged by the Company within
the past three years, or any Affiliate thereof.
"Initial Hotels" means ten hotels to be owned by the Partnership after the
Formation Transactions are completed, which hotels include three Holiday Inn
Express hotels, two Hampton Inn hotels, two Holiday Inn hotels, two Comfort Inn
hotels and one Clarion Suites hotel.
"Initial Fixed Rent" means the fixed rent payable by the Lessee with
respect to the Newly-Developed Hotels and the Newly-Renovated Hotels until the
First Adjustment Date or the Second Adjustment Date, as applicable.
"Interested Shareholder" means any person who beneficially owns 10% or
more of a company's voting shares, or an Affiliate of a company that, at any
time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of a company's voting
shares.
"Lessee" means Hersha Hospitality Management, LP, a Pennsylvania limited
partnership, which will lease and operate the Initial Hotels from the
Partnership pursuant to the Percentage Leases.
"Limited Partners" means the limited partners of the Partnership.
"Line of Credit" means a $10 million line of credit facility that the
Company is currently negotiating to obtain from various lenders.
"Market Price" means, on a given day, the average Closing Price for the
five consecutive Trading Days ending on such date.
"NAREIT" means the National Association of Real Estate Investment
Trusts, Inc.
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"Newly-Developed Hotels" means the Holiday Inn Express(Registered
Trademark) hotels located in Hershey, Pennsylvania and New Columbia,
Pennsylvania, the Hampton Inn(Registered Trademark) hotel located in Carlisle,
Pennsylvania and the Comfort Inn(Registered Trademark) hotel located in
Harrisburg, Pennsylvania.
"Newly-Renovated Hotels" means the Holiday Inn Express(Registered
Trademark) hotel located in Harrisburg, Pennsylvania, the Holiday Inn(Registered
Trademark) hotel located in Milesburg, Pennsylvania and the Comfort Inn located
in Denver, Pennsylvania.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.
"Offering" means the offering of Common Shares hereby.
"Offering Price" means the initial public offering price of the Common
Shares in the Offering of $6.00 per share.
"Offering Termination Date" means [_______________]
"Option Agreement" means the option agreement to be executed by the
Partnership and Hasu P. Shah, Jay H. Shah, Neil H. Shah, Bharat C. Mehta,
Kanti D. Patel, Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor,
Madhusudan I. Patni and Manahar Gandhi, each a Hersha Affiliate, granting the
Partnership certain rights to acquire certain hotels to be developed or
acquired by the Hersha Affiliates.
"Option Plan" means the Hersha Hospitality Trust Option Plan.
"Ownership Limitation" means the restriction on ownership (or deemed
ownership by virtue of the attribution provisions of the Code) of more than 9.9%
of the number of outstanding Common Shares or the number of outstanding
Preferred Shares of any series.
"Partnership" means Hersha Hospitality Limited Partnership, a limited
partnership organized under the laws of the Commonwealth of Virginia.
"Partnership Agreement" means the partnership agreement of the
Partnership, as amended and restated.
"Percentage Leases" mean operating leases between the Lessee and the
Partnership pursuant to which the Lessee will lease the ten Initial Hotels from
the Partnership and any additional hotels acquired by the Company after the date
of the Offering.
"Percentage Rents" means Rent based on percentages of revenues payable by
the Lessee pursuant to the Percentage Leases.
"Preferred Shares" means the preferred shares of beneficial interest, par
value $.01 per share, of the Company.
"Prohibited Owner" means the record owner of Shares-in-Trust.
"Redemption Right" means the right of the persons receiving Units in the
Formation Transactions to cause the redemption of Units in exchange for cash or,
at the option of the Company, Common Shares on a one-for-one basis.
"REIT" means real estate investment trust, as defined in section 856 of
the Code.
"Rent" means the Initial Fixed Rent, the Base Rent and the Percentage
Rents.
"REVPAR" means revenue per available room for the applicable period,
determined by dividing room revenue by available rooms.
"Rule 144" means the rule promulgated under the Securities Act that
permits holders of restricted securities as well as affiliates of an issuer of
the securities, pursuant to certain conditions and subject to certain
restrictions, to sell their securities publicly without registration under the
Securities Act.
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"Securities Act" means the Securities Act of 1933, as amended.
"Second Adjustment Date" means December 31, 2000.
"Selling Partnerships" means Hasu P. Shah; Neil H. Shah; Bharat C.
Mehta; David L. Desfor; Madhusudan I. Patni; Manahar Gandhi; Shree
Associates; JSK Associates; Shanti Associates; Shreeji Associates; Kunj
Associates; Devi Associates; Shreenathji Enterprises, Ltd.; 2144 Associates;
and 144 Associates, 344 Associates, 544 Associates and 644 Associates, joint
tenants doing business as 2544 Associates, collectively the limited
partnerships, corporation and individuals that, prior to the Formation
Transactions, own the Initial Hotels.
"Service" means the United States Internal Revenue Service.
"Shares-in-Trust" means any Common Shares or Preferred Shares the
purported transfer of which would (i) result in any person owning, directly or
indirectly, Common Shares or Preferred Shares in excess of the Ownership
Limitation, (ii) result in the Common Shares and Preferred Shares being owned by
fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, or (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's, the Partnership's real property, within the meaning of Section
856(d)(2)(B) of the Code.
"Stabilized Hotels" means the Hampton Inn(Registered Trademark) hotel
located in Selinsgrove, Pennsylvania, the Holiday Inn(Registered Trademark)
hotel located in Harrisburg, Pennsylvania and the Clarion Suites(Registered
Trademark) hotel located in Philadelphia, Pennsylvania.
"Threshold" means the amount of annual room revenues set out in each
Percentage Lease above which the Lessee will pay a Percentage Rent relating to
annual room revenues above that Threshold.
"Trading Day" means a trading day on the American Stock Exchange.
"Treasury Regulations" means the income tax regulations promulgated
under the Code.
"Trust" means a trust established to hold Shares-in-Trust.
"Trustee" means a member of the Company's Board of Trustees.
"Trustees' Plan" means the Hersha Hospitality Trust Non-Employee
Trustees' Option Plan.
"Underwriter" means Anderson & Strudwick, Incorporated.
"Underwriter Warrants" means warrants that the Company has granted the
Underwriter to purchase 250,000 Common Shares for a period of five years at a
price per Unit equal to 165% of the Offering Price.
"Units" means units of limited partnership interest in the Partnership.
94
<PAGE>
INDEX TO PRO FORMA CONDENSED AND COMBINED FINANCIAL STATEMENTS
Hersha Hospitality Trust
Condensed Statement of Estimated Revenues and Expenses for the
three months ended March 31, 1998 ................................. F-2
Condensed Statement of Estimated Revenues and Expenses for the
year ended December 31, 1997....................................... F-4
Pro Forma Condensed Combined Balance Sheet as of March 31, 1998.... F-5
Independent Auditors' Report....................................... F-8
Balance Sheet as of May 27, 1998................................... F-9
Notes to Balance Sheet............................................. F-10
Hersha Hospitality Limited Partnership
Financial statements are not presented as the Partnership is not active and when
active will be consolidated with the financial results of Hersha Hospitality
Trust.
Hersha Hospitality Management, L.P.
Independent Auditors' Report....................................... F-12
Balance Sheet as of May 27, 1998................................... F-13
Notes to Balance Sheet............................................. F-14
Combined Entities - Initial Hotels
Pro Forma Condensed Combined Statement of Operations
for the three months ended March 31, 1998 .......................... F-15
Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1997................................ F-16
Independent Auditors' Report........................................ F-17
Combined Financial Statements
Balance Sheets as of March 31, 1998 [Unaudited] and December 31, 1997
and 1996........................................................... F-18
Statements of Operations for the three months ended March 31, 1998
and 1997 [Unaudited] and for the years ended December 31, 1997, 1996,
and 1995.......................................................... F-19
Statement of Owners' Equity for the three months ended March 31, 1998
[Unaudited] and for the years ended December 31, 1997, 1996,
and 1995........................................................... F-20
Statements of Cash Flows for the three months ended March 31,
1998 and 1997 [Unaudited] and for the years ended
December 31, 1997, 1996, and 1995.................................. F-21
Notes to Combined Financial Statements............................ F-23
Schedule XI - Real Estate and Accumulated Depreciation............. F-31
. . . . . . . . .
F-1
<PAGE>
HERSHA HOSPITALITY TRUST
CONDENSED STATEMENT OF ESTIMATED REVENUES AND EXPENSES FOR THE THREE MONTHS
ENDED MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA]
This unaudited Condensed Statement of Estimated Revenues and Expenses of Hersha
Hospitality Trust is presented as if the acquisition of the Initial Hotels and
the consummation of the Offering contemplated by this prospectus had occurred on
January 1, 1997. Such estimated information is based in part upon the pro forma
Condensed Combined Statements of Operations of the Combined Entities - Initial
Hotels and the application of the proceeds of the offering as set forth under
the caption "Use of Proceeds"and assumes the issuance of 3,450,833 Units to the
Hersha Affiliates which give rise to a minority interest percentage of 56.41%.
It should be read in conjunction with the pro forma Condensed Combined
Statements of Operations and the Combined Financial Statements and Notes thereto
of the Combined Entities - Initial Hotels included at pages F-17 through F-28 of
this Prospectus. In management's opinion, all adjustments necessary to reflect
the effects of this transaction have been made.
The historical results of operations which provide the basis for the pro forma
information excludes any operations for a hotel opened in May 1998.
This unaudited Condensed Statement of Estimated Revenues and Expenses is not
necessarily indicative of what actual results of operations of the Company would
have been assuming such transactions had been completed as of January 1, 1997,
nor does it purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
Three months ended
Historical Adjustments March 31, 1998
<S> <C>
Operating Data:
Percentage Lease Revenue $ -- $ 1,179[A] $ 1,179
Depreciation and Amortization -- 382[B] 394
12[G]
Real Estate and Personal Property Taxes and
Property Insurance -- 96[C] 96
Interest Expense -- 246[D] 246
General and Administrative -- 84[E] 84
Land Lease -- 5[F] 5
Minority Interest -- 200[H] 200
------- --------- --------
Net Income Applicable to Common
Shareholders $ -- $154 $ 154
======= ========= ========
Weighted Average Number of Common
Shares Outstanding 2,666,667
=========
Basic Earnings Per Share $ .06
=========
</TABLE>
[A] Represents anticipated lease payments from Hersha Hospitality Management,
L.P. [the "Lessee"] to Hersha Hospitality Limited Partnership [the
"Partnership"] calculated on a pro forma basis using the rent provisions
in the Percentage Leases and the historical revenue of the Initial
Hotels. Percentage lease payments for the three months ended March 31,
1998, are calculated as the expected annual lease payment, [which may
include contingent rents based on the attainment of certain rent
targets], based on projected 1998 revenues, multiplied by the ratio
that revenues for the quarter ended March 31, 1998 bears to total
projected 1998 revenue. Under Emerging Issues Task Force Issue No. 98-9
dated May 21, 1998, the calculation of percentage lease payments for
interim periods would preclude the inclusion of contingent rent amounts
until the specified rent target is met. The effect of this change
would be to reduce percentage lease revenue, net income applicable to
Common Shareholders and basic earnings per share to $1,131, $133 and $.05,
respectively.
F-2
<PAGE>
HERSHA HOSPITALITY TRUST
CONDENSED STATEMENT OF ESTIMATED REVENUES AND EXPENSES FOR THE THREE MONTHS
ENDED MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA]
[Continued]
[B] Represents depreciation on the Initial Hotel properties and renovations
thereto and amortization of intangibles excluding franchise fees.
Depreciation is computed based upon estimated useful lives of 15 to 40
years for buildings and improvements, 5 to 7 years for furniture and
equipment and 5 to 30 years for intangibles. These estimated useful lives
are based on management's' knowledge of the properties and the hotel
industry in general.
[C] Represents real estate and personal property taxes and property insurance
to be paid by the Partnership.
[D] Represents interest on approximately $11,753 of debt remaining after the
closing of the formation transactions assumed outstanding for the full
quarter at 8.38%.
[E] Estimated at $84 per quarter based on the administrative services
agreement, legal fees, audit fees, directors fees, salaries and related
expenses.
[F] Represents land lease payments to be paid to Mr. Hasu P. Shah.
[G] Represents amortization of franchise license transfer fees, transfer taxes,
improvements, and other.
[H] Calculated at 56.41% of lease income minus depreciation and amortization,
real estate and personal property taxes, property insurance, interest
expense, land leases and general and administrative expenses.
F-3
<PAGE>
HERSHA HOSPITALITY TRUST
CONDENSED STATEMENT OF ESTIMATED REVENUES AND EXPENSES FOR THE YEAR ENDED
DECEMBER 31, 1997.
[UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA]
This unaudited Condensed Statement of Estimated Revenues and Expenses of Hersha
Hospitality Trust is presented as if the acquisition of the Initial Hotels and
the consummation of the Offering contemplated by this prospectus had occurred on
January 1, 1997. Such estimated information is based in part upon the pro forma
Condensed Combined Statements of Operations of the Combined Entities - Initial
Hotels and the application of the proceeds of the offering as set forth under
the caption "Use of Proceeds"and assumes the issuance of 3,450,833 Units to the
Hersha Affiliates which give rise to a minority interest percentage of 56.41%.
It should be read in conjunction with the pro forma Condensed Combined
Statements of Operations and the Combined Financial Statements and Notes thereto
of the Combined Entities - Initial Hotels included at pages F-17 through F-28 of
this Prospectus. In management's opinion, all adjustments necessary to reflect
the effects of this transaction have been made.
The historical results of operations which provide the basis for the pro forma
information includes the operations of three hotel properties only from the date
they commenced operations in June, October and December 1997. The pro forma
information excludes any operations for a hotel opened in May 1998.
This unaudited Condensed Statement of Estimated Revenues and Expenses is not
necessarily indicative of what actual results of operations of the Company would
have been assuming such transactions had been completed as of January 1, 1997,
nor does it purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
Year ended
Historical Adjustments December 31,1997
<S> <C>
Operating Data:
Percentage Lease Revenue $ -- $ 4,945[A] $ 4,945
Depreciation and Amortization -- 1,143[B] 1,190
47[G]
Real Estate and Personal Property Taxes and
Property Insurance -- 375[C] 375
Interest Expense -- 873[D] 873
General and Administrative -- 335[E] 335
Land Lease -- 21[F] 21
Minority Interest -- 1,213[H] 1,213
------- --------- --------
Net Income Applicable to Common
Shareholders $ -- $ 938 $ 938
-------------------------------- ======= ========= ========
Weighted Average Number of Common Shares Outstanding 2,666,667
=========
Basic Earnings Per Share $ .35
=========
</TABLE>
[A] Represents anticipated lease payments from Hersha Hospitality Management,
L.P. [the "Lessee"] to Hersha Hospitality Limited Partnership [the
"Partnership"] calculated on a pro forma basis using the rent provisions in
the Percentage Leases and the historical revenue of the Initial Hotels.
[B] Represents depreciation on the Initial Hotel properties and renovations
thereto and amortization of intangibles excluding franchise fees.
Depreciation is computed based upon estimated useful lives of 15 to 40
years for buildings and improvements, 5 to 7 years for furniture and
equipment and 5 to 30 years for intangibles. These estimated useful lives
are based on management's' knowledge of the properties and the hotel
industry in general.
[C] Represents real estate and personal property taxes and property insurance
to be paid by the Partnership.
[D] Represents interest on approximately $10,407 of debt remaining after the
closing of the formation transactions assumed outstanding for the full year
at 8.39%.
[E] Estimated at $335 per year based on the administrative services agreement,
legal fees, audit fees, directors fees, salaries and related expenses.
[F] Represents land lease payments to be paid to Mr. Hasu P. Shah.
[G] Represents amortization of franchise license transfer fees, transfer taxes,
improvements and other.
[H] Calculated at 56.41% of lease income minus depreciation and amortization,
real estate and personal property taxes, property insurance, interest
expense, land leases and general and administrative expenses.
F-4
<PAGE>
HERSHA HOSPITALITY TRUST
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS]
This unaudited pro forma Condensed Combined Balance Sheet is presented as if the
acquisition of the Initial Hotels and the consummation of the Offering
contemplated by this prospectus had occurred on March 31, 1998. Such pro forma
information is based upon the Combined Balance Sheets of the Combined Entities -
Initial Hotels as adjusted for the application of the proceeds of the Offering
as set forth under the caption "Use of Proceeds"and assumes the issuance of
3,450,833 Units to the Hersha Affiliates which give rise to a minority interest
percentage of 56.41%. It should be read in conjunction with the Combined
Financial Statements of the Combined Entities - Initial Hotels and the Notes
thereto included at pages F-17 through F-28 of this Prospectus. In management's
opinion, all adjustments necessary to reflect the effects of this transaction
have been made.
This unaudited pro forma Condensed Combined Balance Sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of March 31, 1998, nor does it purport to
represent the future financial position of the Company.
F-5
<PAGE>
HERSHA HOSPITALITY TRUST
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS]
<TABLE>
<CAPTION>
Historical
Combined
Entities Proceeds of Pro Forma Use of Pro Forma
Initial Hotels Offering Company Proceeds Company
[A] [B] [C]
<S> <C>
Assets:
Net Investment in Hotel
Properties $ 26,125 $ -- $ 26,125 $ (250) [D] $ 25,966
(256) [E]
(153) [E]
Cash 442 14,213 14,655 (14,655) [D] --
Other Assets 1,105 -- 1,105 (1,105) [E] --
Intangibles 1,397 -- 1,397 488 [D] 1,595
(290) [E]
Total Assets $ 29,069 $14,213 $ 43,282 $ (15,721) $ 27,561
========== ======= ========== ========= ========
Liabilities:
Mortgages $ 17,667 $ -- $ 17,667 $ (5,914) [D] $ 11,753
Due to Related Parties 7,561 -- 7,561 (7,561) [D] --
Accounts Payable, Accrued
Expenses and Other
Liabilities 567 -- 567 (567) [E] --
---------- ------- ---------- --------- --------
Total Liabilities 25,795 -- 25,795 (14,042) 11,753
---------- ------- ---------- --------- --------
Minority Interest in
Partnership -- -- -- 8,917 [F] 8,917
---------- ------- ---------- --------- --------
Shareholders' Equity:
Common Shares -- 27 27 -- 27
Additional Paid-in Capital -- 14,186 14,186 (7,322)[G] 6,864
Net Combined Equity 3,274 -- 3,274 (3,274)[F,G]
---------- ------- ---------- ----------
Total Shareholders' Equity 3,274 14,213 17,470 (10,587) 6,891
---------- ------- --------- ---------- ========
Total Liabilities and
Shareholders' Equity $ 29,069 $14,213 $ 43,282 $ (15,721) $ 27,561
========== ======= ========== ========= ========
</TABLE>
F-6
<PAGE>
HERSHA HOSPITALITY TRUST
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1998.
[UNAUDITED, IN THOUSANDS]
[A] Represents proceeds of the Offering ($16,000) less expenses of the Offering
($1,787).
[B] Represents the combined interests of the Initial Hotels and the Company
after the proceeds of the Offering, but before the use of proceeds.
[C] Represents the combined interests of the Company after the use of the
proceeds of the offering.
<TABLE>
<CAPTION>
<S> <C>
[D] Net decrease reflects the following proposed transactions:
Cash Not Being Purchased $ 442
Repayment of Amounts Payable to Affiliates and Partners 7,561
Repayment of Mortgage Indebtedness 5,914
Payment of Franchise License Transfer Fees ($145) Transfer Taxes ($233)
Improvements ($250) and Other ($110) 738
-----------
Net Decrease in Cash $ 14,655
===========
[E] Assets and liabilities; not being purchased consist of:
Cash $ (442)
Land (256)
Personal Property (153)
Other Assets (1,105)
Initial Franchise License Fees (290)
Accounts Payable, Accrued Expenses and Other Liabilities 567
-----------
Net Assets and Liabilities Not Purchased $ (1,679)
===========
[F]Represents the recognition of the interest in the Partnership that will not
be owned by the Company determined as follows:
Net Proceeds of Offering $ 14,213
Net Combined Equity 3,274
Net Assets Not Acquired (1,679)
-----------
15,808
Minority Interest Percentage .5641
Minority Interest $ 8,917
===========
[G] Net decrease reflects the following proposed transactions:
Elimination of Net Combined Equity $ 3,274
Assets and Liabilities of Initial Hotels Not Purchased (1,679)
Recognition of Minority Interest in Partnership (8,917)
-----------
$ (7,322)
</TABLE>
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
Hersha Hospitality Trust
We have audited the accompanying balance sheet of Hersha Hospitality
Trust as of May 27, 1998. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the balance
sheet 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 includes examining, on a test bases, evidence
supporting the amounts and disclosures in the balance sheet. An audit 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 Hersha Hospitality Trust as
of May 27, 1998, in conformity with generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
May 27, 1998
F-8
<PAGE>
HERSHA HOSPITALITY TRUST
BALANCE SHEET AS OF MAY 27, 1998.
<TABLE>
<CAPTION>
<S> <C>
Assets $ --
===========
Liabilities and Shareholders' Equity:
Liabilities --
Commitments and Contingencies --
Shareholders' Equity:
Common Shares, $.01 par value, 1,000 shares authorized, 100
shares issued and outstanding 1
Additional paid-in capital 99
Subscription Receivable (100)
-----------
Total Liabilities and Shareholders' Equity $ --
===========
</TABLE>
The Accompanying Notes Are an Integral Part of This Financial Statement.
F-9
<PAGE>
HERSHA HOSPITALITY TRUST
NOTES TO BALANCE SHEET AS OF MAY 27, 1998
[1] Organization and Basis of Financial Presentation
Hersha Hospitality Trust [the "Company"] was formed in May, 1998 to acquire
equity interests in ten existing hotel properties. The Company is a
self-administered, Maryland real estate investment trust ["REIT"] and expects to
qualify as a REIT for Federal income tax purposes. As such, the Company is
subject to a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95% of its taxable income. The
Company intends to offer for sale 2,666,667 [See Note 3] common shares in an
initial public offering [the "Offering"] and Hersha Hospitality Limited
Partnership [the "Partnership"] will issue approximately 3,500,000 Units of
partnership interest ["Units"] to Mr. Hasu P. Shah and certain affiliates owning
100% of the ownership interest in the ten existing hotel properties [the "Hersha
Affiliates" or "Combined Entities"], which are redeemable under certain
circumstances beginning after one year from the closing of the Offering. The
number of Units issued is subject to adjustment based on the performance of
certain Initial Hotels which as of the date of the Offering do not have
established operating histories.
Upon completion of the offering, the Company will contribute substantially all
of the net proceeds of the Offering to Partnership in exchange for an
approximate 43% general partnership interest in the Partnership. The Partnership
will use the proceeds from the Company to acquire ten existing hotel properties
[collectively the "Initial Hotels"]. The Partnership will acquire the Initial
Hotels in exchange for (i) Units, which will be redeemable, subject to certain
limitations, for an aggregate of approximately 3,500,000 Common Shares of the
Company valued at approximately $21 million based on an offering price of $6.00
per Common Share [the "Offering Price"] , and (ii) the assumption of
approximately $24 million of outstanding indebtedness as of December 31, 1997.
The Hersha Affiliates have agreed that they will (i) exchange all their
interests in the Initial Hotels for Units in the Partnership, and (ii) grant an
option to the Company to acquire any hotels acquired or developed by the Hersha
Affiliates within 15 miles of any of the Initial Hotels or any hotel
subsequently acquired by the Company.
After consummation of the Offering, (a) the Company will own approximately 43%
of the Partnership, (b) the Hersha Affiliates will own approximately 57% of the
Partnership, and (c) the Partnership will own 100% of the equity interest in the
Initial Hotels.
[2] Summary of Significant Accounting Policies
Distributions - The Company intends to pay regular quarterly dividends which are
initially dependent upon receipt of distributions from the Partnership.
[3] Commitments and Contingencies
The Company, in conjunction with the Offering, intends to amend its Declaration
of Trust to provide for the issuance of up to 50,000,000, $.01 par value, common
shares of beneficial interest and 10,000,000, $.01 par value, preferred shares
of beneficial interest.
In conjunction with the offering, the Partnership will enter into agreements for
the acquisition of the ten Initial Hotels and will enter into percentage lease
agreements with Hersha Hospitality Management L.P. [the "Lessee"]. Under the
Percentage Leases, the Partnership is obligated to pay the costs of certain
capital improvements, real estate and personal property taxes and property
insurance, and to make available to the Lessee an amount equal to 4% [6% for
some hotels] of room revenues per quarter, on a cumulative basis, for the
periodic replacement or refurbishment of furniture, fixtures and equipment at
the Initial Hotels.
F-10
<PAGE>
HERSHA HOSPITALITY TRUST
NOTES TO BALANCE SHEET AS OF MAY 27, 1998, Sheet #2
[3] Commitments and Contingencies [Continued]
Pursuant to the Partnership Agreement, the Hersha Affiliates will receive
Redemption Rights, which will enable them to cause the Partnership to redeem
their interests in the Partnership in exchange for Common Shares or for cash at
the election of the Company. The Redemption Rights may be exercised by the
Hersha Affiliates commencing one year following the closing of the Offering
depending on the length of time the hotel has been in operation. The number of
Common Shares initially issuable to the Hersha Affiliates upon exercise of the
Redemption Rights is approximately 3,500,000 and has been determined based on
the value of their interests in the Combined Entities divided by the expected
offering price of $6.00 per share. The number of shares issuable upon exercise
of the Redemption Rights will be adjusted upon the occurrence of stock splits,
mergers, consolidations or similar pro rata share transactions which otherwise
would have the effect of diluting the ownership interests of the Hersha
Affiliates or the shareholders of the Company.
The Company acts as the general partner in the Partnership and as such, is
liable for all recourse debt of the Partnership to the extent not paid by the
Partnership. In the opinion of management, the Company does not anticipate any
losses as a result of its general partner obligations.
The Company expects to incur expenses of approximately $275,000 related to the
transfer of ownership of the franchise licenses from the existing owners to the
Lessee.
Summary operating results for the Initial Hotels [in thousands] are as follows:
Three months ended Years ended
March 31, December 31,
1998 1997 1997 1996 1995
----- ----- ---- ----- -------
[Unaudited] [Unaudited]
Total Revenue $ 3,143 $ 2,286 $13,445 $ 9,989 $ 7,219
Total Expenses 3,022 2,261 11,716 10,017 7,595
------- ------- ------- ------- --------
Net Income [Loss] $ 121 $ 25 $ 1,729 $ (28) $ (376)
----------------- ======= ======= ======= ======= ========
[4] Subsequent Event [Unaudited]
Prior to the Offering, the Company will adopt the Company's "Option Plan". The
Option Plan will be administered by the Compensation Committee of the Board of
Trustees, or its delegate [the "Administrator"].
Officers and other employees of the Company generally will be eligible to
participate in the Option Plan. The Administrator will select the individuals
who will participate in the Option Plan ["Participants"].
The Option Plan will authorize the issuance of options to purchase up to 650,000
Common Shares. The Plan provides for the grant of (i) options intended to
qualify as incentive stock options under Section 422 of the Code, and (ii)
options not intended to so qualify. Options under the Option Plan may be awarded
by the Administrator, and the Administrator will determine the option exercise
period and any vesting requirements. The options granted under the Option Plan
will be exercisable only if (i) the Company obtains a per share closing price on
the Common Shares of $9.00 or higher for 20 consecutive trading days and (ii)
the closing price per Common Share for the prior trading day was higher. In
addition, no option granted under the Option Plan may be exercised more than
five/ten years after the date of grant. The exercise price for options granted
under the Option Plan will be determined by the Compensation Committee at the
time of grant.
F-11
<PAGE>
HERSHA HOSPITALITY TRUST
NOTES TO BALANCE SHEET AS OF MAY 27, 1998, Sheet #3
[4] Subsequent Event [Unaudited]
No option award may be granted under the Option Plan more than ten years after
the date the Board of Trustees approved such Plan. The Board may amend or
terminate the Option Plan at any time, but an amendment will not become
effective without shareholder approval if the amendment (i) increases the number
of shares that may be issued under the Option Plan, (ii) materially changes the
eligibility requirements or (iii) extends the length of the Option Plan. No
amendment will affect a Participant's outstanding award without the
Participant's consent.
No options have been granted under the Option Plan.
. . . . . . . .
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Hersha Hospitality Management, L.P.
We have audited the accompanying balance sheet of Hersha Hospitality
Management, L.P. as of May 27, 1998. This balance sheet is the responsibility of
the Partnership's management. Our responsibility is to express an opinion on the
balance sheet 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 includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit 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 Hersha Hospitality
Management, L.P. as of May 27, 1998, in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
May 27, 1998
F-13
<PAGE>
HERSHA HOSPITALITY MANAGEMENT, L.P.
BALANCE SHEET AS OF MAY 27, 1998.
<TABLE>
<CAPTION>
<S> <C>
Assets $ --
===========
Liabilities and Partners' Capital:
Liabilities --
Commitments and Contingencies --
Partners' Capital --
-----------
Total Liabilities and Partners' Capital $ --
===========
</TABLE>
The Accompanying Notes Are an Integral Part of This Financial Statement.
F-14
<PAGE>
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO BALANCE SHEET AS OF MAY 27, 1998.
[1] Organization
Hersha Hospitality Management, L.P. [the "Lessee"] was organized under the laws
of the State of Pennsylvania in May, 1998 to lease and operate ten existing
hotel properties from Hersha Hospitality Limited Partnership [the "Partnership"]
[collectively the "Initial Hotels"]. The Lessee is owned by Mr. Hasu P. Shah and
certain affiliates some of whom have ownership interests in the Initial Hotels.
[2] Commitments
The Lessee will enter into Percentage Leases, each with an initial term of 5
years with two 5 year renewal options, relating to each of the Initial Hotels.
Pursuant to the terms of the Percentage Leases, the Lessee is required to pay
the greater of the Base Rent or the Percentage Rent for hotels with established
operating histories. The Base Rent is 6.5 percent of the purchase price assigned
to each Initial Hotel. The Percentage Rent for each Initial Hotel is comprised
of (i) a percentage of room revenues up to the Threshold, (ii) a percentage of
room revenues in excess of the Threshold, but not more than the Incentive
Threshold, (iii) a percentage of room revenues in excess of the Incentive
Threshold and (iv) a percentage of revenues other than room revenues. For hotels
with limited operating histories, the leases provide for the payment of Initial
Fixed Rent for certain periods as specified in the leases and the greater of
Base Rent or Percentage Rent thereafter. The Lessee also will be obligated to
pay certain other amounts, including interest accrued on any late payments or
charges. The Lessee is entitled to all profits from the operations of the
Initial Hotels after the payment of certain specified operating expenses.
The Lessee will assume the rights and obligations under the terms of existing
franchise licenses relating to the Initial Hotels upon acquisition of the hotels
by the Partnership. The franchise licenses generally specify certain management,
operational, accounting, reporting and marketing standards and procedures with
which the franchisee must comply and provide for annual franchise fees based
upon percentages of gross room revenue.
The Lessee will provide certain administrative services to the Partnership for
an annual fee of $55,000 plus $10,000 per hotel.
. . . . . . . .
F-15
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998.
[UNAUDITED IN THOUSANDS]
This unaudited pro forma Condensed Combined Statement of Operations is presented
as if the sale of the Initial Hotels and the consummation of the Offering
contemplated by this prospectus had occurred on January 1, 1997. Such pro forma
information is based in part upon the Combined Statements of Operations of the
Combined Entities Initial Hotels and the application of the proceeds of the
Offering as set forth under the caption "Use of Proceeds." It should be read in
conjunction with the Combined Financial Statements and Notes thereto of the
Combined Entities - Initial Hotels included at pages F-17 through F-28 of this
Prospectus, In management's opinion, all adjustments necessary to reflect the
effects of this transaction have been made.
This unaudited pro forma Condensed Combined Statement of Operations is not
necessarily indicative of what actual results of operations of the Company would
have been assuming such transactions had been completed as of January 1, 1997,
nor does it purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
Three months ended March 31, 1998
Historical
Combined
Entities -
Initial Hotels Adjustments Pro Forma
<S> <C>
Total Revenue $ 3,143 $ -- $ 3,143
Expenses:
Initial Hotel Operating
Costs and Expenses 1,726 (96)[A] 1,630
Advertising and Marketing 100 100
Depreciation and Amortization 389 (382)[B] 7
Interest Expense 397 (397)[C] --
General and Administrative 410 (37)[D] 295
(78)[E]
Percentage Lease Payments -- 1,179 [F] 1,179
------- --------- --------
Lessee Operating Income $ 121 $ (189) $ (68)
----------------------- ======= ========= ========
</TABLE>
[A] Decrease reflects personal property, real estate taxes and casualty
insurance to be paid by the Partnership.
[B] Decrease reflects elimination of amortization expense excluding franchise
fee amortization and the elimination of depreciation expense at the Combined
Entity level.
[C] Decrease reflects reduction of interest costs due to the expected repayment
of certain of the related party and mortgage indebtedness and the
elimination of the remaining interest to be paid by the Partnership.
[D] Decrease reflects the elimination of an estimate of certain expenses to be
paid by the Partnership.
[E] To eliminate related party management fees.
[F] Represents lease payments calculated on a pro forma basis using the rent
provisions in the Percentage Lease Agreements.
F-16
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1997.
[UNAUDITED IN THOUSANDS]
This unaudited pro forma Condensed Combined Statement of Operations is presented
as if the sale of the Initial Hotels and the consummation of the Offering
contemplated by this prospectus had occurred on January 1, 1997. Such pro forma
information is based in part upon the Combined Statements of Operations of the
Combined Entities Initial Hotels and the application of the proceeds of the
Offering as set forth under the caption "Use of Proceeds." It should be read in
conjunction with the Combined Financial Statements and Notes thereto of the
Combined Entities - Initial Hotels included at pages F-17 through F-28 of this
Prospectus, In management's opinion, all adjustments necessary to reflect the
effects of this transaction have been made.
This unaudited pro forma Condensed Combined Statement of Operations is not
necessarily indicative of what actual results of operations of the Company would
have been assuming such transactions had been completed as of January 1, 1997,
nor does it purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
Year ended December 31, 1997
Historical
Combined
Entities -
Initial Hotels Adjustments Pro Forma
<S> <C>
Total Revenue $13,445 $ $ 13,445
Expenses:
Initial Hotel Operating
Costs and Expenses 7,088 (375)[A] 6,713
Advertising and Marketing 370 -- 370
Depreciation and Amortization 1,189 (1,143)[B] 46
Interest Expense 1,354 (1,354)[C] --
General and Administrative 1,701 (123)[D] 1,306
(272)[E]
Other 14 -- 14
Percentage Lease Payments -- 4,945 [F] 4,945
------- --------- --------
Lessee Operating Income $ 1,729 $ 1,678 $ 51
----------------------- ======= ========= ========
</TABLE>
[A] Decrease reflects personal property, real estate taxes and casualty
insurance to be paid by the Partnership.
[B] Decrease reflects elimination of amortization expense excluding franchise
fee amortization and the elimination of depreciation expense at the Combined
Entity level.
[C] Decrease reflects reduction of interest costs due to the expected repayment
of certain of the related party and mortgage indebtedness and the
elimination of the remaining interest to be paid by the Partnership.
[D] Decrease reflects the elimination of an estimate of certain expenses to be
paid by the Partnership.
[E] To eliminate related party management fees.
[F] Represents lease payments calculated on a pro forma basis using the rent
provisions in the Percentage Lease Agreements.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
Hersha Hospitality Trust
We have audited the accompanying combined balance sheets of the
Combined Entities - Initial Hotels as of December 31, 1997 and 1996, and the
related combined statements of operations, owners' equity, and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the combined financial statement schedule included on pages F-29 and
F-30 of the accompanying Prospectus. These Combined financial statements and the
combined financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements and the combined 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 combined financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined 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 combined financial position of the
Combined Entities - Initial Hotels as of December 31, 1997 and 1996, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the combined
financial statement schedule referred to above, when considered in relationship
to the basic combined financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein as of
December 31, 1997.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 21, 1998
F-18
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
COMBINED BALANCE SHEETS
[IN THOUSANDS]
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1 9 9 8 1 9 9 7 1 9 9 6
------- ------- -------
[Unaudited]
<S> <C>
Assets:
Investment in Hotel Properties:
Land $ 2,099 $ 2,099 $ 1,843
Buildings and Improvements 19,396 19,276 9,950
Furniture, Equipment and Other 6,117 6,056 3,682
------------ --------- -----------
Totals 27,612 27,431 15,475
Less: Accumulated Depreciation 3,735 3,356 2,533
------------ --------- -----------
Totals 23,877 24,075 12,942
Construction in Progress 2,248 1,412 857
------------ --------- -----------
Net Investment in Hotel Properties 26,125 25,487 13,799
Cash and Cash Equivalents 442 694 237
Accounts Receivable 562 394 191
Prepaid Expenses and Other Assets 226 182 154
Due from Related Parties 317 268 107
Intangible Assets 1,397 1,427 1,418
------------ --------- -----------
Total Assets $ 29,069 $ 28,452 $ 15,906
============ ========= ===========
Liabilities and Owners' Equity:
Mortgages Payable $ 17,667 $ 14,713 $ 8,571
Accounts Payable and Accrued Expenses 306 1,092 649
Accrued Expenses - Related Parties 57 153 11
Due to Related Parties 7,561 9,169 4,236
Other Liabilities 204 172 250
------------ --------- -----------
Total Liabilities 25,795 25,299 13,717
Commitments -- -- --
Owners' Equity:
Net Combined Equity 3,274 3,153 2,189
------------ --------- -----------
Total Liabilities and Owners' Equity $ 29,069 $ 28,452 $ 15,906
============ ========= ===========
</TABLE>
The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.
F-19
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
COMBINED STATEMENTS OF OPERATIONS
[IN THOUSANDS]
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C>
Revenues from Hotel Operations:
Room Revenue $ 2,572 $ 1,659 $ 10,880 $ 7,273 $ 5,262
Restaurant Revenue 432 412 1,744 2,106 1,515
Other Revenue 139 215 821 610 442
---------- --------- --------- --------- ----------
Total Revenue 3,143 2,286 13,445 9,989 7,219
---------- --------- --------- --------- ----------
Expenses:
Hotel Operating Expenses 1,497 1,235 6,092 4,989 3,866
Restaurant Operating Expenses 229 229 996 1,304 884
Advertising and Marketing 100 89 370 418 185
Depreciation and Amortization 389 233 1,189 924 711
Interest Expense 270 163 821 605 434
Interest Expense - Related
Parties 127 35 533 316 200
General and Administrative 332 277 1,381 1,085 779
General and Administrative -
Related Parties 78 -- 320 364 102
Loss on Asset Disposals -- -- -- 12 284
Liquidation Damages -- -- 14 -- 150
---------- --------- --------- --------- ----------
Total Expenses 3,022 2,261 11,716 10,017 7,595
---------- --------- --------- --------- ----------
Net Income [Loss] $ 121 $ 25 $ 1,729 $ (28) $(376)
========== ========= ========= ========= ======
</TABLE>
The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.
F-20
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
COMBINED STATEMENTS OF OWNERS' EQUITY
[IN THOUSANDS]
<TABLE>
<CAPTION>
Net Combined
Owners' Equity
<S> <C>
Balance - December 31, 1994 $ 772
Net [Loss] (376)
Capital Contributions 2,287
Cash Distributions (466)
------------
Balance - December 31, 1995 2,217
Net [Loss] (28)
Capital Contributions 470
Cash Distributions (470)
------------
Balance - December 31, 1996 2,189
Net Income 1,729
Capital Contributions 59
Cash Distributions (824)
------------
Balance - December 31, 1997 3,153
Net Income 121
Capital Contributions --
Cash Distributions --
------------
Balance - March 31, 1998 [Unaudited] $ 3,274
============
</TABLE>
The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.
F-21
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
COMBINED STATEMENTS OF CASH FLOWS
[IN THOUSANDS]
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C>
Operating Activities:
Net income [Loss] $ 121 $ 25 $ 1,729 $ (28) $(376)
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization
Expense 407 245 1,246 966 751
Loss on Disposal of Assets -- -- -- 12 284
Writeoff of Financing Fees -- -- 44 -- --
Changes in Assets and Liabilities:
Accounts Receivable (168) (100) (203) 105 (226)
Prepaid Expenses and Other
Assets (44) 6 (28) (28) 39
Accounts Payable and Accrued
Expenses (882) 434 584 241 293
Other Liabilities 32 (129) (78) 79 129
---------- ------- ----- --- ----
Net Cash - Operating Activities (534) 481 3,294 1,347 894
--------- ---- ------- ------ -----
Investing Activities:
Improvements and Additions to
Hotel Properties (1,015) (5,261) (12,821) (5,601) (5,086)
Payment for Intangibles -- (67) (166) (117) (925)
Advances to Related Parties (152) (20) (268) (99) (576)
Repayment of Advances to
Related Parties 103 97 107 584 62
Proceeds from Sale of Assets -- -- -- 129 --
---------- --------- --------- --------- ----------
Net Cash - Investing
Activities (1,064) (5,251) (13,148) (5,104) (6,525)
---------- --------- --------- --------- ----------
Financing Activities:
Proceeds from Mortgages and
Notes Payable 3,154 1,550 9,526 3,631 4,615
Principal Payments on Mortgages
and Notes Payable (195) (100) (3,383) (612) (1,143)
Advances from Related Parties 1,576 5,179 6,555 2,756 809
Repayments of Advances from
Related Parties (3,189) (1,452) (1,622) (1,915) (1,065)
Capital Contributions -- 97 59 470 2,287
Distributions Paid -- (445) (824) (470) (466)
---------- --------- -------- -------- -------
Net Cash - Financing
Activities 1,346 4,829 10,311 3,860 5,037
---------- --------- -------- ------ -------
Net [Decrease] Increase in
Cash and Cash Equivalents -
Forward $ (252) $ 59 $ 457 $ 103 $ (594)
</TABLE>
The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.
F-22
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
COMBINED STATEMENTS OF CASH FLOWS
[IN THOUSANDS]
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C>
Net [Decrease] Increase in
Cash and Cash Equivalents -
Forwarded $ (252) $ 59 $ 457 $ 103 $ (594)
Cash and Cash Equivalents at
Beginning of Periods 694 237 237 134 728
---------- --------- --------- --------- ----------
Cash and Cash Equivalents at
End of Periods $ 442 $ 296 $ 694 $ 237 $ 134
========== ========= ========= ========= ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest [Net of Amounts
Capitalized] $ 339 $ 191 $ 1,133 $ 903 $ 591
</TABLE>
The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.
F-23
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]
[1] Organization, Proposed Initial Public Offering and Basis of Presentation
Organization - Hersha Hospitality Trust [the "Company"] has been established to
own initially ten existing hotels [collectively the "Initial Hotels"] and to
continue the hotel acquisition and operating strategies of Mr. Hasu P. Shah,
Chairman of the Board of Trustees and President of the Company. The Company
intends to qualify as a real estate investment trust [REIT] under the Internal
Revenue Code of 1986, as amended, [the "Code"] . The Initial Hotels include
three hotels operated as Holiday Inn Express7 hotels, two Hampton Inn7 hotels,
two Holiday Inn7 hotels, two Comfort Inn7 hotels, one of which is under
construction, and one Clarion Suites7 hotel with an aggregate of 989 rooms and
are located in Pennsylvania. Upon completion of the proposed initial public
offering [see below], the Company will own an approximate 43% general
partnership interest in Hersha Hospitality Limited Partnership, a Pennsylvania
limited partnership [the "Partnership"]. The Company will be the sole general
partner of the Partnership. The Partnership will own the Initial Hotels and
lease them to Hersha Hospitality Management, L.P. ["Lessee"] under Percentage
Leases, each having a 5 year term with two 5 year renewals, which shall provide
for rent equal to the greater of (i) fixed base rent, or (ii) percentage rents
based upon specific percentages of room and other revenue of each of the Initial
Hotels. The Company will enter into management agreements with the Lessee
whereby the Lessee will be required to perform all management functions
necessary to operate the Initial Hotels. Under the administrative services
agreement, the Lessee will be paid a fee equal to $10 per hotel or $100 per year
based on the ten initial hotels.
Basis of Presentation - The combined financial statements include the accounts
of various partnerships, individuals, certain other corporations and Subchapter
S corporations which perform property management services and own property
improvements and furniture and fixtures [collectively the "Combined Entities"]
[See Note 5] using their historical cost basis. No adjustments have been
reflected in these combined financial statements to give effect to the purchase
of the Initial Hotels by the Partnership.
The Combined Entities are owned by Mr. Hasu P. Shah and certain affiliates of
Mr. Hasu P. Shah [the "Hersha Affiliates"] for all periods presented. Due to
common ownership and management of the Combined Entities, the historical
combined financial statements have been accounted for as a group of entities
under common control. All significant intercompany transactions and balances
have been eliminated in the combined presentation.
Proposed Initial Public Offering - The Company expects to file a registration
statement with the Securities and Exchange Commission pursuant to which the
Company expects to offer 2,500,000 common shares to the public and 166,667
common shares to Mr. Hasu P. Shah and certain affiliates of Mr. Hasu P. Shah
[the "Offering"]. The Company expects to qualify as a real estate investment
trust under Sections 856-860 of the Code. Under the proposed structure, the
Company will become the sole general partner in the Partnership and the Hersha
Affiliates will be the limited partners.
Upon completion of the Offering, the Company will contribute substantially all
of the net proceeds of the offering to the Partnership in exchange for an
approximate 43% general partnership interest in the Partnership. The Partnership
will use the proceeds from the Company to acquire the Initial Hotels from the
Combined Entities and to repay certain outstanding indebtedness. Rather than
receiving cash for their interests in the Combined Entities upon the sale of the
Initial Hotels, the Hersha Affiliates have elected to receive limited
partnership interests in the Partnership aggregating an approximate 57%
ownership interest in the Partnership.
F-24
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]
[1] Organization, Proposed Initial Public Offering and Basis of
Presentation [Continued]
Proposed Initial Public Offering [Continued] - After consummation of the
Offering, the Company's acquisition of an interest in the Partnership and the
Partnership's acquisition of the Initial Hotels, (a) the Company will own
approximately 43% of the Partnership, (b) the Hersha Affiliates will own an
aggregate of approximately 57% of the Partnership, and (c) the Partnership will
own 100% of the equity interest in the Initial Hotels.
[2] Summary of Significant Accounting Policies
Nature of Operations - Operations consist of hotel room rental, conferences room
rental and the associated sales of food and beverages principally in the
Harrisburg and central Pennsylvania area.
Investment in Hotel Properties - Investment in hotel properties are stated at
cost. Depreciation for financial reporting purposes is principally based upon
the straight-line method for buildings and improvements and accelerated methods
for furniture and equipment acquired prior to the year ended December 31, 1997
and the straight-line method thereafter.
The estimated lives used to depreciate the Initial Hotel properties are as
follows:
Years
Building and Improvements 15 to 40
Furniture and Equipment 5 to 7
Maintenance and repairs are charged to operations as incurred; major renewals
and betterments are capitalized. Upon the sale or disposition of a fixed asset,
the asset and related accumulated depreciation are removed from the accounts,
and the gain or loss is included in income from operations.
Depreciation expense was $1,076, $819 and $624 for the years ended December
31, 1997, 1996 and 1995, respectively.
Room linens and restaurant supplies are capitalized and amortized utilizing the
straight-line method over periods of three and two years, respectively, and are
charged to Hotel Operating Expenses. Amortization expense was $57, $42 and $40
for the years ended December 31, 1997, 1996 and 1995, respectively.
Impairment of Long-Lived Assets - Long-lived assets are reviewed for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. The Company performs
undiscounted cash flow analyses to determine if an impairment exists. If an
impairment is determined to exist, any related impairment loss is calculated
based on fair value.
Cash and Cash Equivalents - Cash and cash equivalents are comprised of certain
highly liquid investments with a maturity of three months or less when
purchased.
Inventories - Inventories, consisting primarily of food and beverages and which
are included in prepaid expenses and other assets, are stated at the lower of
cost [generally, first-in, first-out] or market.
F-25
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #3
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]
[2] Summary of Significant Accounting Policies [Continued]
Intangible Assets - Intangible assets are carried at cost and consist of initial
franchise fees, loan acquisition costs and goodwill. Amortization is computed
using the straight-line method based upon the terms of the franchise and loan
agreements which range from 5 to 30 years, and over a 15 year period for
goodwill.
Income Taxes - The Combined Entities are not a legal entity subject to income
taxes. Hersha Enterprises, Ltd., an entity included in these combined financial
statements, is a taxable corporate entity [See Note 5]. Income taxes are
provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes resulting from
temporary differences. Such temporary differences result from differences in the
carrying value of assets and liabilities for tax and financial reporting
purposes. The deferred tax assets and liabilities represent the future tax
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes are
also recognized for operating losses that are available to offset future taxable
income. Valuation allowances are established to reduce deferred tax assets to
the amount expected to be realized. The Combined Partnerships and S corporations
are not subject to federal or state income taxes; however, they must file
informational income tax returns and the partners must take income or loss of
the Combined Entities into consideration when filing their respective tax
returns. The cumulative difference between the book basis and tax basis of the
Combined Entities' assets and liabilities is approximately $3.7 million due
primarily to depreciation and amortization expense on the tax basis in excess of
the book basis.
Revenue Recognition - Revenue is recognized as earned which is generally when a
guest occupies a room and utilizes the hotel's services.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentrations of credit risk include cash and cash equivalents
and accounts receivable arising from its normal business activities. The Company
places its cash with high credit quality financial institutions. The Company
does not require collateral to support its financial instruments.
The Company periodically has money in financial institutions that is subject to
normal credit risk beyond insured amounts. This credit risk, representing the
excess of the bank's deposit liabilities reported by the bank over the amounts
that would have been covered by federal insurance, amounted to approximately $71
and $-0- at December 31, 1997 and 1996, respectively.
The Company's extension of credit to its customers results in accounts
receivable arising from its normal business activities. The Company does not
require collateral from its customers, but routinely assesses the financial
strength of its customers. Based upon factors surrounding the credit risk of its
customers and the Company's historical collection experience, no allowance for
uncollectible accounts has been established at December 31, 1997 and 1996,
respectively. The Company believes that its accounts receivable credit risk
exposure is limited. Such assessment may be subject to change in the near term.
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.
F-26
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]
[2] Summary of Significant Accounting Policies [Continued]
Advertising and Marketing - Advertising costs are expensed as incurred and
totaled $370, $418 and $185 for the years ended December 31, 1997, 1996 and
1995, respectively. In connection with its franchise agreements, a portion of
the franchise fees paid is for marketing services. Payments under these
agreements related to marketing services amounted to $201, $114 and $78 for the
years ended December 31, 1997, 1996 and 1995, respectively, and are included in
Hotel Operating Expenses.
[3] Intangible Assets
At December 31, 1997 and 1996, intangibles consisted of the following:
Accumulated
December 31, 1997: Cost Amortization Net
Goodwill $ 1,168 $ 216 $ 952
Franchise Fees 342 46 296
Loan Acquisition Fees 196 17 179
-------- --------- --------
Totals $ 1,706 $ 279 $ 1,427
------ ======== ========= ========
Accumulated
December 31, 1996: Cost Amortization Net
Goodwill $ 1,168 $ 138 $ 1,030
Franchise Fees 296 56 240
Loan Acquisition Fees 166 18 148
-------- --------- --------
Totals $ 1,630 $ 212 $ 1,418
------ ======== ========= ========
Amortization expense was $113, $105 and $87 for the years ended December 31,
1997, 1996 and 1995, respectively.
[4] Mortgages Payable
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C>
Holiday Inn, Harrisburg, Pennsylvania:
Note payable to bank dated August 19, 1997 with
monthly payments of $34 including interest at
8.45% until November 1, 2002. Thereafter the
rate is negotiated or the bank's prime rate
plus 1/4%. Final payment is due November 1,
2012. The property previously was financed by a
bank with a note payable with monthly payments
of $27 including interest at the prime rate
plus 1-1/2% maturing March 2, 2010 and another
note payable with monthly payments of $7 plus
interest at 8-1/2% maturing January 5, 2001. $ 3,500 $ 3,096
Holiday Inn, Milesburg, Pennsylvania:
Note payable to bank dated June 2, 1977 with
monthly payments of $11 including interest at
8% until June 6, 1999 914 970
----------- --------
Totals - Forward $ 4,414 $ 4,066
</TABLE>
F-27
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #5
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]
[4] Mortgages Payable [Continued]
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C>
Totals - Forwarded $ 4,414 $ 4,066
Clarion Suites, Philadelphia, Pennsylvania:
Note payable to a bank dated June 21, 1995 with
monthly payments of $16 as adjusted for
interest at the prime rate plus 1.25% until
July 1, 2010. Guaranteed by PIDC Local
Development Corporation and the Small Business
Administration. 1,195 1,245
Note payable to a bank dated June 21, 1995 with
monthly payments of $3 plus interest at the
prime rate plus .5%. Principal balance is due
July 1, 2002. 419 453
Hampton Inn, Selinsgrove, Pennsylvania:
Note payable to a bank dated April 3, 1996 with
monthly payments of $24 including interest at
8-1/4% until October 3, 2011, includes personal
guarantees. 2,385 2,476
Hampton Inn, Carlisle, Pennsylvania:
Note payable to a bank dated September 6, 1996
with monthly payments of $28 including interest
at 8% until March 6, 2001. Thereafter, the
rate is negotiated or prime rate plus 1%.
Final payment is due June 6, 2012. 2,848 331
Holiday Inn Express, New Columbia, Pennsylvania:
Note payable to a bank dated August 28, 1997 with
monthly payments of $27 including interest at
8-1/2% until February 1, 2003. Thereafter
interest will be at the prime rate plus 1/4% as
of January 1, 2003 and January 1, 2008. Final
payment is due January 1, 2013. 1,000 --
Holiday Inn Express, Harrisburg, Pennsylvania:
Note payable to a bank dated September 26, 1997
with monthly payments of $11 including interest
at 8.35% until October 1, 2000. Thereafter, the
rate is as negotiated or at prime plus 1%.
Final payment is due October 1, 2012. 1,110 --
Holiday Inn Express, Hershey, Pennsylvania:
Note payable to a bank dated December 30, 1996
with monthly payments of $27 including interest
at 8.15% until December 31, 2001. Thereafter,
the rate is as negotiated or prime plus 3/4%.
Final payment is due January 1, 2013. 1,342 --
--------- -------
Totals $14,713 $8,571
------ ========= =======
</TABLE>
Substantially all the Combined Entities' mortgage indebtedness is collateralized
by property and equipment and is personally guaranteed by the partners and
stockholders of the Combined Entities. One of the hotel properties also
collateralizes a $500 line of credit of a related party.
At December 31, 1997, the prime rate was 8.5%.
F-28
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #6
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]
[4] Mortgages Payable [Continued]
As of December 31, 1997, aggregate annual principal payments for the five years
following December 31, 1997, and thereafter are as follows:
Year ending
December 31,
1998 $ 730
1999 1,572
2000 787
2001 856
2002 932
Thereafter 9,836
----------
Total $ 14,713
----- ==========
[5] Owners' Equity
The owners' equity [deficit] of the Combined Entities by entity is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
----- -------
<S> <C>
Hasu P. Shah/Bharat C. Mehta $ -- $ 269
244 Associates 542 --
844 Associates 285 27
944 Associates 29 75
1244 Associates 373 196
1444 Associates 829 432
1644 Associates (72) --
2144 Associates 833 863
2244 Associates (54) --
2544 Associates (60) --
Colonial Care Inns, Ltd. -- 308
Hersha Enterprises 267 (57)
Harrisburg Lodging, Inc. -- (21)
MEPS Associates 170 (32)
Philadelphia Lodging, Inc. -- 2
Sajneim Motel, Inc. -- 127
Shree Associates 11 --
-------- --------
Totals $ 3,153 $ 2,189
------ ======== ========
</TABLE>
F-29
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #7
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]
[6] Income Taxes
Included in the Combined Entities for the years ended December 31, 1997, 1996
and 1995 is a corporation which computed its income taxes pursuant to Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred income taxes at December 31, 1997 and 1996 was comprised of deferred
tax assets of $-0- and $56, respectively, representing financial reporting to
tax basis differences, and $20 and $8, respectively, representing net operating
loss carryforwards, offset by full valuation allowances of $20 and $64,
respectively. Under the transaction contemplated in connection with the proposed
initial public offering, the net operating loss carryforwards will not be
available to the Company.
The Combined Entities neither incurred nor paid any income taxes during the
periods presented.
[7] Related Party Transactions
At December 31, 1997 and 1996, the Combined Entities are indebted to various
related entities, partners, and stockholders in the amount of $9,169 and $4,236,
respectively. The loans carry interest ranging from 8.5% on short-term loans to
10.5% on longer term loans. Accrued interest payable was $153 and $11 at
December 31, 1997 and 1996, respectively, and interest expense was $533, $316
and $200 for the years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, various related entities, partners and
stockholders are indebted to the Combined Entities in the amount of $268 and
$107, respectively. The loans carry interest ranging from 0% on short-term loans
to 9% on longer term loans. Accrued interest receivable was $1 and $1 at
December 31, 1997 and 1996, respectively, and interest income was $9, $1 and $1
for the years ended December 31, 1997, 1996 and 1995, respectively.
The Combined Entities have paid or accrued $9,433, $856 and $-0- during the
years ended December 31, 1997, 1996 and 1995 to related entities for various
hotel construction projects and interest costs during construction. Capitalized
interest amounted to $183, $10 and $-0- for the years ended December 31, 1997,
1996 and 1995, respectively.
Certain properties are managed by individual partners or related entities.
Management fees paid to these individuals or related entities were $272, $97 and
$72 during the years ended December 31, 1997, 1996 and 1995, respectively.
A related entity rents office space in a hotel owned by the Combined Entities on
a month to month basis. The Combined Entities received rent of $30 for the year
ended December 31, 1997. The rent amount includes an allocation of certain
related expenses.
During the year ended December 31, 1996, the Combined Entities sold for $129,
the book value of the assets, certain leasehold improvements to Mr. Hasu P.
Shah.
On September 26, 1997, the Combined Entities acquired from Mr. Hasu P. Shah, the
Holiday Inn Express in Harrisburg, Pennsylvania by paying off the $1,106
indebtedness on the property. Prior to the sale, the Combined Entities had
rented the property from Mr. Hasu P. Shah under an informal rent arrangement.
Rent paid to Mr. Hasu P. Shah was $48, $267 and $70 for the years ended December
31, 1997, 1996 and 1995, respectively. Mr. Hasu P. Shah owns a parcel of land on
which a hotel is situated for which no land rent is charged.
F-30
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO FINANCIAL STATEMENTS, Sheet #8
[Information relating to March 31, 1998 and 1997 is Unaudited]
[AMOUNTS IN THOUSANDS]
[8] Commitments
Franchise Agreements - The Initial Hotels have executed franchise agreements
that have initial lives ranging from 10 to 20 years but may be terminated by
either party on certain anniversary dates specified in the agreements. In
addition to initial fees totaling $342, which are being amortized over the
franchise lives, the agreements require annual payments for franchise royalties,
reservation, and advertising services which are based upon percentages of gross
room revenue. Such fees were approximately $779, $524 and $368 for the years
ended December 31, 1997, 1996, 1995, respectively. The Initial Hotels will
continue to be operated under the franchise agreements.
Construction in Progress - At December 31, 1997, the Combined Entities had
future obligations under various hotel construction project in the amount of
$255. Through December 31, 1997, the Combined Entities had incurred expenses of
$1,412 in connection with the construction of a hotel property in West Hanover,
Pennsylvania. The construction is being contracted and funded through a related
party and the total construction cost is expected to be approximately $3,100.
The Combined Entities have obtained a construction/term loan in the amount of
$2,500 under which no borrowings are outstanding at December 31, 1997. The loan
bears interest at 8% for 5 years and 9 months and the Wall Street Journal prime
rate thereafter through maturity 10 years and 9 months from inception. The loan
is collateralized by the property and is guaranteed by certain partners,
stockholders, Combined Entities and related parties.
[9] Fair Value of Financial Instruments
At December 31, 1997 and 1996 financial instruments include cash and cash
equivalents, accounts receivable, accounts payable, loans to and from related
parties and mortgage payables. The fair values of cash, accounts receivable and
accounts payable approximate carrying value because of the short-term nature of
these instruments. Loans to and from related parties carry interest at rates
that approximate the Combined Entities' borrowing cost. The fair value of
mortgages payable approximates carrying value since the interest rates
approximate the interest rates currently offered for similar debt with similar
maturities.
[10] Unaudited Interim Statements
The financial statements as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 are unaudited; however, in the opinion of management all
adjustments [consisting solely of normal recurring adjustments] necessary for a
fair presentation of the financial statements for the interim period have been
made. The results of the interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
. . . . . . . .
F-31
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997.
[IN THOUSANDS]
<TABLE>
<CAPTION>
Cost Capitalized Gross Amounts at
Subsequent to Which Carried at
Initial Cost Acquisition Close of Period
--------------------- ---------------------- --------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
<S> <C>
Holiday Inn,
Harrisburg, PA $3,500 $ 412 $1,234 $-- $1,518 $412 $2,752 $ 3,164
Holiday Inn,
Milesburg, PA 914 42 1,158 -- 681 42 1,839 1,881
Holiday Inn Express,
New Columbia, PA 1,000 94 2,510 -- -- 94 2,510 2,604
Holiday Inn Express,
Harrisburg, PA 1,110 256 850 -- 120 256 970 1,226
Holiday Inn Express,
Hershey, PA 1,342 426 2,645 -- -- 426 2,645 3,071
Clarion Suites,
Philadelphia, PA 1,614 262 1,049 150 776 412 1,825 2,237
Comfort Inn,
Denver, PA 434 -- 782 -- 327 -- 1,109 1,109
Hampton Inn,
Selinsgrove, PA 2,385 157 2,511 -- 6 157 2,517 2,674
Hampton Inn,
Carlisle, PA 2,848 300 3,109 -- -- 300 3,109 3,409
------ ------ ------ ---- ------ ------ ------ ------
$15,147 $1,949 $15,848 $150 $3,428 $2,099 $19,276 $21,375
======= ====== ======= ==== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Life
Accumulated Net Upon Which
Depreciation Book Value Latest Income
Buildings and Buildings and Date of Statement is
Description Improvements Improvements Acquisition Computed
<S> <C>
Holiday Inn,
Harrisburg, PA $ 204 $2,960 12/15/94 15 to 40
Holiday Inn,
Milesburg, PA 439 1,442 08/15/85 15 to 40
Holiday Inn Express,
New Columbia, PA 6 2,598 12/01/97 15 to 40
Holiday Inn Express,
Harrisburg, PA 9 1,217 06/15/85 15 to 40
Holiday Inn Express,
Hershey, PA 17 3,054 10/01/97 15 to 40
Clarion Suites,
Philadelphia, PA 135 2,102 06/30/95 15 to 40
Comfort Inn,
Denver, PA 200 909 01/01/88 15 to 40
Hampton Inn,
Selinsgrove, PA 86 2,588 09/12/96 15 to 40
Hampton Inn,
Carlisle, PA 45 3,364 06/01/97 15 to 40
------ ------
$1,141 $20,234
====== =======
</TABLE>
F-32
<PAGE>
COMBINED ENTITIES - INITIAL HOTELS
NOTES TO SCHEDULE XI
[IN THOUSANDS]
<TABLE>
<CAPTION>
[A] Reconciliation of Real Estate:
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C>
Balance at Beginning of Year $ 9,950 $ 6,354 $ 3,785
Additions During Year 9,369 3,725 2,907
Deletions During Year (43) (129) (338)
------------ --------- ----------
Balance at End of Year $ 19,276 $ 9,950 $ 6,354
============ ========= ==========
[B] Reconciliation of Accumulated Depreciation:
Balance at Beginning of Year $ 834 $ 614 $ 546
Depreciation for the Year 307 220 139
Accumulated Depreciation on Deletions -- -- (71)
------------ --------- ----------
Balance at End of Year $ 1,141 $ 834 $ 614
============ ========= ==========
</TABLE>
[C] The aggregate cost of land, buildings and improvements for federal income
tax purposes is approximately $19,284.
[D] Depreciation is computed based upon the following useful lives:
Buildings and Improvements 15 to 40 years
F-33
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the heading "Experts" and
"Selected Financial Information" and to the use of our report dated May 27,
1998, on our audit of Hersha Hospitality Trust, our report dated May 27, 1998,
on our audit of Hersha Hospitality Management L.P., and our report dated March
21, 1998, on our audit of the Combined Entities Initial Hotels in this
Registration Statement and related Prospectus of Hersha Hospitality Trust.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
June 4, 1998
F-34
<PAGE>
No dealer, salesperson or other 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 the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation 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 there has been no change in the
affairs of the Company or that information contained herein is correct as of any
time subsequent to the date hereof.
TABLE OF CONTENTS page
PROSPECTUS SUMMARY..................... 1
RISK FACTORS........................... 17
THE COMPANY............................ 25
GROWTH STRATEGY........................ 28
USE OF PROCEEDS........................ 29
DISTRIBUTION POLICY.................... 30
PRO FORMA CAPITALIZATION............... 32
DILUTION............................... 33
SELECTED FINANCIAL INFORMATION......... 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................ 38
BUSINESS AND PROPERTIES................ 40
POLICIES AND OBJECTIVES WITH RESPECT
TO CERTAIN ACTIVITIES................ 52
FORMATION TRANSACTIONS................. 54
MANAGEMENT............................. 57
CERTAIN RELATIONSHIPS AND TRANSACTIONS. 61
THE LESSEE............................. 61
PRINCIPAL SHAREHOLDERS................. 63
DESCRIPTION OF SHARES OF BENEFICIAL
INTEREST............................. 63
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S DECLARATION OF
TRUST AND BYLAWS..................... 66
SHARES AVAILABLE FOR FUTURE SALE....... 70
PARTNERSHIP AGREEMENT.................. 71
FEDERAL INCOME TAX CONSEQUENCES........ 73
UNDERWRITING........................... 88
EXPERTS................................ 89
REPORTS TO SHAREHOLDERS................ 89
LEGAL MATTERS.......................... 89
ADDITIONAL INFORMATION................. 90
GLOSSARY............................... 91
INDEX TO FINANCIAL STATEMENTS..........F-1
Until __________ __, 199_ (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotment or
subscriptions.
2,666,667 Shares
HERSHA HOSPITALITY
TRUST
Common Shares
of Beneficial Interest
--------------
PROSPECTUS
--------------
ANDERSON & STRUDWICK
INCORPORATED
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than sales commissions) payable by the Registrant in connection
with the issuance and distribution of the Common Shares.
Securities and Exchange Commission, registration fee.............. $ 4,720
NASD filing fee................................................... 2,100
American Stock Exchange listing fee............................... 30,000
Printing and mailing.............................................. 45,000
Accountant's fees and expenses.................................... 140,000
Counsel fees and expenses......................................... 362,000
Miscellaneous..................................................... 3,180
---------
Total......................................................... $ 587,000
=========
Item 32. Sales to Special Parties
None.
Item 33. Recent Sales of Unregistered Securities
On May 27, 1998, the Company was capitalized with subscription by Hasu P.
Shah for 100 Common Shares for a purchase price of $1 per share for an aggregate
purchase price of $100. The Common Shares were purchased for investment and for
the purpose of organizing the Company. The Company issued these Common Shares in
reliance on an exemption from registration under Section 4(2) of the Securities
Act. Mr. Shah's 100 Common Shares will be redeemed concurrently with the closing
of the Offering.
Item 34. Indemnification of Trustees and Officers
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by the Maryland REIT 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 shareholder, Trustee or officer or (b) any individual
who, while a Trustee 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
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. 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 shareholder, Trustee or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
Trustee 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.
The Declaration of Trust and Bylaws also permit the Company to indemnify and
advance expenses to any person who served 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
<PAGE>
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 indemnity 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, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In accordance with the MGCL, the
Bylaws of the Company require it, as a condition to advancing expenses, to
obtain (a) a written affirmation by the Trustee 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 him 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.
Item 35. Treatment of Proceeds from Shares Being Registered
None.
Item 36. Financial Statements and Exhibits
(a) Financial Statements
All other schedules are omitted because the required information is
not applicable or the information required has been disclosed in the financial
statements and related notes included in the Prospectus.
(b) Exhibits
Exhibit
Number Exhibit
1.1* Form of Underwriting Agreement
1.2* Form of Selected Dealer Agreement
1.3* Form of Escrow Agreement
1.4 Executed Escrow Agreement
3.1* Amended and Restated Declaration of Trust of the Registrant
3.2* Bylaws of the Registrant
4.1* Form of Common Share Certificate
5.1 Opinion of Hunton & Williams
8.1 Opinion of Hunton & Williams as to Tax Matters
10.1* Form of First Amended and Restated Agreement of Limited
Partnership of Hersha Hospitality Limited Partnership
10.2* Contribution Agreement, dated as of June 3, 1998, between Hasu
P. Shah and Bharat C. Mehta, as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror.
10.3* Contribution Agreement, dated as of June 3, 1998, between
Shree Associates, JSK Associates, Shanti Associates, Shreeji
Associates, Kunj Associates, Devi Associates, Neil H. Shah,
David L. Desfor, Madhusudan I. Patni, Manahar Gandhi and
Shreenathji
II-2
<PAGE>
Enterprises, Ltd., as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror.
10.4* Contribution Agreement,dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj
Associates, Devi Associates, Neil H. Shah, David L. Desfor and
Shreenathji Enterprises, Ltd. as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror.
10.5* Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.6* Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj
Associates, Neil H. Shah, David L. Desfor, Madhusudan I.
Patni, Manahar Gandhi and Shreenathji Enterprises, Ltd., as
Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror.
10.7* Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj
Associates, Neil H. Shah, Madhusudan I. Patni and Shreenathji
Enterprises, Ltd., as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror.
10.8* Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.9* Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj
Associates, Neil H. Shah, David L. Desfor and Shreenathji
Enterprises, Ltd., as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror.
10.10* Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.11* Contribution Agreement, dated as of June 3, 1998, between 144
Associates, 344 Associates, 544 Associates and 644 Associates,
Joint Tenants Doing Business as 2544 Associates, as
Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror.
10.12* Contribution Agreement dated June 3, 1998, between Shree
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.13* Contribution Agreement dated June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.14* Contribution Agreement dated June 3, 1998, between 144
Associates, 344 Associates, 544 Associates and 644 Associates,
Joint Tenants Doing Business as 2544 Associates, as
Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror.
10.15* Contribution Agreement, dated June 3, 1998, between Shree
Associates, Devi Associates, Shreeji Associates, Madhusudan I.
Patni and Shreenathji Enterprises, Ltd., as Contributor, and
Hersha Hospitality Limited Partnership, as Acquiror.
10.16* Contribution Agreement, dated June 3, 1998, between Shree
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.17* Form of Ground Lease
10.18* Form of Percentage Lease
10.19* Option Agreement, dated June 3, 1998, between Hasu P. Shah,
Jay H. Shah, Neil H. Shah, Bharat C. Mehta, Kanti D. Patel,
Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor,
Madhusudan I. Patni and Manahar Gandhi, and Hersha Hospitality
Limited Partnership.
10.20* Administrative Services Agreement, dated June __, 1998,
between Hersha Hospitality Trust and Hersha Hospitality
Management, L.P.
10.21* Warrant Agreement, dated _______ __, 1998, between Anderson &
Strudwick, Inc. and Hersha Hospitality Trust.
10.22* Warrant Agreement, dated June 3, 1998, between 2744
Associates, L.P. and Hersha Hospitality Limited Partnership.
10.23* Hersha Hospitality Trust Option Plan
10.24* Hersha Hospitality Trust Non-Employee Trustees' Option Plan
23.1 Consent of Hunton & Williams (included in Exhibits 5.1 and
8.1)
II-3
<PAGE>
23.2* Consent of Moore Stephens, P.C.
24.1 Power of Attorney (included on signature page)
99.1 Consent of certain individuals to be named as Trustee
- ------------
*Filed herewith.
Item 37. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 33 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 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 director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, 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 as to whether such indemnification by it is against public policy
as expressed in the Act, and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes:
(1) For the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment 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;
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a 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 this registration
statement as of the time it was declared effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Harrisburg, State of
Pennsylvania, on the 30th day of July, 1998.
Hersha Hospitality Trust,
a Maryland real estate investment trust
(Registrant)
By /s/ Hasu P. Shah
-------------------
Hasu P. Shah
Chairman of the Board and Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints
Hasu P. Shah and Kiran P. Patel and each or either of them, his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
or any Registration Statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, and to cause
the same to be filed, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
granting to said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite or
desirable to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all acts and things that said attorneys-in-fact and agents, or either
of them, or their substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 30th day
of July, 1998 in the capacities indicated.
Signature Title
- --------- -----
/s/ Hasu P. Shah Chairman of the Board of Trustees, Chief
- ---------------- Executive Officer and Trustee
Hasu P. Shah (Principal Executive Officer)
/s/ Kiran P. Patel Chief Financial Officer and Treasurer
- ------------------ (Principal Financial and Accounting Officer)
Kiran P. Patel
II-5
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Document Numbered Page
- ------- -------- -------------
1.1* Form of Underwriting Agreement
1.2* Form of Selected Dealer Agreement
1.3* Form of Escrow Agreement
1.4 Executed Escrow Agreement
3.1* Amended and Restated Declaration of Trust of the Registrant
3.2* Bylaws of the Registrant
4.1* Form of Common Share Certificate
5.1 Opinion of Hunton & Williams
8.1 Opinion of Hunton & Williams as to Tax Matters
10.1* Form of First Amended and Restated Agreement of Limited Partnership
of Hersha Hospitality Limited Partnership
10.2* Contribution Agreement, dated as of June 3, 1998, between Hasu P.
Shah and Bharat C. Mehta, as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror.
10.3* Contribution Agreement, dated as of June 3, 1998, between Shree
Associates, JSK Associates, Shanti Associates, Shreeji Associates,
Kunj Associates, Devi Associates, Neil H. Shah, David L. Desfor,
Madhusudan I. Patni, Manahar Gandhi and Shreenathji Enterprises,
Ltd., as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror.
10.4* Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Devi Associates, Neil H. Shah, David L. Desfor and Shreenathji
Enterprises, Ltd. as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.5* Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.6* Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, David L. Desfor, Madhusudan I. Patni, Manahar Gandhi
and Shreenathji Enterprises, Ltd., as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror.
10.7* Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, Madhusudan I. Patni and Shreenathji Enterprises, Ltd.,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror.
10.8* Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.9* Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, David L. Desfor and Shreenathji Enterprises, Ltd., as
Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror.
10.10* Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.11* Contribution Agreement, dated as of June 3, 1998, between 144
Associates, 344 Associates, 544 Associates and 644 Associates, Joint
Tenants Doing Business as 2544 Associates, as Contributor, and
Hersha Hospitality Limited Partnership, as Acquiror.
10.12* Contribution Agreement dated June 3, 1998, between Shree Associates,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror.
10.13* Contribution Agreement dated June 3, 1998, between 2144 Associates,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror.
10.14* Contribution Agreement dated June 3, 1998, between 144 Associates,
344 Associates, 544 Associates and 644 Associates, Joint Tenants
Doing Business as 2544 Associates, as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror.
10.15* Contribution Agreement, dated June 3, 1998, between Shree
Associates, Devi Associates, Shreeji Associates, Madhusudan I. Patni
and Shreenathji Enterprises, Ltd., as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror.
II-6
<PAGE>
10.16* Contribution Agreement, dated June 3, 1998, between Shree
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror.
10.17* Form of Ground Lease
10.18* Form of Percentage Lease
10.19* Option Agreement, dated June 3, 1998, between Hasu P. Shah,
Jay H. Shah, Neil H. Shah, Bharat C. Mehta, Kanti D. Patel,
Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor,
Madhusudan I. Patni and Manahar Gandhi, and Hersha Hospitality
Limited Partnership.
10.20* Administrative Services Agreement, dated June __, 1998,
between Hersha Hospitality Trust and Hersha Hospitality
Management, L.P.
10.21* Warrant Agreement, dated ______ __, 1998, between Anderson &
Strudwick, Inc. and Hersha Hospitality Trust.
10.22* Warrant Agreement, dated June 3, 1998, between 2744
Associates, L.P. and Hersha Hospitality Limited Partnership.
10.23* Hersha Hospitality Trust Option Plan
10.24* Hersha Hospitality Trust Non-Employee Trustees' Option Plan
23.1 Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1)
23.2* Consent of Moore Stephens, P.C.
24.1 Power of Attorney (included on signature page)
99.1 Consent of certain individuals to be named Trustee
- ---------------------
*Filed herewith.
II-7
HERSHA HOSPITALITY TRUST
(a Maryland real estate investment trust)
2,500,000 Common Shares
($6.00 per share)
UNDERWRITING AGREEMENT
August ____, 1998
Anderson & Strudwick, Incorporated
707 E. Main Street, 20th Floor
Richmond, VA 23219
Ladies and Gentlemen:
The undersigned, Hersha Hospitality Trust, a Maryland real estate
investment trust (the "Company"), and Hersha Hospitality Limited Partnership, a
Virginia limited partnership (the "Partnership"), hereby confirm their agreement
with you as follows:
<PAGE>
1. Introduction. This Agreement sets forth the understandings and
agreements among the Company and you whereby, subject to the terms and
conditions herein contained, you will offer to sell, on a best efforts basis as
provided in Section 3.(a), at an offering price of $6.00 per share, 2,500,000
common shares (the "Shares"), par value $0.01 per share (the "Common Shares"),
to be issued by the Company. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Prospectus
prepared by the Company and dated August ___, 1998 (the "Prospectus"). The term
"Offering" shall include the Shares to be offered by you as well as 166,667
Common Shares to be offered directly by the Company (the "Company Offered
Shares").
On or prior to the Closing Date (as hereinafter defined), the
Company will complete a series of transactions described in the Prospectus under
the heading "FORMATION TRANSACTIONS." As part of the Formation Transactions, (i)
the Company will contribute to the Partnership substantially all of the net
proceeds from the sale of the Shares, (ii) the Partnership will acquire all of
the partnership interests in, or as the case may be, substantially all of the
assets of, the various limited partnerships (the "Selling Partnerships") that
own the ten (10) hotel properties described in the Prospectus (individually a
"Hotel" and collectively, the "Hotels") pursuant to the terms and conditions of
Contribution Agreements (collectively, the "Contribution Agreements"), (iii) the
Partnership will assume a total of approximately $____ million of outstanding
indebtedness of the Selling Partnerships, approximately $____ million of which
(the "Assumed Indebtedness") will remain outstanding after the immediate
repayment of approximately $____ million of such indebtedness, (iv) the
Partnership will issue to the Selling Partnerships and/or the partners of the
Selling Partnerships, as the case may be (collectively, the "Selling Entities"),
an aggregate of ________ units of limited partnership interest in the
Partnership ("Units"), which are convertible into common shares of the Company
under certain conditions, (v) the Partnership will lease each of the Hotels
pursuant to separate leases (the "Leases") to Hersha Hospitality Management,
L.P., a Pennsylvania limited partnership (the "Lessee"). As used herein, the
term "Formation Transactions" shall mean the occurrence of all the events
described in this paragraph and the other transactions described in the section
of the Prospectus captioned "FORMATION TRANSACTIONS."
2. Representations and Warranties of the Company and the Partnership.
The Company and the Partnership jointly and severally
represent and warrant to and agree with you that:
(a) Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-11 (File No. 333-56087) (as
defined below, the "Registration Statement") conforming in all material respects
to the requirements of the Securities Act of 1933, as amended (the "1933 Act"),
and the applicable rules and regulations (the "Rules and Regulations") of the
Commission. Such amendments to such Registration Statement as may have been
required prior to the date hereof have been filed with the Commission, and such
amendments have been similarly prepared. Copies of the Registration Statement,
any and all amendments thereto prepared and filed with the Commission, and each
related Preliminary Prospectus, and the exhibits, financial statements and
schedules, as finally amended and revised, have been delivered to you for
review.
The term "Registration Statement" as used in this
Agreement shall mean the Company's Registration Statement on Form S-11,
including the Prospectus, any documents incorporated by reference therein, and
all financial schedules and exhibits thereto, as amended on the date that the
Registration Statement becomes effective. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares in the form in which
it was filed with the Commission pursuant to Rule 424(b) of the 1933 Act or, if
no filing pursuant to Rule 424(b) of the 1993 Act is required, shall mean the
form of the final prospectus included in the Registration Statement when the
Registration Statement becomes effective. The term "Preliminary Prospectus"
shall mean any prospectus included in the Registration Statement before it
becomes effective. The terms "effective date" and "effective" refer to the date
<PAGE>
the Commission declares the Registration Statement effective pursuant to Section
8 of the 1933 Act.
(b) Adequacy of Disclosure. Each Preliminary Prospectus, at
the time of filing thereof, conformed in all material respects to the
requirements of the 1933 Act and the Rules and Regulations, and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any statements
or omissions made in reliance upon and in conformity with information furnished
to the Company by you expressly for use in the Registration Statement. For the
purposes of the closing conditions contained in Section 6.(b), this
representation and warranty shall be deemed as of the Closing Date (as
hereinafter defined) also to constitute a representation and warranty that when
the Registration Statement became effective, when the Prospectus was first filed
pursuant to Rule 424(b) of the Rules and Regulations, when any amendment to the
Registration Statement was filed, and when any pre-Closing supplement to the
Prospectus was filed with the Commission and on the Closing Date, (i) the
Registration Statement, the Prospectus and any amendments thereof and
supplements thereto conformed in all material respects with the applicable
requirements of the 1933 Act and the Rules and Regulations, and (ii) neither the
Registration Statement, the Prospectus nor any amendment or supplement thereto
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished to the Company by you expressly for use in
the Registration Statement.
(c) No Stop Order. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus with respect to
the Shares, and no proceedings for that purpose have been instituted or, to the
knowledge of the Company, threatened by the Commission or the state securities
or blue sky authority of any jurisdiction.
(d) Company: Organization and Qualification. The Company has
been duly organized and is validly existing in good standing as a real estate
investment trust under the laws of the State of Maryland with all requisite
power and authority to enter into this Agreement, to conduct its business as now
conducted and as proposed to be conducted, and to own, lease and operate its
properties, and the properties it proposes to own, lease and operate, as
described in the Registration Statement and Prospectus, and is qualified to do
business and is in good standing in each other jurisdiction in which the failure
so to qualify could reasonably be expected to have a material adverse effect on
the Company, the Partnership or any Hotel, taken as a whole. The Company is not
in violation of any provision of its declaration of trust, bylaws or other
governing documents and is not in default under or in breach of, and does not
know of the occurrence of any event that with the giving of notice or the lapse
<PAGE>
of time or both would constitute a default under or breach of, any term or
condition of any material agreement or instrument to which it is a party or by
which any of its properties is bound, except as disclosed in the Registration
Statement and Prospectus. No consent, approval, authorization, or order from any
court, governmental agency or body is required in connection with the execution
and delivery of this Agreement by the Company, the consummation by the Company
of the transactions contemplated herein and in the Registration Statement and
Prospectus or the issuance and sale of the Shares, except such as may be
required by the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or applicable state securities or blue sky laws. Except for the
Partnership, the Company does not own or control, directly or indirectly, any
corporation, association, or other entity.
(e) Partnership: Organization and Qualification. The
Partnership has been duly formed and is validly existing as a limited
partnership under the laws of the Commonwealth of Virginia with all requisite
partnership power to conduct its business as now conducted and as proposed to be
conducted, and to own, lease and operate its properties and the properties it
proposes to own, lease and operate, as described in the Registration Statement
and Prospectus, and is qualified to do business and is in good standing as a
foreign limited partnership in each other jurisdiction in which the failure so
to qualify could reasonably be expected to have a material adverse effect on the
Company, the Partnership or any Hotel, taken as a whole. The Partnership is not
in violation of any provision of its partnership agreement or other governing
documents and is not in default under or in breach of, and does not know of the
occurrence of any event that with the giving of notice or the lapse of time or
both would constitute a default under or breach of, any term or condition of any
material agreement or instrument to which it is a party or by which any of its
properties is bound, except as disclosed in the Registration Statement and
Prospectus. No consent, approval, authorization or order from any court,
governmental agency or body is required in connection with the execution and
delivery of this Agreement by the Partnership, or the consummation by the
Partnership of the transactions contemplated herein and in the Registration
Statement and Prospectus, except such as may be required by the 1933 Act, the
1934 Act, or applicable state securities or blue sky laws. The Company is and at
the Closing Date will be the sole general partner of the Partnership.
Immediately subsequent to the Closing Date, the Company will be the holder of
approximately 43% of the Units in the Partnership, and the limited partners of
the Partnership will be the holders, in the aggregate, of approximately 57% of
the Units in the Partnership.
(f) Lessee: Organization and Qualification. The Lessee has
been duly incorporated and is validly existing as a limited partnership under
the laws of the Commonwealth of Pennsylvania with all requisite partnership
power and authority to enter into the Leases, and to conduct its business as now
conducted and as proposed to be conducted, and to own, lease and operate its
properties, as described in the Registration Statement and Prospectus, and is
qualified to do business and is in good standing as a foreign limited
partnership in each other jurisdiction in which the failure so to qualify could
reasonably be expected to have a material adverse effect on the Lessee. The
Lessee is not in violation of any provision of its partnership agreement or
<PAGE>
other governing documents and is not in default or in breach of, and does not
know of the occurrence of any event that with the giving of notice or the lapse
of time or both would constitute a default under or breach of, any term or
condition of any material agreement or instrument to which it is a party or by
which any of its properties is bound, except as disclosed in the Registration
Statement and Prospectus. No consent, approval, authorization or order from any
court, governmental agency or body is required in connection with the
consummation by the Lessee of the transactions contemplated herein and in the
Registration Statement and Prospectus, except such as may be required by the
1933 Act, the 1934 Act, and applicable state securities or blue sky laws.
(g) Selling Partnerships: Organization and Qualification. The
Selling Partnerships have each been duly formed and are validly existing as
limited partnerships under the laws of the states in which they operate, with
all requisite partnership power and authority to enter into the Contribution
Agreements and to conduct their respective businesses and to own, lease and
operate their respective properties, as described in the Registration Statement
and Prospectus, and are qualified to do business and in good standing as foreign
limited partnerships in each other jurisdiction in which the failure so to
qualify could reasonably be expected to have a material adverse effect on the
Company, the Partnership, a Selling Partnership or any Hotel, taken as a whole.
None of the Selling Partnerships is in violation of any provision of its
partnership agreement or other governing documents, or is in default under or in
breach of, or knows of the occurrence of any event that with the giving of
notice or the lapse of time or both would constitute a default under or breach
of, any term or condition of any material agreement or instrument to which it is
a party or by which any of its properties is bound, except as disclosed in the
Registration Statement and Prospectus. No consent, approval, authorization or
order from any court, governmental agency or body is required in connection with
the consummation by any Selling Partnership of the transactions contemplated
herein and in the Registration Statement and Prospectus, except such as may be
required by the 1933 Act, the 1934 Act, and applicable state securities or blue
sky laws.
(h) Validity of Shares. The Shares have been duly and validly
authorized by the Company, and upon issuance, will be validly issued, fully paid
and nonassessable, with no personal liability attaching to the ownership
thereof, and will conform to the description thereof contained in the
Prospectus. The preferences, rights and limitations of the Shares are set forth
in the Prospectus under the caption "Description of Shares of Beneficial
Interest". There are no preemptive rights with respect to any of the Shares. No
person or entity holds a right to require or participate in the registration
under the 1933 Act of the Shares pursuant to the Registration Statement; and,
except as set forth in the Prospectus, no person holds a right to require
registration under the 1933 Act of any securities of the Company at any other
time. No person or entity has a right of participation or first refusal with
respect to the sale of the Shares by the Company. The form of certificates
evidencing the Shares complies with all applicable requirements of Maryland law.
<PAGE>
(i) Company Capitalization. The Company has 100 issued and
outstanding Common Shares, which will be redeemed on the Closing Date. The
Company has no other issued and outstanding Common Shares. The Company's
authorized capitalization is as set forth in the Prospectus under the caption
"Description of Shares of Beneficial Interest". Except as disclosed in the
Prospectus, there is no outstanding option, warrant or other right calling for
the issuance of, and no commitment, plan or arrangement to issue, any shares of
the Company or any security convertible into or exchangeable for shares of the
Company.
(j) Validity of Units. The Units to be issued to the Company
and the Selling Entities in connection with the Formation Transactions (i) have
been duly and validly authorized by the Partnership, and upon issuance, will be
validly issued, and (ii) have been and will be issued, offered and sold at or
prior to the Closing Date in compliance with all applicable laws (including,
without limitation, federal and state securities laws). The portion of the
Formation Transactions between the Company, the Partnership and the Selling
Entities will be effected in compliance with the partnership agreements of the
Selling Partnerships and all applicable laws (including, without limitation,
federal and state securities laws and laws regarding partnership fiduciary
obligations).
(k) Full Power: Company. The Company has full legal right,
power, and authority to enter into this Agreement and the Escrow Agreement among
the Company, First Union National Bank of North Carolina (the "Escrow Agent")
and you (the "Escrow Agreement"), to issue and deliver the Shares as provided
herein and to consummate the transactions contemplated herein.
(l) Full Power: Partnership. The Partnership has full legal
right, power, and authority to enter into this Agreement and to consummate the
transactions contemplated herein.
(m) Full Power: Operative Documents. Each of the parties to
the Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement"), the Leases and the Contribution Agreements has full legal right,
power, and authority to enter into each such agreement and to consummate the
transactions contemplated therein. (This Agreement, the Escrow Agreement, the
Partnership Agreement, the Leases and the Contribution Agreements are sometimes
hereinafter referred to as the "Operative Documents.")
(n) Disclosed Agreements. All agreements between or among the
Company, the Partnership, the Selling Entities and the Lessee, respectively, and
third parties listed as exhibits to the Registration Statement, are legal,
valid, and binding obligations of the Company, the Partnership, the Selling
Entities and the Lessee, respectively, enforceable in accordance with their
respective terms, except to the extent enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws
<PAGE>
affecting creditors' rights generally, regardless of whether such enforceability
is considered in equity or at law, (ii) general equity principles and (iii)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification or
contribution provisions.
(o) Consents. Each consent, approval, authorization, order,
license, certificate, permit, registration, designation or filing by or with any
governmental agency or body necessary for the valid authorization, issuance,
sale and delivery of the Shares, the execution, delivery and performance of this
Agreement or any of the other Operative Documents and the consummation by the
parties thereto of the transactions contemplated hereby or thereby, has been
made or obtained and is in full force and effect.
(p) Litigation. There is not pending or, to the knowledge of
the Company or the Partnership, threatened or contemplated, any action, suit,
proceeding, inquiry, or investigation before or by any court or any federal,
state, or local governmental authority or agency to which the Company, the
Partnership, any Selling Entity or the Lessee or any of their respective
officers, directors or partners are or may be a party, or to which any of the
properties or rights of any such entity or person may be subject, that is not
described in the Registration Statement and Prospectus and (i) that could
reasonably be expected to result in any material adverse change in the condition
(financial or otherwise) or business of the Company, the Partnership, the Lessee
or any Selling Entity, taken as a whole; or (ii) that could reasonably be
expected to materially adversely affect any of the material properties of any
such entity; or (iii) that could reasonably be expected to adversely affect the
consummation of the transactions contemplated by this Agreement, any of the
other Operative Documents, or any of the Formation Transactions, nor, to the
knowledge of the Company or the Partnership, is there any meritorious basis
therefor.
(q) Financial Statements. The financial statements of the
Combined Selling Entities-Initial Hotels, together with related schedules and
notes included in the Registration Statement and the Prospectus, present fairly
the financial position of the Combined Selling Entities-Initial Hotels as of the
dates indicated and the results of operations and cash flows for the Combined
Selling Entities-Initial Hotels for the periods specified. Such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved. The
financial statement schedules included in the Registration Statement and the
amounts in the Prospectus under the captions "Prospectus Summary-Summary
Financial Data" and "Selected Financial Information" fairly present the
information shown therein and have been compiled on a basis consistent with the
financial statements included in the Registration Statement and the Prospectus.
No other financial statements or schedules are required by Form S-11 or
otherwise to be included in the Registration Statement, the Prospectus or any
Preliminary Prospectus. The unaudited pro forma combined financial information
(including the related notes) included in the Prospectus or any Preliminary
Prospectus complies as to form in all material respects to the applicable
accounting requirements of the 1933 Act and the Rules and Regulations, and
<PAGE>
management of the Company believes that the assumptions underlying the pro forma
adjustments are reasonable. Such pro forma adjustments have been properly
applied to the historical amounts in the compilation of the information and such
information fairly presents with respect to the Company and the Combined Selling
Entities-Initial Hotels the financial position, results of operations and other
information purported to be shown therein at the respective dates and for the
respective periods specified.
(r) Independent Accountants. Moore Stephens, P.C., the
accountants that have expressed an opinion on the financial statements that are
included in the Registration Statement and Prospectus are, and were during the
period covered by their Reports included in the Registration Statements and
Prospectus, with respect to the Company, independent public accountants as
required by the 1933 Act and the Rules and Regulations.
(s) Disclosed Liabilities. None of the Company, the
Partnership, the Lessee or any Selling Entity has sustained, since December 31,
1997, any material loss or interference with its business from fire, explosion,
flood, hurricane, accident, or other calamity, whether or not covered by
insurance, or from any labor dispute or arbitrators' or court or governmental
action, order, or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as otherwise stated in
the Registration Statement and Prospectus, there has not been (i) any material
change in the capital shares or partnership interests or membership interests,
as applicable, long-term debt, obligations under capital leases, or short-term
borrowings of the Company, the Partnership, the Lessee or any Selling Entity,
taken as a whole, (ii) any material adverse change, or any development that
could reasonably be seen as involving a prospective material adverse change in
or affecting the business, prospects, properties, assets, results of operations
or condition (financial or other) of the Company, the Partnership, the Lessee or
any Selling Entity, taken as a whole, (iii) any liability or obligation, direct
or contingent, incurred or undertaken by the Company, the Partnership, the
Lessee or any Selling Entity that is material to the business or condition
(financial or other) of such entities, taken as a whole, except for liabilities
or obligations incurred in the ordinary course of business, (iv) any declaration
or payment of any dividend or distribution of any kind on or with respect to the
shares of the Company, or the partnership interests of the Partnership, the
Lessee or any Selling Entity, respectively, or (v) any transaction that is
material to the Company, the Partnership, the Lessee or any Selling Entity,
taken as a whole, except transactions in the ordinary course of business or as
otherwise disclosed in the Registration Statement and the Prospectus.
(t) Hotels. The Selling Partnerships that currently own the
Hotels have, and on the Closing Date the Partnership will have, good and
marketable title in fee simple to all real property owned by them, including the
Hotels, free and clear of all liens, encumbrances, claims, security interests,
<PAGE>
restrictions, and defects, except such as are described in the Prospectus and
the policies of title insurance previously provided to you. The Company does not
own or lease any real property. No person other than the Company has an option
or right of first refusal to purchase all or part of any Hotel or any interest
therein. Each of the Hotels complies with all applicable codes, laws, and
regulations (including, without limitation, building and zoning codes, laws and
regulations, and laws relating to access to Hotels), except if and to the extent
disclosed in the Prospectus and except for such failures to comply that would
not individually or in the aggregate have a material adverse impact on the
condition (financial or otherwise) or on the earnings, assets, business affairs,
or business prospects of such Hotel, the Partnership, the Company or any Selling
Entity, taken as a whole. Neither the Company nor the Partnership has knowledge
of any pending or threatened condemnation proceedings, zoning change, or other
proceeding or action that will in any manner effect the size of, use of,
improvements on, construction on, or access to any of the Hotels, except such
proceedings or actions that would not have a material adverse effect on the
condition (financial or otherwise) or on the earnings, assets, business affairs,
or business prospects of such Hotel, the Partnership, the Company or any Selling
Entity, taken as a whole.
(u) Required Licenses and Permits. Except as disclosed in the
Prospectus, the Company, the Partnership or the Lessee owns, possesses, has
obtained or has commitments to obtain, and has made available for your review,
all material permits, licenses, franchises (including, with respect to the
Lessee, the franchises relating to the Hotels), certificates, consents, orders,
approvals, and other authorizations of governmental or regulatory authorities as
are necessary to own or lease, as the case may be, and to operate their
respective properties and to carry on their respective businesses as presently
conducted, or as contemplated in the Prospectus to be conducted (the "Permits"),
and none of the Company, the Partnership or the Lessee has received any notice
of proceedings relating to revocation or modification of any such Permits.
(v) Trademarks, etc. Each of the Company, the Partnership and
the Lessee owns or possesses adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights, software and design
licenses, trade secrets, manufacturing processes, other intangible property
rights and know-how (collectively "Intangibles") necessary to entitle each of
the Company, the Partnership and the Lessee to conduct their respective
businesses now, and as proposed to be, conducted or operated as described in the
Prospectus, and none of the Company, the Partnership or the Lessee has received
notice of infringement or of conflict with (or knows of such infringement of or
conflict with) asserted rights of others with respect to any intangible that
could materially and adversely affect the business, prospects, properties,
assets, results of operation, or condition (financial or otherwise) of the
Company, the Partnership or the Lessee, taken as a whole.
(w) Internal Accounting Measures. To the knowledge of the
Company and the Partnership, the Company's, the Partnership's, the Lessee's and
each Selling Partnership's systems of internal accounting controls taken as a
whole are sufficient to meet the broad objectives of internal accounting control
insofar as those objectives pertain to the prevention or detection of errors or
irregularities in amounts that would be material in relation to the Company's,
the Partnership's, the Lessee's or any Selling Partnership's financial
statements; and, to the knowledge of the Company and the Partnership, none of
the Company, the Partnership, the Lessee or any Selling Partnership, or any
employee or agent thereof, has made any payment of funds of the Company, the
Partnership, the Lessee or any Selling Partnership, as the case may be, or
received or retained any funds and no funds of the Company, the Partnership, the
Lessee or any Selling Partnership, as the case may be, have been set aside to be
used for any payment, in each case in violation of any law, rule, or regulation.
(x) Taxes. Each of the Company, the Partnership (to the extent
not consolidated with the Company), the Lessee and the Selling Partnerships has
timely filed all required federal and state tax returns, has paid all taxes that
have become due and have no tax deficiency asserted against any such entity, nor
does any such entity know of any tax deficiency that is likely to be asserted
against any such entity that if determined adversely to any such entity, would,
either individually or in the aggregate, have a material adverse effect on the
business, prospects, properties, assets, results of operations, or condition
(financial or otherwise) of any such entity or any Hotel, respectively. All tax
liabilities are adequately provided for on the respective books of such
entities.
(y) Compliance with Instruments. The execution, delivery and
performance of this Agreement and the Operative Documents, the compliance with
the terms and provisions hereof and the consummation of the transactions
contemplated herein, therein and in the Registration Statement and Prospectus by
the Company, the Partnership, the Lessee or the Selling Entities do not and will
not violate or constitute a breach of, or default under (i) the articles of
incorporation, charter, bylaws, declaration of trust, certificate of limited
partnership, partnership agreement, articles of organization or operating
agreement, as the case may be, of the Company, the Partnership, the Lessee or
any Selling Entity; (ii) any of the terms, provisions, or conditions of any
material instrument, agreement, or indenture to which the Company, the
Partnership, the Lessee or any Selling Entity is a party or by which they are
bound or by which their respective businesses, assets, investments, properties,
or any Hotel may be affected; or (iii) any order, statute, rule, or regulation
applicable to the Company, the Partnership, the Lessee or any Selling Entity, or
any of their respective businesses, investments, assets, properties, or Hotel,
of any court or any federal, state or local governmental authority or agency
having jurisdiction over the Company, the Partnership, the Lessee or any Selling
Entity or any of their respective businesses, investments, properties, assets,
or Hotels; and do not and will not result in the creation or imposition of any
lien, charge, claim, or encumbrance upon any property or asset of any of the
foregoing.
(z) Insurance. The Company, the Partnership and the Lessee
maintain insurance (issued by insurers of recognized financial responsibility)
of the types and in the amounts generally deemed adequate for their respective
businesses and, to the knowledge of the Company and the Partnership, consistent
with insurance coverage maintained by similar companies and similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company, the Partnership and the Lessee against theft,
damage, destruction, acts of vandalism, and all other risks customarily insured
against, all of which insurance is in full force and effect.
(aa) Work Force. To the knowledge of the Company and the
Partnership, no general labor problem exists or is imminent with respect to the
employees of the Lessee.
(ab) Share Restriction. The Company has obtained the agreement
of ______________________________________ that, for a period of ninety (90) days
from the date hereof, they will not, without your prior written consent,
directly or indirectly, sell, offer to sell, grant any option for the sale of,
or otherwise dispose of any Common Shares of the Company or securities
convertible into shares held by such persons (including, without limitation,
Common Shares deemed to be beneficially owned by such person in accordance with
the Rules and Regulations promulgated under the 1934 Act), other than in
connection with a bona fide pledge for security purposes or a transfer for
estate planning purposes.
(ac) Securities Matters. Each of the Company, the Partnership
and their officers, trustees, partners or affiliates have not taken and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in or constitute the stabilization or
manipulation of any security of the Company or to facilitate the sale or resale
of the Shares.
(ad) Registration. The Common Shares are registered pursuant
to Section 12(g) of the 1934 Act and are listed on the American Stock Exchange.
(ae) Environmental Status. Except as otherwise disclosed in
the Prospectus, none of the Company, the Partnership, the Lessee or any Selling
Partnership has authorized or conducted or has knowledge of the generation,
transportation, storage, presence, use, treatment, disposal, release, or other
handling of any hazardous substance, hazardous waste, hazardous material,
hazardous constituent, toxic substance, pollutant, contaminant, asbestos, radon,
polychlorinated biphenyls ("PCBs"), petroleum product or waste (including crude
oil or any fraction thereof), natural gas, liquefied gas, synthetic gas, or
other material defined, regulated, controlled, or potentially subject to any
remediation requirement under any environmental law (collectively, "Hazardous
Materials"), on, in, under, or affecting any real property currently leased,
owned or by any means controlled by the Company, the Partnership or any Selling
Partnership, including the Hotels (the "Real Property") except as in material
compliance with applicable laws; to the knowledge of the Company, the
Partnership or any Selling Partnership, the Real Property and the Company's, the
Partnership's, the Lessee's and each Selling Partnership's operations with
respect to the Real Property are in compliance in all material respects with all
federal, state, and local laws, ordinances, rules, regulations, and other
governmental requirements relating to pollution, control of chemicals,
management of waste, discharges of materials into the environment, health,
safety, natural resources, and the environment (collectively, "Environmental
Laws"), and the Company, the Partnership, the Lessee and each Selling
Partnership have, and are in compliance with, all licenses, permits,
registrations, and government authorizations necessary to operate under all
applicable Environmental Laws. Except as otherwise disclosed in the Prospectus,
none of the Company, the Partnership, the Lessee or any Selling Partnership has
received any written or oral notice from any governmental entity or any other
person and there is no pending or, to the knowledge of the Company, the
Partnership, the Lessee or any Selling Partnership, threatened claim,
litigation, or any administrative agency proceeding that: alleges a violation of
any Environmental Laws by the Company, the Partnership, the Lessee or any
Selling Partnership; alleges that the Company, the Partnership, the Lessee or
any Selling Partnership is a liable party or a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. '9601, et seq., or any state superfund law; has resulted in or could
reasonably be expected to result in the attachment of an environmental lien on
any of the Real Property; or alleges that the Company, the Partnership, the
Lessee or any Selling Partnership is liable for any contamination of the
environment, contamination of the Real Property, damage to natural resources,
property damage, or personal injury based on their activities or the activities
of their predecessors or third parties (whether at the Real Property or
elsewhere) involving Hazardous Materials, whether arising under the
Environmental Laws, common law principles, or other legal standards.
(af) Real Estate Investment Trust. Upon completion of the
Formation Transactions and the sale of the Shares hereunder, the Company will
have been organized in conformity with the requirements for qualification as a
real estate investment trust under the Internal Revenue Code of 1986, as amended
(the "Code"), and the Company's proposed method of operation will enable it to
meet the requirements for qualification and taxation as a real estate investment
trust under the Code. Immediately after Closing, the Partnership will be treated
as a partnership for federal income tax purposes and not as a corporation or an
association taxable as a corporation.
(ag) Environmental Reports. Dawood Engineering, Inc., which
prepared Phase I environmental assessment reports with respect to the Hotels,
was not employed for such purpose on a contingent basis, and does not have any
substantial interest in the Company, the Partnership, any Selling Entity or the
Lessee.
(ah) Changes, etc. Since the respective dates as of which
information is given in the Prospectus except as may otherwise be stated in or
contemplated by the Prospectus: (i) there has not been any material adverse
change in the condition (financial or otherwise) of the Company, the
Partnership, any Selling Entity or the Lessee, or in the personnel, earnings,
affairs, properties, investments, assets or business of the Company, the
Partnership or the Lessee, whether or not arising in the ordinary course of
business; (ii) there has not been any transaction entered into by the Company,
the Partnership, any Selling Entity or the Lessee that is material to the
Company, the Partnership, any Selling Entity or the Lessee, other than in the
ordinary course of business; (iii) there has not been any increase in
indebtedness or borrowings of the Company, the Partnership, any Selling Entity
or the Lessee; and (iv) the Company has not issued or sold any Common Shares or
any other equity securities or any right or option to acquire any such Common
Shares or equity securities except for the sale of Shares pursuant to this
Agreement.
(ai) Investment Company Act. None of the Company, the
Partnership or the Lessee will become as a result of the consummation of the
Formation Transactions an "investment company" or an entity that "controls" or
is "controlled by" an "investment company," as such terms are defined under the
Investment Company Act of 1940, as amended (the "1940 Act").
(aj) Receipt of Commissions and Fees. Except as stated in or
contemplated by the Prospectus, neither the Company nor any affiliate of the
Company has received or is entitled to receive, directly or indirectly, any
compensation or other benefit, including, but not limited to, any finder's fee,
acquisition fee, selection fee, nonrecurring management fee or other fee or
commission, relating to the investments of the Company.
(ak) Payment of Commissions and Fees. Except as stated in or
contemplated by the Prospectus, neither the Company nor any affiliate of the
Company has paid or awarded, nor will any such person pay or award, directly or
indirectly, any commission or other compensation to any person engaged to render
investment advice to a potential purchaser of Shares as an inducement to advise
the purchase of Shares.
Any certificates of any officer of the Company on behalf of the Company and/or
the Partnership and delivered to you or your counsel, shall be deemed a
representation and warranty by such entity to you as to the matters covered
thereby.
3. Sales of Shares.
(a) Exclusive Agency. The Company hereby appoints you as its
exclusive agent to offer for sale, and hereby agrees to sell during the Offering
Period (as defined in Section 3(b)), 2,500,000 Common Shares, and on the basis
of the representations and warranties herein contained but subject to the terms
and conditions herein set forth, you accept such appointment and agree to use
your best efforts as agent to offer the Shares for sale for the account of the
Company, on a cash basis only, at the offering price of $6.00 per Share. During
the Offering Period, the Company will not sell or agree to sell Common Shares,
other than the Company Offered Shares, otherwise than through you. Subject to
your commitment to sell the Shares on a "best efforts" basis as provided herein,
nothing in this Agreement shall prevent you from entering into an agency
agreement, underwriting agreement, or other similar agreement governing the
offer and sale of securities with any other issuer of securities, and nothing
contained herein shall be construed in any way as precluding or restricting your
right to sell or offer for sale securities issued by any other person, including
securities similar to, or competing with, the Shares. It is understood between
the parties that there is no firm commitment by you to purchase any or all of
the Shares.
(b) Obligation to Offer Shares. Your obligation to offer the
Shares is subject to receipt by you of satisfactory evidence that the
Registration Statement is effective, is subject to the Shares being qualified
for offering under applicable laws in the states as may be reasonably designated
by you, is subject to the absence of any prohibitory action by any governmental
body, agency, or official, and is subject to the terms and conditions contained
in this Agreement and in the Registration Statement.
(c) Offering Termination Date. The "Offering Period" shall
commence on the day that the Prospectus is first made available to prospective
investors in connection with the offering for sale of the Shares and shall
continue until the "Offering Termination Date," which shall be the earlier of
(i) the date all of the Shares offered have been sold, (ii) ______________,
1998, or (iii) an earlier termination date as determined by you as permitted
herein. The Company and you agree that unless all of the Shares to be offered by
you are sold on or before the Offering Termination Date, the agency between the
Company and you will terminate, and the full proceeds that have been paid for
the Shares will be returned to the purchasers.
(d) Escrow Agent. Prior to the sale of all of the Shares to be
offered, all funds received from purchasers of the Shares shall be placed in an
escrow account (the "Escrow Account") with the Escrow Agent pursuant to the
Escrow Agreement, the form of which is attached as Exhibit 1.3 to the
Registration Statement, and all payments of, from or on account of such funds
shall be made pursuant to the Escrow Agreement. In the event all of the Shares
offered are not sold on or before the Offering Termination Date, all funds then
held in the Escrow Account shall be returned promptly to the respective
purchasers as provided in the Escrow Agreement.
(e) Closing Date. As and when proceeds from the sale of Shares
are received and accepted on or before the Offering Termination Date, on such
date (the "Closing Date") and at such time and place as determined by you (which
determination shall be subject to the satisfaction on such date of the
conditions contained herein), the funds received from purchasers will be
delivered by the Escrow Agent to the Company, by wire transfer of immediately
available funds, except for the selling commissions payable to you on the
Closing Date pursuant to the provisions of Section 3.(f) of this Agreement
(which selling commissions shall be delivered to you by the Escrow Agent on
behalf of the Company on the Closing Date).
(f) Selling Commissions. In consideration for your execution
of this Agreement and for the performance of your obligations hereunder, the
Company agrees to cause the Escrow Agent to pay you, as provided in Section
3.(e) of this Agreement, by wire transfer of immediately available funds on the
Closing Date, if any, a selling commission computed at the rate of $0.48 (eight
percent (8.0%) of the public offering price) for each of the Shares sold by you
at the public offering price of $6 per share.
(g) Finder's Fees. Except as set forth in the Registration
Statement or Prospectus, neither you nor the Company, directly or indirectly,
shall pay or award any finder's fee, commission, or other compensation to any
person engaged by a potential purchaser for investment advice as an inducement
to such advisor to advise the purchase of Shares or for any other purpose.
(h) Delivery of Share Certificates. Delivery of certificates
in definitive form representing the Shares shall be made at the offices of
Citicorp Securities Services, Inc. or at such other place as shall be agreed
upon by the Company and you, on _____________, 1998 (the "Date of Delivery").
The certificates representing the Shares shall be in such denominations and
registered in such names as you may request in writing at least three full
business days before the Date of Delivery. The certificates representing the
Shares will be made available for examination and packaging at the offices of
Citicorp Securities Services, Inc. or at such other place as shall be agreed
upon by the Company and you, not later than at least two full business days
prior to the Date of Delivery.
(i) Warrants. On the Closing Date, the Company will issue to
you warrants for the purchase of 250,000 Common Shares, substantially in the
form of Exhibit A attached to this Agreement.
4. Covenants.
(a) Covenants of the Company and the Partnership. The Company
and the Partnership covenant with you as follows:
(i) Notices. Through and including the Closing Date,
the Company and the Partnership immediately will notify you, and confirm such
notice in writing, (A) of any fact that would make inaccurate any representation
or warranty by the Company and the Partnership, and (B) of any change in facts
on which your obligation to perform under this Agreement is dependent.
(ii) Effectiveness of Registration Statement. The
Company will use its best efforts to cause the Registration Statement to become
effective (if not yet effective at the date and time this Agreement is executed
and delivered by the parties hereto). If the Company elects to rely upon Rule
430A of the Rules and Regulations or the filing of the Prospectus is otherwise
required under Rule 424(b) of the Rules and Regulations, and subject to the
provisions of Section 4.(a)(iii) of this Agreement, the Company will comply with
the requirements of Rule 430A and will file the Prospectus, properly completed,
pursuant to the applicable provisions of Rule 424(b) within the time prescribed.
The Company will notify you immediately, and confirm the notice in writing, (i)
when the Registration Statement, or any post-effective amendment to the
Registration Statement, shall have become effective, or any supplement to the
Prospectus, or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission to
amend the Registration Statement or amend or supplement the Prospectus or for
additional information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or the suspension
of the qualification of the Shares for offering or sale in any jurisdiction, or
of the institution or threatening of any proceeding for any such purposes. The
Company will use all reasonable efforts to prevent the issuance of any such stop
order or of any order preventing or suspending such use and, if any such order
is issued, to obtain the withdrawal thereof at the earliest possible moment.
(iii) Amendments to Registration Statement and
Prospectus. The Company will not at any time file or make any amendment to the
Registration Statement, or any amendment or supplement (i) to the Prospectus, if
the Company has not elected to rely upon Rule 430A, or (ii) if the Company has
elected to rely upon Rule 430A, to either the Prospectus included in the
Registration Statement at the time it becomes effective or to the Prospectus
filed in accordance with Rule 424(b), in either case if you shall not have
previously been advised and furnished a copy thereof a reasonable time prior to
the proposed filing, or if you or your counsel shall reasonably object to such
amendment or supplement.
(iv) Delivery of Registration Statement. The Company
has delivered to you or will deliver to you, without expense to you, at such
locations as you shall request, as soon as the Registration Statement or any
amended Registration Statement is available, such number of signed copies of the
Registration Statement as originally filed and of amended Registration
Statements, if any, copies of all exhibits and documents filed therewith, and
signed copies of all consents and certificates of experts, as you may reasonably
request.
(v) Delivery of Prospectus. The Company will deliver
to you at its expense, from time to time, as many copies of each Preliminary
Prospectus as you may reasonably request, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
deliver to you at its expense, as soon as the Registration Statement shall have
become effective and thereafter from time to time as requested during the period
when the Prospectus is required to be delivered under the 1933 Act, such number
of copies of the Prospectus (as supplemented or amended) as you may reasonably
request. The Company will comply to the best of its ability with the 1933 Act
and the Rules and Regulations so as to permit the completion of the distribution
of the Shares as contemplated in this Agreement and in the Prospectus. If the
delivery of a prospectus is required at any time prior to the expiration of nine
months after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any events shall have occurred as
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made when such Prospectus is delivered not misleading or, if for
any reason it shall be necessary during the same period to amend or supplement
the Prospectus in order to comply with the 1933 Act, the Company will notify you
and upon your request prepare and furnish without charge to you and to any
dealer in securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus that will
correct such statement or omission or effect such compliance, and in case you
are required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at your expense, the Company will prepare and
deliver to you as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the 1933 Act.
(vi) Blue Sky Qualification. The Company, in good
faith and in cooperation with you, will use its best efforts to qualify the
Shares for offering and sale under the applicable "blue sky" or securities laws
and real estate syndication laws of such jurisdictions as you from time to time
may reasonably designate and to maintain such qualifications in effect for as
long as may be necessary to complete the sale and distribution of the Shares;
provided, however, that the Company shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which it is not so qualified or to
make any undertakings in respect of doing business in any jurisdiction in which
it is not otherwise so subject. The Company will file such statements and
reports as may be required by the laws of each jurisdiction in which the Shares
have been qualified as above provided.
(vii) Financial and Other Information.
A. Earnings Statement. The Company will make
generally available to its security holders, in the manner specified in Rule
158(b) under the 1933 Act and deliver to you as soon as practicable and in any
event not later than 60 days after the end of its fiscal quarter in which the
first anniversary date of the effective date of the Registration Statement
occurs, an earnings statement meeting the requirements of Rule 158(a) under the
1933 Act covering a period of at least twelve consecutive months beginning after
the effective date of the Registration Statement.
B. Annual and Quarterly Reports. The Company
will furnish to its securityholders, as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent public accountants) and unaudited quarterly reports of operations
for each of the first three quarters of the fiscal year. For a period of five
years after the Closing Date, the Company will furnish to you: (i) concurrently
with the date on which the same shall be sent to the securityholders of the
Company, if applicable, and in any event not later than sixty (60) days after
the end of each fiscal quarter of the Company, statements of operations of the
Company for each of the first three quarters in the form furnished to the
Company's securityholders; (ii) concurrently with the date on which the same
shall be sent to the securityholders of the Company, if applicable, and in any
event not later than one hundred twenty (120) days after the end of each fiscal
year of the Company, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of cash flows, and of
securityholders' equity of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent public accountants;
(iii) as soon as they are available, copies of all reports (financial or
otherwise) mailed to securityholders; and (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange, or the National Association of Securities
Dealers, Inc. ("NASD"). During such five year period, the foregoing financial
statements shall be made on a consolidated basis to the extent that the accounts
of the Company are consolidated with any subsidiaries, and shall be accompanied
by similar financial statements for any significant subsidiary that is not so
consolidated.
C. Press Releases. For a period of five
years after the Closing Date, the Company will furnish to you, concurrently with
the release thereof, two copies of every press release to be issued and every
material news item and article in respect of the Company or its affairs to be
released by the Company; and promptly, such additional documents and information
with respect to the Company and its affairs as you from time to time may
reasonably request.
D. Other Information. For a period of five
years after the Closing Date, the Company will furnish to you any additional
information of a public nature concerning the Company or its business that you
may reasonably request in writing.
(viii) Application of Net Proceeds. The Company and
the Partnership will apply the net proceeds received from the sale of the Shares
in all material respects as set forth in the Prospectus under the caption "Use
of Proceeds."
(ix) Solicitation of Purchasers.
A. Except as hereinafter specified, the
Company will not, and will not permit the Partnership or any of its other
affiliates or agents to, (1) engage in any offering or placement of any debt or
equity security or long-term debt (other than the refinancing of the Assumed
Indebtedness as described in the Prospectus) for a period of three (3) years
from the effective date of the Registration Statement for which you are not
acting as the underwriter or sales or placement agent, unless you shall have
been given a right of first refusal to act as the underwriter or sales agent
with respect to such offering, and shall have failed to agree to act as the
underwriter or sales agent for the proposed offering within thirty (30) days of
a notice from the Company of the proposed terms of the offering, (2) solicit the
purchasers of Shares in connection with any other offering of any security for a
period of three (3) years from the effective date of the Registration Statement,
unless you shall have been given a right of first refusal to conduct such
solicitation or you are notified and compensated therefor in an amount equal to
8.0% of the purchase price of any securities purchased by any such purchaser, or
(3) furnish the names of such purchasers or of other potential investors
obtained through you to any person other than as may be required in connection
with the normal and usual conduct by the Company of its business or required by
court order or law.
B. The Company agrees and understands that a
violation of the provisions of Section 4(a)(ix)(A) of this Agreement will cause
you irreparable harm and injury and that any money damages you receive will not
compensate you for any breach thereof. Accordingly, the Company agrees that, in
addition to monetary damages, you will be entitled to all such equitable relief
including, without limitation, injunctive relief, as a court of equity or proper
jurisdiction shall deem appropriate in the circumstances. Such relief shall not
be exclusive of any rights you may have at law or in equity. All of the rights
and remedies you have hereunder shall be cumulative and not alternative. The
provisions of this Section shall not limit your remedies upon the breach by the
Company of any other Section of this Agreement.
(x) Cooperation with Your Due Diligence. At all times
prior to the Closing Date, the Company will cooperate with you in such
investigation as you may make or cause to be made of all the business and
operations (including all Hotels) of the Company, the Partnership and the Lessee
in connection with the sale of the Shares, and will make available to you in
connection therewith such information in its possession as you may reasonably
request.
(xi) Transfer Agent. The Company will maintain a
transfer agent and, if necessary under applicable jurisdictions, a registrar
(which may be the same entity as the transfer agent) for its Common Shares.
(xii) American Stock Exchange. The Company will use
its reasonable best efforts to maintain the listing of its Common Shares on the
American Stock Exchange.
(xiii) Compliance with Investment Company Act. The
Company and the Partnership are familiar with the Investment Company Act of
1940, as amended, as the rules and regulations thereunder, and have in the past
conducted their affairs, and will in the future conduct their affairs, in such a
manner so as to ensure that the Company and the Partnership will not be an
"investment company" or an entity "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(xiv) Actions of Company, Officers, Directors, and
Affiliates. The Company will not and will use its reasonable best efforts to
cause its officers, directors, and affiliates not to (i) take, directly or
indirectly, prior to termination of the offering contemplated by this Agreement,
any action designed to stabilize or manipulate the price of any security of the
Company, or that may cause or result in, or that might in the future reasonably
be expected to cause or result in, the stabilization or manipulation of the
price of any security of the Company, to facilitate the sale or resale of any of
the Shares, (ii) other than under this Agreement, sell, bid for, purchase, or
pay anyone any compensation for soliciting purchases of the Shares or (iii) pay
or agree to pay to any person any compensation for soliciting any order to
purchase any other securities of the Company.
(xv) Additional Issuances. For a period of ninety
(90) days from the Closing Date, the Company will not, without your prior
written consent, directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any Common Shares or securities
convertible into Common Shares, other than pursuant to this agreement and other
than partnership interests or other securities convertible into Common Shares
issued in connection with the acquisition of a hotel property.
(xvi) Company Offered Shares. The Company has not
provided and will not provide to the purchasers of Company Offered Shares any
written or oral information regarding the business of the Company, including any
representations regarding the Company's financial condition or financial
prospects, other than such information as is contained in the Prospectus or such
information as may have come to their attention in the ordinary course of their
service as employees of one or more of the Selling Partnerships or the Lessee.
(b) Your Covenants. You covenant with the Company that you
have not provided and will not provide to the purchasers of Shares any written
or oral information regarding the business of the Company, including any
representations regarding the Company's financial condition or financial
prospects, other than such information as is contained in the Prospectus.
5. Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, and subject to
the provisions of Section 9 of this Agreement, the Company hereby agrees that it
will pay all fees and expenses incident to the performance of its obligations
under this Agreement (excluding fees and expenses of counsel for you, except as
specifically set forth below), including (a) the preparation, printing and
filing of the Registration Statement (including financial statements and
exhibits), as originally filed and as amended, the Preliminary Prospectuses and
the Prospectus and any amendments or supplements thereto, and the cost of
furnishing copies thereof to you, (b) the preparation, printing, and
distribution of this Agreement, any Selected Dealer Agreement, the certificates
representing the Shares, the Blue Sky Memoranda, and any instruments relating to
any of the foregoing, (c) the issuance and delivery of the Shares, including any
transfer taxes payable thereon, (d) the fees and disbursements of the Company's
counsel and accountants, (e) the qualification of the Shares under applicable
securities and real estate syndication laws in accordance with Section 4.(a) of
this Agreement and any filing fee paid in connection with the review of the
offering by the NASD, including filing fees and fees and disbursements made in
connection therewith and in connection with the Blue Sky Memoranda supplied to
you by counsel for the Company, (f) all costs, fees, and expenses in connection
with the application for listing the Shares on the American Stock Exchange, (g)
the transfer agent's and registrar's fees and all miscellaneous expenses
referred to in Item 30 of the Registration Statement, (h) costs related to
travel and lodging incurred by the Company and its representatives relating to
meetings with and presentations to prospective purchasers of the Shares
reasonably determined by you to be necessary or desirable to effect the sale of
the Shares to the public, (i) all other costs and expenses incident to the
performance of the Company's obligations hereunder that are not otherwise
specifically provided for in this Section.
6. Conditions of Your Obligations. Your obligations hereunder shall be
subject to, in your discretion, the following terms and conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement shall have become effective not later than 5:30 p.m. on the date of
this Agreement or, at such later time or on such later date as you may agree to
in writing; and as of the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of the Commission
for additional information shall have been complied with to the satisfaction of
your counsel.
(b) Closing Date Matters. On the Closing Date, (i) the
Registration Statement and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the Rules and Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the Rules and
Regulations; the Company shall have complied in all material respects with Rule
430A (if it shall have elected to rely thereon) and neither the Registration
Statement nor the Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement, any material adverse
change in the business, prospects, properties, assets, results of operations or
condition (financial or otherwise) of the Company, the Partnership, the Lessee
or any Selling Partnership, taken as a whole, whether or not arising in the
ordinary course of business, (iii) no action, suit or proceeding at law or in
equity shall be pending or, to the Company's knowledge, threatened against the
Company or the Partnership that would be required to be set forth in the
Prospectus other than as set forth therein and no proceedings shall be pending
or, to the knowledge of the Company, threatened against the Company or the
Partnership before or by any federal, state or other commission, board or
administrative agency wherein an unfavorable decision, ruling or finding could
reasonably be expected to materially adversely affect the business, prospects,
assets, results of operations or condition (financial or otherwise) of the
Company or the Partnership, taken as a whole, other than as set forth in the
Prospectus, (iv) the Company and the Partnership shall have complied with all
agreements and satisfied all conditions on their part to be performed or
satisfied on or prior to the Closing Date, and (v) the representations and
warranties of the Company and the Partnership set forth in Section 2 of this
Agreement shall be accurate as though expressly made at and as of the Closing
Date. On the Closing Date, you shall have received certificates executed by the
President of the Company and the general partner of the Partnership, dated as of
the Closing Date, to such effect and with respect to the following additional
matters: (A) the Registration Statement has become effective under the 1933 Act
and no stop order suspending the effectiveness of the Registration Statement or
preventing or suspending the use of the Prospectus has been issued, and no
proceedings for that purpose have been instituted or are pending or, to their
knowledge, threatened under the 1933 Act; and (B) they have reviewed the
Registration Statement and the Prospectus and, when the Registration Statement
became effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus and any amendments or
supplements thereto contained all statements and information required to be
included therein or necessary to make the statements therein not misleading and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus that has not been so set forth.
(c) Opinions of Hunton & Williams. At the Closing Date, you
shall receive the opinions of Hunton & Williams, counsel for the Company and the
Partnership, in form and substance satisfactory to you and your counsel, to the
effect that:
(i) No consent, approval, authorization or order from
any court, governmental agency or body is required in connection with the
execution and delivery by the Company of this Agreement, the other Operative
Documents to which it is a party, or the consummation by the Company of the
transactions contemplated hereby or thereby, except such as has been obtained or
as may be required by applicable state securities, blue sky or real estate
syndication laws or required by the NASD, as to which such counsel need express
no opinion. Such counsel also need not express an opinion on local laws relating
to the leasing or operation of real estate.
(ii) The Partnership has been duly formed and is
validly existing as a limited partnership under the Virginia Revised Uniform
Limited Partnership Act with the partnership power and authority to execute,
deliver and perform this Agreement and to conduct its business as described in
the Prospectus, and is qualified to do business or is registered to transact
business as a foreign limited partnership and is in good standing as a foreign
limited partnership in Pennsylvania. No consent, approval, authorization or
order from any court, governmental agency or body is required in connection with
the execution and delivery by the Partnership of this Agreement, the other
Operative Documents to which it is a party, or the consummation by the
Partnership of the transactions contemplated hereby or thereby, except such as
has been obtained or as may be required by applicable state securities, blue sky
or real estate syndication laws or required by the NASD, as to which such
counsel need express no opinion. Such counsel also need not express an opinion
on local laws relating to the leasing or operation of real estate. The Company
is the sole general partner of the Partnership.
(iii) The Partnership has the partnership power and
authority to execute, deliver and perform this Agreement and the other Operative
Documents to which it is a party and to consummate the transactions contemplated
herein and therein. Each of this Agreement and the other Operative Documents to
which it is a party have been duly authorized, executed, and delivered by the
Partnership, and this Agreement and the other Operative Documents to which it is
a party constitute valid and binding agreements of the Partnership, enforceable
in accordance with their respective terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, moratorium, liquidation,
reorganization, or similar laws affecting creditors' rights generally, (b)
general equity principles, regardless of whether such enforceability is
considered in equity or at law, and (c) limitations imposed by federal or state
securities laws or the public policy underlying such laws regarding the
enforceability of indemnification provisions.
(iv) The Units to be issued to the Selling Entities
in connection with the Formation Transactions have been duly and validly
authorized by the Partnership. The offer and sale of the Units by the
Partnership will constitute an exempted transaction pursuant to Section 4(2) of
the 1933 Act and will not require registration of the Units under Section 5 of
the 1933 Act.
(v) The execution, delivery, and performance of this
Agreement and the other Operative Documents to which the Company and/or the
Partnership are a party, the compliance with the terms and provisions hereof and
thereof and the consummation of the transactions contemplated herein and therein
and in the Registration Statement and Prospectus, by the Company and/or the
Partnership do not and will not:
A. violate or constitute a breach of or
default under the certificate of limited partnership or partnership agreement of
the Partnership;
B. result in a breach of, or constitute a
default under, any contract that was filed, or the form of which was filed, as
an exhibit to the Registration Statement;
C. to such counsel's knowledge, violate any
applicable statute, rule or regulation, order of any court or any federal,
state, or local governmental authority or agency binding on the Company or the
Partnership, or any of their respective businesses, investments, properties,
assets or Hotels;
D. to such counsel's knowledge, result in
the creation or imposition of any lien, charge, claim, or encumbrance upon any
property or asset of any of the foregoing.
(vi) The Common Shares, including the Shares, have
been approved for listing on the
American Stock Exchange.
(vii) The Company is organized in conformity with the
requirements for qualification as real estate investment trust under the Code,
and the Company's method of operation (as presently conducted and proposed to be
conducted immediately after Closing) enables it to meet the requirements for
qualification and taxation as a real estate investment trust under the Code. The
descriptions of the law and the legal conclusions contained in the Prospectus
under the caption "Federal Income Tax Considerations" are correct in all
material respects, and the discussion thereunder fairly summarizes the federal
tax considerations that are material to a holder of the Common Shares. The
Partnership will be treated as a partnership for federal income purposes and not
as a corporation or association taxable as a corporation.
(viii) The Registration Statement has become
effective under the 1933 Act and, to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been instituted or is pending or
contemplated under the 1933 Act. Other than financial statements and other
financial and operating data and schedules contained therein, as to which
counsel need express no opinion, the Registration Statement, when it became
effective, the Prospectus, as of its date and as of the date hereof, comply as
to form in all material respects with the requirements of the 1933 Act and the
Rules and Regulations.
(ix) Nothing has come to such counsel's attention
that leads it to believe that the Registration Statement, or any further
amendment thereto made prior to the Closing Date, on its effective date,
contained or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus or any
amendment or supplement thereto made prior to the Closing Date, as of its date
and as of the Closing Date, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (provided that such counsel need express no belief
regarding the financial statements and related schedules and other financial
data contained in the Registration Statement, any amendment thereto, or the
Prospectus, or any amendment or supplement thereto).
(x) Neither the Company nor the Partnership is, or
solely as a result of the consummation of the Formation Transactions will
become, an "investment company," or an entity that controls or is "controlled
by" an "investment company," as such terms are defined under the 1940 Act.
(xi) The information in the Prospectus under the
captions "Shares Available for Future Sale" and "Federal Income Tax
Considerations," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel, is correct, and presents fairly
the information required to be disclosed therein under the 1933 Act and the
Rules and Regulations.
(xii) To such counsel's knowledge, except as
described in the Prospectus, there is not pending or threatened, any action,
suit, proceeding, inquiry or investigation before or by any court or any
federal, state or local governmental authority or agency to which the Company,
the Partnership or any of their respective officers, directors or partners are
or may be a party, or to which any of the properties, assets or rights of any
such entity or person may be subject, which, if determined adversely to any of
the Company or the Partnership would individually or in the aggregate (A) could
reasonably be expected to have a material adverse effect on the financial
position, results of operations, business or material assets of the Company or
the Partnership, taken as a whole, or (B) that could reasonably be expected to
adversely affect the consummation of the transactions contemplated by this
Agreement.
(xiii) Each Operative Document to which the Lessee
and/or any Selling Entity is a party that is governed by Virginia law
constitutes a valid and binding agreement of the parties thereto, enforceable in
accordance with its terms, except to the extent enforceability may be limited by
(a) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar
laws affecting creditors' rights generally, (b) general equity principles,
regardless of whether such enforceability is considered in equity or at law, and
(c) limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification provisions.
In rendering the opinions set forth above, Hunton & Williams, with your
consent as to matters of form and substance, may adopt forms of opinion that are
consistent with the Legal Opinion Accord of the ABA Section of Business Law
(1991) (the "Accord") and may rely, as to certain matters of Maryland and
Pennsylvania law, upon the opinions being rendered pursuant to Sections 6.(d)
and 6.(e) of this Agreement.
(d) Pennsylvania Legal Opinion. At the Closing Date, you shall
have received a favorable opinion of Jay H. Shah, counsel for the Lessee and the
Selling Entities, dated as of the Closing Date, in form and substance
satisfactory to your counsel to the effect that:
(i) The Lessee has been duly formed and is validly
existing as a limited partnership under the laws of the Commonwealth of
Pennsylvania with the partnership power and authority to conduct its business as
described in the Prospectus. The Lessee is not in violation of any provision of
its certificate of limited partnership, partnership agreement or other governing
documents. The Lessee is not in default under or in breach of, or subject to any
event that with the giving of notice or the lapse of time or both would
constitute a default under or breach of, any term or condition of any material
agreement or instrument to which the Lessee is a party or by which any of its
properties is bound, except as disclosed in the Prospectus. No consent,
approval, authorization or order from any court, governmental agency or body is
required in connection with the execution and delivery by the Lessee of the
Operative Documents to which it is a party, or the consummation by the Lessee of
the transactions contemplated hereby or thereby, except such as may be required
by applicable state securities, blue sky or real estate syndication laws or
required by the NASD, as to which such counsel need express no opinion.
(ii) Each of the Selling Partnerships has been duly
formed and is validly existing as a limited partnership under the laws of
_______________, with the partnership power and authority to conduct its
business as described in the Prospectus. None of the Selling Partnerships is in
violation of any provision of its respective certificate of partnership,
partnership agreement or other governing documents. None of the Selling
Partnerships is in default under or in breach of, or subject to any event that
with the giving of notice or the lapse of time or both would constitute a
default under or breach of, any term or condition of any material agreement or
instrument to which any Selling Partnership is a party or by which any of their
respective properties is bound, except as disclosed in the Prospectus. No
consent, approval, authorization or order from any court, governmental agency or
body is required in connection with the execution and delivery by any of the
Selling Entities of the respective Operative Documents to which they are
parties, or the consummation by any of the Selling Entities of the transactions
contemplated hereby or thereby, except such as may be required by applicable
state securities, blue sky or real estate syndication laws or required by the
NASD, as to which such counsel need express no opinion.
(iii) The Lessee has the power and authority to
execute, deliver and perform each of the Operative Documents to which it is a
party and to consummate the transactions contemplated therein. Each such
Operative Document has been duly authorized, executed, and delivered by the
Lessee, and each such Operative Document constitutes a valid and binding
agreement of the Lessee, enforceable in accordance with its terms, except to the
extent enforceability may be limited by (a) bankruptcy, insolvency, moratorium,
liquidation, reorganization, or similar laws affecting creditors' rights
generally, (b) general equity principles, regardless of whether such
enforceability is considered in equity or at law, and (c) limitations imposed by
federal or state securities laws or the public policy underlying such laws
regarding the enforceability of indemnification provisions.
(iv) Each of the Selling Entities has the power and
authority to execute, deliver and perform each of the Operative Documents to
which it is a party and to consummate the transactions contemplated therein.
Each such Operative Document has been duly authorized, executed, and delivered
by the respective Selling Entities and constitutes a valid and binding agreement
of the respective Selling Entities, enforceable in accordance with its terms,
except to the extent enforceability may be limited by (a) bankruptcy,
insolvency, moratorium, liquidation, reorganization, or similar laws affecting
creditors' rights generally, (b) general equity principles, regardless of
whether such enforceability is considered in equity or at law, and (c)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification provisions.
(v) The Lessee and each of the Selling Partnerships
owns, possesses or has obtained such Permits as are necessary to own or lease
their respective properties and to carry on their respective businesses in the
manner described in the Prospectus; the Lessee and the Selling Partnerships have
fulfilled and performed all of their respective obligations with respect to all
such Permits, and no event has occurred that allows, or after notice or lapse of
time or both would allow, revocation or modification thereof or would result in
any other impairment of the rights of the holder of any such Permit.
(vi) The execution, delivery, and performance of this
Agreement and the other Operative Documents to which the Lessee and the Selling
Entities are respectively parties, the compliance with the terms and provisions
hereof and thereof and the consummation of the transactions contemplated herein
and therein and in the Registration Statement and Prospectus, by the Lessee
and/or the Selling Entities do not and will not:
A. violate or constitute a breach of or
default under or the certificate of limited partnership, partnership agreement
or other governing documents of the Lessee or any Selling Partnership;
B. result in a breach of, or constitute a
default under, any contract that was filed, or the form of which was filed, as
an exhibit to the Registration Statement;
C. to such counsel's knowledge, violate any
applicable statute, rule or regulation, order of any court or any federal,
state, or local governmental authority or agency binding on the Lessee, the
Selling Entities, or any of their respective businesses, investments,
properties, assets or Hotels;
D. to such counsel's knowledge, result in
the creation or imposition of any lien, charge, claim, or encumbrance upon any
property or asset of any of the foregoing.
(vii) To the knowledge of such counsel, neither the
Lessee nor any of the Selling Entities is in violation of, or in default with
respect to, any statute, rule, regulations, order, judgment, or decree, except
as may be properly described in the Prospectus or such as in the aggregate do
not now have and will not in the future have a materially adverse effect on the
financial position, results of operations, or business or each of such entities,
respectively.
(viii) To such counsel's knowledge, except as
described in the Prospectus, there is not pending, threatened or contemplated,
any action, suit, proceeding, inquiry or investigation before or by any court or
any federal, state or local governmental authority or agency to which the Lessee
or any of the Selling Entities or any of their respective officers, directors or
partners are or may be a party, or to which any of the properties, assets or
rights of any such entity or person may be subject, which, if determined
adversely to any of the Lessee or the Selling Entities, (A) could reasonably be
expected to have a material adverse effect on the financial position, results of
operations, business or material assets of any of the Lessee or the Selling
Entities, or (B) that could reasonably be expected to adversely affect the
consummation of the transactions contemplated by this Agreement or any of the
other Formation Transactions.
(ix) Each Operative Document to which the Company or
the Partnership is a party that is governed by Pennsylvania law constitutes a
valid and binding agreement of the parties thereto, enforceable in accordance
with its terms, except to the extent enforceability may be limited by (a)
bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws
affecting creditors' rights generally, (b) general equity principles, regardless
of whether such enforceability is considered in equity or at law, and (c)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification provisions.
In rendering the opinion set forth above, Jay H. Shah, with your
consent as to matters of form and substance, may adopt a form of opinion that is
consistent with the Legal Opinion Accord of the ABA Section of Business Law
(1991) (the "Accord").
(e) Maryland Legal Opinion. At the Closing Date, you shall
have received a favorable opinion of __________________________, special
Maryland counsel to the Company, dated as of the Closing Date, in form and
substance satisfactory to your counsel to the effect that:
(i) The Company has been duly organized and is
validly existing as a real estate investment trust in good standing under the
laws of the State of Maryland, with the power and authority to execute, deliver
and perform this Agreement and to conduct its business as described in the
Prospectus, and is qualified to do business or registered to transact business
as a foreign ____________ and is in good standing as a foreign ______________ in
Pennsylvania. No consent, approval, authorization or order from any court,
governmental agency or body is required in connection with the execution and
delivery by the Company of this Agreement, the other Operative Documents to
which it is a party, or the consummation by the Company of the transactions
contemplated hereby or thereby, except such as has been obtained or as may be
required by applicable state securities, blue sky or real estate syndication
laws or required by the NASD, as to which such counsel need express no opinion.
Such counsel also need not express an opinion on local laws relating to the
leasing or operation of real estate.
(ii) The Company has the power and authority to
execute, deliver and perform this Agreement and the other Operative Documents to
which it is a party, to issue, sell and deliver the Shares as provided herein
and to consummate the transactions contemplated herein and therein. Each of this
Agreement and the other Operative Documents to which it is a party have been
duly authorized, executed, and delivered by the Company, and this Agreement and
the other Operative Documents to which it is a party constitute valid and
binding agreements of the Company, enforceable in accordance with their
respective terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws
affecting creditors' rights generally, (b) general equity principles, regardless
of whether such enforceability is considered in equity or at law, and (c)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification provisions.
(iii) The Shares have been duly and validly
authorized by the Company, and, when issued and delivered against payment as
provided in this Agreement, will be validly issued, fully paid, and
nonassessable. No person or entity holds preemptive rights with respect to any
of the Shares. The form of the certificates evidencing the Shares comply with
all applicable requirements of Maryland law.
(iv) The execution, delivery, and performance of this
Agreement and the other Operative Documents to which the Company is a party, the
compliance with the terms and provisions hereof and thereof and the consummation
of the transactions contemplated herein and therein and in the Registration
Statement and Prospectus, by the Company do not and will not violate or
constitute a breach of or default under the declaration of trust, bylaws or
other governing documents of the Company.
(v) The statements set forth in the Prospectus under
the caption "Description of Shares of Beneficial Interest" and "Certain
Provisions of Maryland Law and of the Company's Declaration of Trust and
Bylaws," insofar as they purport to constitute a summary of the terms of the
Common Shares and laws related thereto, fairly summarize such terms and
applicable law, and present the information called for by the 1933 Act and the
Rules and Regulations. The Common Shares conform in all material respects as to
legal matters to the description thereof contained in the Registration Statement
and the Prospectus.
(vi) Each Operative Document to which the
_____________________ is a party that is governed by Maryland law constitutes a
valid and binding agreement of the parties thereto, enforceable in accordance
with its terms, except to the extent enforceability may be limited by (a)
bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws
affecting creditors' rights generally, (b) general equity principles, regardless
of whether such enforceability is considered in equity or at law, and (c)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification provisions.
In rendering the opinions set forth above, _________________________,
with your consent as to matters of form and substance, may adopt forms of
opinion that are consistent with the Legal Opinion Accord of the ABA Section of
Business Law (1991) (the "Accord").
(f) Opinion of Your Counsel. At the Closing Date, you shall
receive the favorable opinion of Willcox & Savage, P.C., your counsel, with
respect to such matters as you may reasonably require, and the Company shall
have furnished to such counsel such documents as they may reasonably request for
the purpose of enabling them to pass on such matters.
(g) Independent Public Accountants. At the time that this
Agreement is executed by the Company, you shall have received from Moore
Stephens, P.C. a letter, dated the date hereof, in form and substance
satisfactory to you, confirming that they are independent public accountants
with respect to the Company within the meanings of the 1933 Act and the Rules
and Regulations, and stating in effect that:
(i) in their opinion, the financial statements and
any supplementary financial information and schedule included in the
Registration Statement and covered by their opinion therein comply as to form
and in all material respects with the applicable accounting requirements of the
1933 Act and the Rules and Regulations;
(ii) on the basis of limited procedures (set forth in
detail in such letter and made in accordance with such procedures as may be
specified by you) not constituting an audit in accordance with generally
accepted auditing standards, consisting of (but not limited to) a reading of the
latest available internal unaudited financial statements of the Company, a
reading of the minute books of the Company, inquiries of officials of the
Company responsible for financial and accounting matters, and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention to cause them to believe that:
A. the unaudited financial statements and
supporting schedule and other unaudited financial data of the Company included
in the Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the Rules and
Regulations or are not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement;
B. any other unaudited income statement data
and balance sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited financial statements from which such data
and items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited financial statements included in the
Prospectus;
C. any unaudited pro forma financial
information included in the Prospectus does not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the Rules and Regulations or the pro forma adjustments have not been
properly applied to historical amounts in the compilation of that information;
D. at a specified date not more than five
(5) days prior to the date of such letter, there was any change in the capital
shares or long-term debt or obligations of the Company or the Combined Selling
Entities-Initial Hotels or there were any decreases in net current assets or net
assets, shareholders' equity, or other items specified by you from that set
forth in the Company's or the Combined Selling Entities-Initial Hotels' balance
sheet at December 31, 1997, except as described in such letter; and
E. for the period from December 31, 1997 to
a specified date not more than five (5) days prior to the date of delivery of
such letter, there were any decreases in room revenues, food revenues, beverage
revenues, or operating income before interest, depreciation and amortization for
the Combined Selling Entities-Initial Hotels, in each case as compared with the
corresponding period of the preceding year, except in each case for decreases
that the Prospectus discloses have occurred or may occur or that are described
in such letter; and
(iii) in addition to the procedures referred to in
clause (ii) above and the examination referred to in their Reports including in
the Registration Statement, they have carried out certain specified procedures,
not constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages, and financial
information specified by you that are derived from the general accounting
records of the Company, that appear in the Registration Statement or the
exhibits or schedules thereto and are specified by you, and have compared such
amounts, percentages, and financial information with the accounting records of
the Company and with material derived from such records and have found them to
be in agreement.
(h) Updated Comfort Letter. At the Closing Date, you shall
have received from Moore Stephens, P.C. a letter, in form and substance
satisfactory to you and dated as of the Closing Date, to the effect that they
reaffirm the statements made in the letter furnished pursuant to Section 6.(g)
above, except that the specified date referred to shall be a date not more than
five (5) days prior to the Closing Date.
(i) Post-Financial Developments. In the event that either of
the letters to be delivered pursuant to Sections 6.(g) and 6.(h) above sets
forth any changes, decreases or increases, it shall be a further condition to
your obligations that you shall have reasonably determined, after discussions
with officers of the Company responsible for financial and accounting matters
and with Moore Stephens, P.C., that such changes, decreases or increases as are
set forth in such letter do not reflect a material adverse change in the capital
shares, long-term debt, obligations under capital leases, total assets, net
current assets, or shareholders' equity of the Company as compared with the
amounts shown in the latest consolidated pro forma balance sheet of the Company,
or a material adverse change in the room revenues, food revenues, beverage
revenues, or operating income before interest, depreciation and amortization for
the Hotels in each case as compared with the corresponding period of the prior
year.
(j) Additional Information. On the Closing Date, your counsel
shall have been furnished with all such documents, certificates and opinions as
they may request for the purpose of enabling them to pass upon the issuance and
sale of the Shares as contemplated in this Agreement and the matters referred to
in Section 6.(b) and in order to evidence the accuracy and completeness of any
of the representations, warranties or statements of the Company or the
Partnership, the performance of any of the covenants of the Company or the
Partnership, or the fulfillment of any of the conditions herein contained; and
all proceedings taken by the Company at or prior to the Closing Date in
connection with the authorization, issuance and sale of the Shares as
contemplated in this Agreement, shall be satisfactory in form and substance to
you and to your counsel. The Company and the Partnership will furnish you with
such number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request. Any certificate signed by any
officer, partner, or other official of the Company or the Partnership and
delivered to you or your counsel shall be deemed a representation and warranty
by the Company and the Partnership to you as to the statements made therein.
(k) Adverse Events. Subsequent to the date hereof, there shall
not have occurred any of the following: (i) a suspension or material limitation
in trading in securities generally on the New York Stock Exchange or American
Stock Exchange or the Nasdaq National Market, (ii) a general moratorium on
commercial banking activities in Virginia, Pennsylvania or New York declared by
either federal or state authorities, as the case may be, (iii) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war if the effect of any such event
specified in this clause (iii) in your reasonable judgment makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares on the terms and in the manner contemplated in the Prospectus, or
(iv) such a substantial adverse change in general economic, political, financial
or international conditions affecting financial markets in the United States
having a substantial adverse impact on trading prices of securities in general,
as, in your reasonable judgment, makes it impracticable or inadvisable to
proceed with the public offering of the Shares or the delivery of the Shares on
the terms and in the manner contemplated in the Prospectus.
(l) Share Restrictions. As described in Section 2.(bb) hereof,
_______________________ shall have agreed in writing as to the matters set forth
in such section.
(m) NASD Review. The NASD, upon review of the terms of the
public offering of the Shares, shall not have objected to such offering, the
terms of the offering or your participation in the offering.
(n) AMEX Listing. The Shares are listed on the American Stock
Exchange.
(o) Formation Transactions. Each of the Formation Transactions
have occurred or shall occur simultaneously with the Closing Date.
(p) Title Insurance. On the Closing Date, the Partnership
shall receive an owner's title insurance policy or endorsement thereof through
the Closing Date, in form and substance satisfactory to you and your counsel,
with respect to each of the Hotels as contemplated by the Contribution
Agreements.
(q) Company Offering. The separate offering of the Company
Offered Shares shall have been effected in compliance with all applicable laws,
including, without limitation, all federal and state securities laws.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by you on notice to the Company at any time at or
prior to the Closing Date, and such termination shall be without liability of
any party to any other party, except as provided in Sections 5 and 9.
Notwithstanding any such termination, the provisions of Section 7 shall remain
in effect.
7. Indemnification and Contribution.
(a) Indemnification by the Company and Partnership. The
Company and the Partnership, jointly and severally, will indemnify and hold you
harmless against any losses, claims, damages, or liabilities, joint or several,
to which you may become subject under the 1933 Act, the 1934 Act or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any breach of any warranty or covenant
of the Company or the Partnership herein contained or any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arise out of or are
based upon the Formation Transactions, and will reimburse you for any legal or
other expenses reasonably incurred by you in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the Company or the Partnership shall not be liable in any such case to the
extent that any such loss, claim, damage, or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by you expressly
for use therein; provided further, that the indemnity agreement contained in
Section 7.(a) with respect to any Preliminary Prospectus shall not inure to your
benefit if you failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Shares to such person
in any case where such delivery is required by the 1933 Act or the Rules and
Regulations and if the Prospectus would have cured any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
loss, claim, damage, or liability. In addition to its other obligations under
this Section 7.(a), the Company and the Partnership agree that, as an interim
measure during the pendency of any such claim, action, investigation, inquiry,
or other proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in this Section 7.(a), they will
reimburse you on a monthly basis for all reasonable legal and other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry, or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
and the Partnership's obligation to reimburse you for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. Any such interim reimbursement payments that
are not made to you within thirty (30) days of a request for reimbursement shall
bear interest at the prime rate (or reference rate or other commercial lending
rate for borrowers of the highest credit standing) published from time to time
by The Wall Street Journal (the "Prime Rate") from the date of such request.
This indemnity agreement shall be in addition to any liabilities that the
Company and the Partnership may otherwise have. For purposes of this Section 7,
the information set forth in the last paragraph on the front cover page (insofar
as such information relates to you) and under "Underwriting" in any Preliminary
Prospectus and in the Prospectus constitutes the only information furnished by
you to the Company for inclusion in any Preliminary Prospectus, the Prospectus,
or the Registration Statement. Neither the Company nor the Partnership will,
without your prior written consent, settle or compromise or consent to the entry
of any judgment in any pending or threatened action or claim or related cause of
action or portion of such cause of action in respect of which indemnification
may be sought hereunder (whether or not you are a party to such action or
claim), unless such settlement, compromise, or consent includes an unconditional
release of you from all liability arising out of such action or claim (or
related cause of action or portion thereof).
The indemnity agreement in this Section 7.(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls you within the meaning of the 1933 Act or the
1934 Act to the same extent as such agreement applies to you.
(b) Indemnification by You. You will indemnify and hold
harmless the Company and the Partnership against any losses, claims, damages, or
liabilities to which the Company or the Partnership may become subject, under
the 1933 Act, the 1934 Act, or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any breach of any warranty or covenant by you herein contained or any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement, or the Prospectus or any such amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company or the Partnership by you expressly for use
therein; and will reimburse the Company or the Partnership for any legal or
other expenses reasonably incurred by the Company or the Partnership in
connection with investigating or defending any such loss, claim, damage,
liability, or action. In addition to its other obligations under this Section
7.(b), you agree that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry, or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 7.(b), you will reimburse the Company or the
Partnership on a monthly basis for all reasonable legal and other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry, or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of their
obligation to reimburse the Company or the Partnership for such expenses and the
possibility that such payments might later been held to have been improper by a
court of competent jurisdiction. Any such interim reimbursement payments that
are not made to the Company within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement shall be in addition to any liabilities that
you may otherwise have.
The indemnity agreement in this Section 7.(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each officer and director of the Company and the Partnership and each person, if
any, who controls the Company or the Partnership within the meaning of the 1933
Act or the 1934 Act to the same extent as such agreement applies to the Company
or the Partnership.
(c) Notices of Claims; Employment of Counsel. Any party that
proposes to assert the right to be indemnified under this Section 7 promptly
shall notify in writing each party against which a claim is to be made under
this Section 7 of the institution of such action but the omission so to notify
such indemnifying party of any such action shall not relieve it from any
liability it may have to any indemnified party except (i) to the extent that the
omission to notify shall have caused or increased the indemnifying party's
liability, and (ii) that the indemnifying party shall be relieved of its
indemnity obligation for expenses of the indemnified party incurred before the
indemnifying party is notified. Such indemnifying party or parties shall assume
the defense of such action, including the employment of counsel (satisfactory to
the indemnified party) and payment of fees and expenses. An indemnified party
shall have the right to employ its own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless the employment of such counsel shall have been authorized in writing by
the indemnifying party or parties in connection with the defense of such action
or the indemnifying party or parties shall not have employed counsel to have
charge of the defense of such action or such indemnified party or parties
reasonably shall have concluded that there may be defenses available to it or
them that are different from or additional to those available to such
indemnifying party or parties (in which case such indemnifying party or parties
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses
shall be borne by such indemnifying party or parties. Anything in this paragraph
to the contrary notwithstanding, an indemnifying party shall not be liable for
any settlement of any such claim or action effected without its written consent.
(d) Arbitration. It is agreed that any controversy arising out
of the operation of the interim reimbursement arrangements set forth in Sections
7.(a) and 7.(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the indemnifying parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 7.(a) and 7.(b) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for expenses
that is created by the provisions of Sections 7.(a) and 7.(b).
(e) Contribution. If the indemnification provided for in
Section 7.(a) or 7.(b) is unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, or liabilities (or
actions in respect thereof) referred to therein, then the Company and the
Partnership on the one hand and you on the other shall contribute to the amount
paid or payable as a result of such losses, claims, damages, or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Partnership on the one hand
and you on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then the Company and the Partnership and you shall contribute to
such amount paid or payable in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company and the
Partnership on the one hand and you on the other in connection with the
statements or omissions that resulted in such losses, claims, damages, or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Partnership on the one hand and you on the other shall be deemed to be in the
same proportion as the total net proceeds from the Offering (before deducting
expenses) received by the Company and the Partnership bear to the total selling
commissions received by you in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or allegedly untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Partnership on the one
hand or to information with respect to you and furnished by you respectively, in
writing specifically for inclusion in the Prospectus on the other and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission. The Company and the Partnership
and you agree that it would not be just and equitable if contribution pursuant
to this Section 7.(e) were determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable considerations
referred to above in this Section 7.(e). The amount paid or payable as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 7.(e) shall be deemed to include any legal or
other expenses reasonably incurred by any such party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) with respect to the transactions giving rise to the right of
contribution provided in this Section 7.(e) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
obligations in this Section 7.(e) for you to contribute are several in
proportion to your respective underwriting obligations and not joint. For
purposes of this Section 7.(e), each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as you, and each director of the Company who signed the Registration Statement,
and each person, if any, who controls the Company or the Partnership within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as the Company or the Partnership.
8. Representations and Agreements to Survive. Except as the context
otherwise requires, all representations, warranties, covenants and agreements
contained in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by you, or on your behalf, or by any
controlling person, or by or on behalf of the Company or the Partnership, and
shall survive until the fifth anniversary of the date of this Agreement.
9. Termination of Agreement.
(a) Termination of Agreement. You shall have the right to
terminate this Agreement at any time prior to the Closing Date (i) if any
representation or warranty of the Company or the Partnership hereunder shall be
found to have been incorrect or misleading when made or the Company or the
Partnership shall fail, refuse, or be unable to perform any of their respective
agreements hereunder or to fulfill any condition of your obligations hereunder,
(ii) if any other condition of your obligations hereunder shall not be
satisfied, (iii) if there shall have been since the respective dates as of which
information is given in the Registration Statement, a material adverse change,
or any development involving a prospective material adverse change, in or
affecting the business, prospects, management, properties, assets, results of
operations, or condition (financial or otherwise) of the Company, the
Partnership, or any Hotel, taken as a whole, whether or not arising in the
ordinary course of business, or (iv) any federal or state statute, regulation,
rule, or order of any court or other governmental authority has been enacted,
published, decreed, or otherwise promulgated that in your reasonable judgment
materially adversely affects or could reasonably be expected to materially
adversely affect the business or operations of the Company, the Partnership or
any Selling Entity. You shall have no liability to the Company or the
Partnership pursuant to this Agreement or otherwise as a result of any such
termination.
(b) Result of Termination.
(i) If the sale of the Shares provided for herein is
not consummated (A) because of any termination of this Agreement pursuant to
Section 9.(a)(i), (B) because of any refusal, inability or failure on the part
of the Company or the Partnership to perform any agreement herein or comply with
any provision hereof other than by reason of your default, (C) by
______________, 1998 due to reasons within the control of the Company, the
Partnership or any of their affiliates, (D) because the Company does not sell
all of the Company Offered Shares, or (E) because the Company abandons this
Offering and obtains financing from other sources and you are not retained as a
senior investment banker in connection with such financing, then in addition to
its obligations with respect to expenses as set forth in Section 5, the Company
will reimburse you on demand for all your reasonable out-of-pocket expenses
(including the fees and expenses of your counsel), including disbursements
reasonably incurred by you in reviewing the Registration Statement and the
Prospectus, and in investigating and making preparations for the marketing of
the Shares.
(ii) If the sale of the Shares provided for herein is
not consummated for any other reason, the Company and the Partnership shall pay
expenses as required by Section 5, and the Company and the Partnership shall
have no additional liability to you except for such liabilities, if any, as may
exist or thereafter arise under Section 7.
10. Notices.
(a) Method and Location of Notices. All communications
hereunder, except as herein otherwise specifically provided, shall be in writing
and shall be sent by overnight courier, hand-delivered or telecopied and
confirmed as follows:
To the Company or the Partnership:
Hersha Hospitality Trust
148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070
Attention: Mr. Hasu P. Shah
Telecopier No.: (717) 774-7383
with a copy to:
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Attention: Cameron N. Cosby, Esquire
Telecopier No.: (804) 788-8218
To You:
Anderson & Strudwick, Incorporated
707 E. Main Street, 20th Floor
Richmond, Virginia 23219
Attention: Mr. L. McCarthy Downs, III
Telecopier No.: (804) 648-3404
with a copy to:
Willcox & Savage, P.C.
1800 NationsBank Center
Norfolk, Virginia 23510
Attention: James J. Wheaton, Esq.
Telecopier No.: (757) 628-5566
(b) Time of Notices. Notice shall be deemed to be given by you
to the Company or the Partnership or by the Company or the Partnership to you
when it is sent by overnight courier, hand-delivered or telecopied as provided
in Section 10.(a).
11. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon you, the Company and the Partnership and the controlling
persons referred to in Section 7, and their respective successors, legal
representatives and assigns, and no other person shall have or be construed to
have a legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained.
12. Governing Law, Construction, and Time. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia. Specified time of day refers to United States Eastern Time. Time shall
be of the essence of this Agreement.
13. Description Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
14. Counterparts. This Agreement may be executed in one or more
counterparts, and if executed in more than one counterpart, the executed
counterparts shall together constitute a single instrument.
If the foregoing correctly sets forth the understanding between you,
the Company and the Partnership, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
HERSHA HOSPITALITY TRUST
By:
----------------------------------
Hasu P. Shah
Chief Executive Officer
HERSHA HOSPITALITY LIMITED PARTNERSHIP
By: Hersha Hospitality Trust,
General Partner
By:
---------------------------------
Hasu P. Shah
Chief Executive Officer
Confirmed and accepted as of
the date first above written:
ANDERSON & STRUDWICK, INCORPORATED
By:
----------------------------------------
L. McCarthy Downs, III
Senior Vice President
Exhibit 1.2
FORM OF
HERSHA HOSPITALITY TRUST
2,500,000 Common Shares of Beneficial Interest
SELECTED DEALER AGREEMENT
<PAGE>
______________, 1998
Dear Sirs:
We have agreed to sell, as placement agent for the issuer on a best
efforts all-or-none basis, 2,500,000 common shares of beneficial interest (the
"Shares") of Hersha Hospitality Trust (the "Company"). The Shares and the terms
under which they are to be offered for sale are more particularly described in
the Company's Preliminary Prospectus for the Shares dated ______________, 1998
(including any subsequent Preliminary Prospectus and the final Prospectus, the
"Prospectus").
<PAGE>
1. The Shares are to be offered to the public by us, as placement agent
for the Company, in accordance with the terms of the offering (the "Offering")
set forth in the Prospectus. We have advised you of the price per share of the
Shares (the "Public Offering Price"). In consideration for assisting in the sale
of the Shares, you will be paid a commission of five percent (5%) of the Public
Offering Price for each Share sold by you.
2. We are offering at the Public Offering Price to the customers of
certain dealers ("Selected Dealers"), subject to prior sale and the terms and
conditions hereof, a portion of the Shares. The Selected Dealers will be dealers
that are actually engaged in the investment banking or securities business and
that are either (i) members in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") that are registered with the NASD and
maintain net capital pursuant to Rule 15c3-1 promulgated under the Securities
Exchange Act of 1934 (the "1934 Act") of not less than $250,000 or (ii) dealers
with their principal place of business located outside the United States, its
territories and its possessions and not registered as brokers or dealers under
the 1934 Act, who have agreed not to make any sales within the United States,
its territories or its possessions or to persons who are nationals thereof or
residents therein. The Selected Dealers have agreed to comply with the
provisions of section 24 of Article III of the Rules of Fair Practice of the
NASD, and, if any such dealer is a foreign dealer and not a member of the NASD,
such Selected Dealer also has agreed to comply with the NASD's interpretation
with respect to free-riding and withholding, to comply, as though it were a
member of the NASD, with the provision of section 8 and 36 of Article III of
such Rules of Fair Practice, and to comply with section 25 of Article III
thereof as that section applies to nonmember foreign dealers.
3. If you desire to purchase any of the Shares as agent for your
customers, your application should reach us promptly by telephone, telegraph or
telecopy at our office at Anderson & Strudwick, Incorporated, 707 E. Main
Street, 20th Floor, Richmond, Virginia 23219. We reserve the right to reject
subscriptions in whole or in part, to make allotments and to close the
subscription books at any time without notice. The Shares allocated to you will
be confirmed, subject to the terms and conditions of this Agreement.
4. Any Shares purchased through you shall be purchased for your
customers under the terms of this Agreement only upon orders already received
from subscribers for the Shares in accordance with the terms of the Offering set
forth in the Prospectus, subject to the securities or blue sky laws of the
various states or other jurisdictions. You acknowledge that because all of the
proceeds from the sale of the Shares must be received before the Offering may be
closed, Shares may not be sold to your customers whose accounts are on a
delivery versus payment ("DVP") basis.
5. You agree to advise us from time to time, upon request, of the
amount of Shares requested by you hereunder and remaining unsold at the time of
such request, and, if in our opinion such Shares shall be needed to make
delivery of the Shares sold, you will, forthwith upon our request, reduce the
number of Shares allocated to you to an amount equal to the number of Shares
actually subscribed for by your customers.
6. No expense shall be charged to you. A single transfer tax, if
payable, upon the sale of the Shares to you will be paid when such Shares are
delivered. However, you shall pay any transfer tax on sales of Shares by you and
you shall pay your proportionate share of any transfer tax (other than the
single transfer tax described above) in the event that any such tax shall from
time to time be assessed against you and other Selected Dealers as a group or
otherwise.
7. Neither you nor any other person is or has been authorized to give
any information or to make any representation in connection with the sale of the
Shares other than as contained in the final Prospectus.
8. On becoming a Selected Dealer, and in offering and selling the
Shares, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with (i) Rule 15c2-8 under the 1934 Act relating
to the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act), (ii) Rule 15c6-1 under the 1934 Act, and
(iii) the NASD's interpretation with respect to free-riding and withholding, and
confirm that you have complied with and will comply with said rules and
interpretations. You confirm also that you are familiar with Release No. 4968 of
the Securities and Exchange Commission under the 1933 Act and that you have
complied and will comply with the requirements therein relating to the
distribution of copies of the Preliminary Prospectus relating to the Shares. You
confirm that you are registered with the NASD and maintain net capital pursuant
to Rule 15c3-1 promulgated under the 1934 Act of not less than $250,000.
9. We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
10. Upon request, you will be informed as to the states and other
jurisdictions in which, and limitations, if any, pursuant to which, we have been
advised that the Shares are qualified for sale under the respective securities
or blue sky laws of such states and other jurisdictions, but we do not assume
any obligation or responsibility as to the right of any Selected Dealer to sell
the Shares in any state or other jurisdiction or as to the eligibility of the
Shares for sale therein or to any particular prospective purchaser herein. You
agree that you will not sell the Shares in any state or jurisdiction or to any
purchaser in which or to whom the Shares are not eligible to be sold.
11. You agree that you will not, at any time prior to the completion by
us of distribution of the Shares acquired by you pursuant to this Agreement, bid
for, purchase, sell or attempt to induce others to purchase or sell, directly or
indirectly, any securities of the Company other than (i) as provided for in this
Agreement, or (ii) purchases or sales of any such securities as broker on
unsolicited orders for the account of others.
12. No Selected Dealer is authorized to act as our agent or agent of
the Company or otherwise to act on our behalf or on behalf of the Company in
offering or selling the Shares to the public or otherwise to furnish any
information or make any representation except as contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with us, or with each other, but you will be
responsible for your share of any liability or expense based on any claim to the
contrary. We shall not be under any liability for or in respect of value,
validity or form of the Shares, of the delivery of the certificates for the
Shares, or the performance by anyone of any agreement on its part, or the
qualification of the Shares for sale under the laws of any jurisdiction, or for
or in respect to any other matter relating to this Agreement, except for the
lack of good faith and for obligations expressly assumed by us in this Agreement
and no obligation on our part shall be implied herefrom. The foregoing
provisions shall not be deemed a waiver of any liability imposed under the 1933
Act.
14. We will notify you of the exact date (the"Closing Date") on which
the sale of the Shares (the "Closing") will occur. Please provide First Union
National Bank of North Carolina (the"Escrow Agent") with the manner in which
the Shares should be issued at least three (3) business days prior to the
Closing Date. Payment for Shares purchased through you hereunder shall be made
at the Public Offering Price (without any deduction for the selling commission
due to you) by wire transfer of IMMEDIATELY AVAILABLE FED FUNDS no later than
11:00 a.m. on the business day prior to the Closing Date to an escrow account
(the"Escrow Account"), in accordance with the following instructions: . The
Escrow Agent will deliver the certificates representing the Shares. Within two
(2) business days of the Closing, the Escrow Agent will send you a check for
your selling commission.
15. You understand that the Offering is being made on a best efforts
all-or-none basis, and that the Offering will not close unless at least
2,666,667 Shares are sold. Upon receipt of any and all checks, drafts and money
orders received from prospective purchasers of the Shares, you shall deliver the
same to the Escrow Agent for deposit in the Escrow Account by noon of the next
business day following the receipt, together with a written account of each
purchaser that sets forth, among other things, (i) the purchaser's name and
address, (ii) the number of Shares purchased by the purchaser, (iii) the amount
paid therefor by the purchaser, (iv) whether the consideration received from the
purchaser was in the form of a check, draft or money order, and (v) the
purchaser's social security or tax identification number. This information will
not be made available to us by the Escrow Agent except to the extent necessary
in connection with any claim relating to the sale of the Shares. Any checks that
are received that are made payable to any party other than the Escrow Agent
shall be returned to the purchaser that submitted the check and not accepted.
You agree that you are bound by the terms of the Escrow Agreement executed by us
and the Company.
16. Notices to us should be addressed to Mr. L. McCarthy Downs, III,
Senior Vice President, Anderson & Strudwick, Incorporated, 707 E. Main Street,
20th Floor, Richmond, Virginia 23219. Notices to you shall be deemed to have
been duly given if telegraphed or mailed to you at the address to which this
letter is addressed.
17. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia without giving effect to the
choice of law or conflicts of law principles thereof.
18. If you desire to purchase any Shares, please confirm your
application by signing and returning to us your confirmation on the duplicate
copy of this letter enclosed herewith, even though you may have previously
advised us thereof, by telephone, telegraph or telecopy.
Very truly yours,
ANDERSON & STRUDWICK, INCORPORATED
By:
-----------------------------
L. McCarthy Downs, III
Senior Vice President
<PAGE>
_____________, 1998
Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, VA 23219
Attention: Mr. L. McCarthy Downs, III
We hereby request an allocation of ________ common shares of beneficial
interest (the "Shares") of Hersha Hospitality Trust for purchase by us in
accordance with the terms and conditions stated in the foregoing letter. We
hereby acknowledge receipt of the Prospectus referred to in the first paragraph
thereof relating to said Shares. We further state that we have relied upon said
Prospectus and upon no other statement whatsoever, whether written or oral. We
confirm that we are a dealer actually engaged in the investment banking or
securities business and that we are either (i) a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") that is registered
with the NASD and maintain net capital pursuant to Rule 15c3-1 promulgated under
the Securities Exchange Act of 1934 (the "1934 Act") of not less than $250,000
or (ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees
not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. We
hereby agree to comply with the provisions of Section 24 of Article III of the
Rules of Fair Practice of the NASD, and if we are a foreign dealer and not a
member of the NASD, we also agree to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though we were a member of
the NASD, and with the provisions of Section 8 and 36 of Article III of such
Rules of Fair Practice, and to comply with Section 25 of Article III thereof as
that Section applies to non-member foreign dealers. We also hereby confirm that
we have complied with and will comply with Rules 15c2-8 and 15c6-1 promulgated
under the 1934 Act.
--------------------------
(Name of Firm)
By:
--------------------------
(Title)
Address:
--------------------------
--------------------------
--------------------------
Exhibit 1.3
FORM OF ESCROW AGREEMENT
This Escrow Agreement is made and entered into as of the ____ day of
___________, 1998, by and among ANDERSON & STRUDWICK, INCORPORATED, a Virginia
corporation (the AUnderwriter@), HERSHA HOSPITALITY TRUST, a Maryland real
estate investment trust (the "Company"), and FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national bank (the "Escrow Agent").
R E C I T A L S:
<PAGE>
A. The Company proposes to sell 2,666,667 common shares (the "Shares")
of the Company at a price of $6.00 per Share (the "Offering").
B. The Company has retained the Underwriter, as agent for the Company
on a best efforts all-or-none basis, to sell 2,500,000 of the Shares in the
Offering, and the Underwriter has agreed to sell the Shares in the Offering as
the Company's agent on a best efforts all-or-none basis.
C. The Company intends to sell directly to shareholders the
remaining 166,667 Shares available in the Offering.
D. The Escrow Agent is willing to hold the proceeds of the Offering in
escrow pursuant to this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, it is hereby agreed as
follows:
1. Establishment of the Escrow Account. Contemporaneously herewith, the
parties have established a non-interest-bearing account with the Escrow Agent,
which escrow account is entitled AHersha Hospitality Trust Escrow Account@ (the
AEscrow Account@). The Underwriter and the Company will transfer funds (and the
Underwriter will instruct selected dealers (ASelected Dealers@) to transfer
funds) directly to the Escrow Agent as directed by its customers and will
instruct other purchasers of the Shares to make checks payable to AFirst Union
National Bank - Hersha Hospitality Trust Escrow Account.@
2. Escrow Period. The escrow period (the "Escrow Period") shall begin
with the commencement of the Offering and shall terminate upon the earlier to
occur of the following dates:
(a) the date on which the Escrow Agent confirms that it has
received in the Escrow Account gross proceeds of $16,000,002 (the "Minimum");
(b) ________________, 1998; or
(c) the date on which the Underwriter and the Company notify
the Escrow Agent that the Offering has been terminated.
During the Escrow Period, the Company is aware and understands that it is not
entitled to any funds received into escrow and no amounts deposited in the
Escrow Account shall become the property of the Company or any other entity, or
be subject to the debts of the Company or any other entity.
3. Deposits into the Escrow Account. The Underwriter and the Company
agree that they shall deliver to the Escrow Agent (and the Underwriter will
instruct Selected Dealers to deliver to the Escrow Agent) for deposit in the
Escrow Account all monies received from purchasers of the Shares by noon of the
next business day after receipt together with a written account of each sale,
which account shall set forth, among other things, (i) the purchaser's name and
address, (ii) the number of Shares purchased by the purchaser, (iii) the amount
paid therefor by the purchaser, (iv) whether the consideration received from the
purchaser was in the form of a check, draft or money order, and (v) the
purchaser's social security or tax identification number. The Escrow Agent
agrees to hold all monies so deposited in the Escrow Account (the AEscrow
Amount@) for the benefit of the parties hereto until authorized to disburse such
monies under the terms of this Agreement. The Company agrees that it will cause
the portion of the Minimum attributable to the 166,667 Shares it is selling
directly to be delivered to the Escrow Agent not less than three (3) business
days prior to the Closing Date (as defined in Section 8 of this Agreement).
4. Disbursements from the Escrow Account. In the event the Escrow Agent
does not receive the Minimum deposits totaling $16,000,002 prior to the
termination of the Escrow Period, or if the Underwriter and the Company notify
the Escrow Agent that the Offering has been terminated, the Escrow Agent shall
promptly refund to each purchaser the amount received from the purchaser,
without deduction, penalty, or expense to the purchaser, and the Escrow Agent
shall notify the Company and the Underwriter of its distribution of the funds.
The purchase money returned to each purchaser shall be free and clear of any and
all claims of the Company or any of its creditors.
In the event the Escrow Agent does receive the Minimum prior
to termination of the Escrow Period, on the Closing Date, the Escrow Agent shall
disburse the Escrow Amount pursuant to the provisions of Section 6, provided,
however, in no event will the Escrow Amount be released to the Company until
such amount is received by the Escrow Agent in collected funds. For purposes of
this Agreement, the term Acollected funds@ shall mean all funds, including fed
funds, received by the Escrow Agent which have cleared normal banking channels.
5. Collection Procedure.
(a) The Escrow Agent is hereby authorized to deposit each
check in the Escrow Account.
(b) In the event any check paid by a purchaser and deposited
in the Escrow Account shall be returned, the Escrow Agent shall notify the
Underwriter or the Company, as the case may be, by telephone of such occurrence
and advise it of the name of the purchaser, the amount of the check returned,
and any other pertinent information. The Escrow Agent shall then transmit the
returned check directly to the purchaser and shall transmit the statement
previously delivered by the Underwriter or the Company, as the case may be,
relating to such purchase to the Underwriter.
(c) If the Company rejects any purchase of Shares for which
the Escrow Agent has already collected funds, the Escrow Agent shall promptly
issue a refund check to the rejected purchaser. If the Underwriter rejects any
purchase for which the Escrow Agent has not yet collected funds but has
submitted the purchaser's check for collection, the Escrow Agent shall promptly
issue a check in the amount of the purchaser's check to the rejected purchaser
after the Escrow Agent has cleared such funds. If the Escrow Agent has not yet
submitted a rejected purchaser=s check for collection, the Escrow Agent shall
promptly remit the purchaser's check directly to the purchaser.
6. Delivery of Escrow Account and the Shares.
(a) Prior to the Closing (as defined in Section 8 of this
Agreement), the Underwriter and the Company shall provide the Escrow Agent with
a statement, executed by each party, containing the following information:
(i) The total number of Shares sold by the
Underwriter directly to purchasers and a list of each purchaser, and the number
of Shares purchased by such purchaser, and specification of the manner in which
the Shares should be issued; and
(ii) The total number of Shares sold by the Company
directly to purchasers and a
list of each purchaser, and the number of Shares purchased by such purchaser,
and specification of the manner in which the Shares should be issued; and
(iii) A calculation by the Underwriter and the
Company as to the manner in which the
Escrow Account should be distributed to the Company, the Underwriter and
Selected Dealers and in the event of oversubscription or rejection of certain
purchases, the aggregate amount to be returned to individual purchasers and a
listing of the exact amount to be returned to each such purchaser.
The Escrow Agent shall hold the Escrow Account and distribute it in accordance
with the above-described statement on the date of Closing or such later date
that it receives the above-described statement.
(b) The Company shall deliver the certificates representing
the Shares to the Escrow Agent prior to each Closing. On the day of the Closing
and in the event the Minimum is met, the Escrow Agent shall deliver the
certificates representing the Shares to the Company, the Underwriter and
Selected Dealers, as the case may be, or in the manner specified in writing to
the Escrow Agent by the Underwriter.
(c) Upon termination of the Offering by the Company or the
Underwriter for any reason, the Escrow Agent shall return to the purchasers who
contributed to the Escrow Account the exact amount contributed by them.
7. Investment of Escrow Account. The Escrow Agent shall deposit funds
received from purchasers in the Escrow Account, which shall be a
non-interest-bearing bank account at First Union National Bank of North
Carolina.
8. Closing Date. A AClosing@ shall be a date of closing of the
Offering, and a AClosing Date@ shall be a date on or subsequent to the date on
which the Escrow Agent has received the Minimum deposits in collected funds that
is designated to the Escrow Agent by the Underwriter and the Company as a
Closing Date.
9. Compensation of Escrow Agent. The Company shall pay the Escrow Agent
a fee for its services hereunder in an amount equal to Five Hundred Dollars
($500.00), which amount shall be paid on the initial Closing Date. In the event
the Offering is canceled for any reason, the Company shall pay the Escrow Agent
its fee within ten (10) days after the Escrow Amount is refunded to purchasers.
No such fee or any other monies whatsoever shall be paid out of or chargeable to
the funds on deposit in the Escrow Account.
10. Disbursement Into Court. If, at any time, there shall exist any
dispute between the Company, the Underwriter and/or the purchasers with respect
to the holding or disposition of any portion of the Escrow Amount or any other
obligations of the Escrow Agent hereunder, or if at any time the Escrow Agent is
unable to determine, to the Escrow Agent's sole satisfaction, the proper
disposition of any portion of the Escrow Amount or the Escrow Agent's proper
actions with respect to its obligations hereunder, or if the Company and the
Underwriter have not within 30 days of the furnishing by the Escrow Agent of a
notice of resignation appointed a successor Escrow Agent to act hereunder, then
the Escrow Agent may, in its sole discretion, take either or both of the
following actions:
(a) suspend the performance of any of its obligations under
this Escrow Agreement until such dispute or uncertainty shall be resolved to the
sole satisfaction of the Escrow Agent or until a successor Escrow Agent shall
have been appointed (as the case may be); provided however, that the Escrow
Agent shall continue to hold the Escrow Amount in accordance with Section 7
hereof; and/or
(b) petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in Charlotte, North
Carolina, for instructions with respect to such dispute or uncertainty, and pay
into such court all funds held by it in the Escrow Account for holding and
disposition in accordance with the instructions of such court.
The Escrow Agent shall have no liability to the Company, the Underwriter or any
other person with respect to any such suspension of performance or disbursement
into court, specifically including any liability or claimed liability that may
arise, or be alleged to have arisen, out of or as a result of any delay in the
disbursement of funds held in the Escrow Account or any delay in or with respect
to any other action required or requested of the Escrow Agent.
11. Duties and Rights of the Escrow Agent. The foregoing agreements and
obligations of the Escrow Agent are subject to the following provisions:
(a) The Escrow Agent=s duties hereunder are limited solely to
the safekeeping of the Escrow Account and the delivery of the certificates
representing the Shares in accordance with the terms of this Agreement. It is
agreed that the duties of the Escrow Agent are only such as herein specifically
provided, being purely of a ministerial nature, and the Escrow Agent shall incur
no liability whatsoever except for negligence, willful misconduct or bad faith.
The Escrow Agent shall have no duty with respect to the certificates
representing the Shares other than to exercise reasonable care in acquiring and
delivering the same in accordance with this Agreement.
(b) The Escrow Agent is authorized to rely on any document
believed by the Escrow Agent to be authentic in making any delivery of the
Escrow Account or the certificates representing the Shares. It shall have no
responsibility for the genuineness or the validity of any document or any other
item deposited with it and it shall be fully protected in acting in accordance
with this Agreement or instructions received.
(c) The Company and the Underwriter hereby waive any suit,
claim, demand or cause of action of any kind which they may have or may assert
against the Escrow Agent arising out of or relating to the execution or
performance by the Escrow Agent of this Agreement, unless such suit, claim,
demand or cause of action is based upon the negligence, willful misconduct, or
bad faith of the Escrow Agent.
12. Notices. It is further agreed as follows:
(a) All notices given hereunder will be in writing, served by
registered or certified mail, return receipt requested, postage prepaid, or by
hand-delivery, to the parties at the following addresses:
To the Company:
Mr. Hasu P. Shah
Hersha Hospitality Trust
148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070
With a copy to:
Cameron N. Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
To the Underwriter:
Mr. L. McCarthy Downs, III
Anderson & Strudwick Incorporated
1108 E. Main Street, 14th Floor
Richmond, Virginia 23219
With a copy to:
James J. Wheaton, Esquire
Willcox & Savage, P.C.
1800 NationsBank Center
One Commercial Place
Norfolk, Virginia 23510
To the Escrow Agent:
First Union National Bank of North Carolina
c/o Shareholder Services Division
230 South Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Attention: ___________________
13. Miscellaneous.
(a) This Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective successors and
assigns.
(b) If any provision of this Agreement shall be held invalid
by any court of competent jurisdiction, such holding shall not invalidate any
other provision hereof.
(c) This Agreement shall be governed by the applicable laws of
the Commonwealth of Virginia.
(d) This Agreement may not be modified except in writing
signed by the parties hereto.
(e) All demands, notices, approvals, consents, requests and
other communications hereunder shall be given in the manner provided in this
Agreement.
(f) This Agreement may be executed in one or more
counterparts, and if executed in more than one counterpart, the executed
counterparts shall together constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names, all as of the date first above written.
ANDERSON & STRUDWICK, INCORPORATED
By:
L. McCarthy Downs, III
Senior Vice President
HERSHA HOSPITALITY TRUST
By:
Hasu P. Shah
Chief Executive Officer
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Escrow Agent
By:
----------------------
Trust Officer
Exhibit 3.1
FORM OF
HERSHA HOSPITALITY TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT
Hersha Hospitality Trust, a Maryland real estate investment
trust (the "Trust") organized under Title 8 of the Corporation 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 hereinafter provided.
FIRST: The Declaration of Trust as currently in effect is hereby
amended and restated as follows, such that the following provisions shall be and
become all the provisions of the Declaration of Trust:
ARTICLE I
FORMATION
The Trust is a real estate investment trust (a "REIT") 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 a corporation (but
nothing herein shall preclude the Trust from being treated for tax purposes as
an association under the Code).
ARTICLE II
NAME
The name of the Trust is:
Hersha Hospitality Trust
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.
ARTICLE III
PURPOSES AND POWERS
Section 1. Purposes. The purposes for which the Trust is formed are to
invest in and to acquire, hold, manage, administer, control and dispose of real
property and interests in real property, including, without limitation or
obligation, engaging in business as a REIT under the Internal Revenue Code of
1986, as amended (the "Code").
Section 2. Powers. The Trust shall have all of the powers granted to
REITs by Title 8 and all other powers set forth in these Articles of Amendment
and Restatement of its Declaration of Trust as filed for record with the State
Department of Assessment and Taxation of Maryland, and any amendments or
supplements thereto (the "Declaration of Trust") that are not inconsistent with
law and are appropriate to promote and attain the purposes set forth in the
Articles of Amendment and Restatement.
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Trust in the State of Maryland is
[James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, whose post office
address is 300 East Lombard Street, Baltimore, Maryland 21202]. The resident
agent is a citizen of and resides in the State of Maryland. The Trust may have
such offices or places of business within or outside the State of Maryland as
the Board of Trustees of the Trust may from time to time determine.
ARTICLE V
BOARD OF TRUSTEES
Section 1. Powers.
(A) Subject to any express limitationscontained in the Articles of
Amendment and Restatement or in the Bylaws of the Trust ("Bylaws"), (i) the
business and affairs of the Trust shall be managed under the direction of the
Board of Trustees and (ii) 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 it, in its sole judgment and discretion, deems necessary
or appropriate to conduct the business and affairs of the Trust. The Articles of
Amendment and Restatement shall be construed with a presumption in favor of the
grant of power and authority to the Board. Any construction of the Articles of
Amendment and Restatement 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 the
Articles of Amendment and Restatement or in the Bylaws shall in no way be
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Board of Trustees under the general laws of the
State of Maryland or any other applicable laws.
(B) Except as otherwise provided in the Bylaws, the Board, without any
action by the shareholders of the Trust, shall have and may exercise, on behalf
of the Trust, without limitation, the power to adopt, amend and repeal Bylaws;
to elect officers in the manner prescribed in the Bylaws; to solicit proxies
from holders of shares of beneficial interest of the Trust; and to do any other
acts and deliver any other documents necessary or appropriate to the foregoing
powers.
(C) It shall be the duty of the Board of Trustees to use any and all
commercially reasonable efforts to ensure that the Trust satisfies the
requirements for qualification as a REIT under the Code, including, but not
limited to, the ownership of outstanding shares of its beneficial interest, the
nature of its assets, the sources of its income, and the amount and timing of
its distributions to its shareholders. The Board of Trustees shall take no
action to disqualify the Trust as a REIT or to otherwise revoke the Trust's
election to be taxed as a REIT without the affirmative vote of two-thirds of the
number of Common Shares entitled to vote on such matter at a meeting of the
shareholders.
Section 2. Classification and Number. (A) The Trustees of the Trust
(hereinafter the "Trustees") (other than any Trustee elected solely by holders
of one or more classes or series of Preferred Shares) shall be classified, with
respect to the terms for which they severally hold office, into two classes, as
nearly equal in number as possible, one class ("Class I") to hold office
initially for a term expiring at the first annual meeting of shareholders (1999)
and another class ("Class II") to hold office initially for a term expiring at
the second succeeding annual meeting of shareholders (2000), with the Trustees
of each class to hold office until their successors are duly elected and
qualified. Any vacancy will be filled, including a vacancy created by an
increase in the number of Trustees, at a regular meeting or at any special
meeting called for that purpose, by a majority of the remaining Trustees, even
if such remaining Trustees constitutes less than a quorum. At each annual
meeting of shareholders, the successors to the class of Trustees whose term
expires at such meeting shall be elected to hold office for a term expiring at
the annual meeting of shareholders held in the second year following the year of
their election. Shareholder votes to elect Trustees shall be conducted in the
manner provided in the Bylaws.
(B) The number of Trustees initially shall be seven, which number may be
increased or decreased pursuant to the Bylaws. The name, address and class of
the Trustees who shall serve until their successors are duly elected and
qualified are:
Name Address Class
Hasu P. Shah 148 Sheraton Drive Class II
Box A
New Cumberland, PA 17070
Bharat C. Mehta 148 Sheraton Drive Class II
Box A
New Cumberland, PA 17070
K.D. Patel 148 Sheraton Drive Class II
Box A
New Cumberland, PA 17070
L. McCarthy Downs, III 707 E. Main Street Class I
20th Floor
Richmond, VA 23219
Class I
Class I
Class II
The Trustees may increase the number of Trustees and fill any vacancy, whether
resulting from an increase in the number of Trustees or otherwise, on the Board
of Trustees in the manner provided in the Bylaws. The Independent Trustees (as
hereinafter defined) shall nominate replacements for vacancies among the
Independent Trustees' positions. In the event that, after the closing of the
Initial Public Offering (as hereinafter defined), a majority of the Board of
Trustees are not Independent Trustees by reason of the resignation or removal of
one or more Independent Trustees or otherwise, the remaining Independent
Trustees (or, if there are no Independent Trustees, the remaining members of the
Board of Trustees) shall promptly elect that number of Independent Trustees
necessary to cause the Board of Trustees to include a majority of Independent
Trustees. It shall not be necessary to list in the Articles of Amendment and
Restatement the names and addresses of any Trustees hereinafter elected.
Section 3. 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 to
elect one or more Trustees, a Trustee may be removed at any time, with or
without cause, at a meeting of the shareholders, by the affirmative vote of the
holders of not less than two-thirds of the Shares then outstanding and entitled
to vote generally in the election of Trustees.
Section 4. Independent Trustees. Notwithstanding anything herein to the
contrary, at all times (except during a period not to exceed sixty (60) days
following the death, resignation, incapacity or removal from office of a Trustee
prior to expiration of the Trustee's term of office), three members of the Board
of Trustees shall be comprised of persons who are not officers, directors or
employees of the Trust, any lessee of the Trust's or the Partnership's
properties or any underwriter or placement agent of the shares of beneficial
interest of the Trust that has been engaged by the Trust within the past three
years, or any "Affiliates" thereof (each such person serving on the Board of
Trustees being an "Independent Trustee").
Section 5. Definition of Affiliate. For purposes of Section 4 above,
"Affiliate" of a person shall mean (i) any person that, directly or indirectly,
controls or is controlled by or is under common control with such person, (ii)
any other person that owns, beneficially, directly or indirectly, five percent
(5%) or more of the outstanding capital shares, shares or equity interests of
such person, or (iii) any officer, director, employee, partner or trustee
(including any family member of the foregoing) of such person or of any person
controlling, controlled by or under common control with such person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such person). The term "person" means and includes individuals,
corporations, general and limited partnerships, stock companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts, or other entities and governments and agencies and
political subdivisions thereof. For the purpose of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, through the ownership
of voting securities, partnership interests or other equity interests.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 1. Authorized Shares. The beneficial interest of the Trust shall
be divided into shares of beneficial interest (the "Shares"). The Trust has
authority to issue fifty million (50,000,000) common shares of beneficial
interest, $.01 par value per share ("Common Shares"), and ten million
(10,000,000) preferred shares of beneficial interest, $.01 par value per share
("Preferred Shares"). The Board of Trustees, without any action by the
shareholders of the Trust, may amend the Articles of Amendment and Restatement
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 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. The Board of Trustees may
reclassify any unissued Common Shares from time to time in one or more classes
or series of Shares.
Section 3. Preferred Shares. The Board of Trustees may classify any
unissued Preferred Shares and reclassify any previously classified but unissued
Preferred Shares of any class or series from time to time, in one or more
classes or series of Shares.
Section 4. Classified or Reclassified Shares. Prior to issuance of
classified or reclassified Shares of any class or series, the Board of Trustees
by resolution shall (a) designate that class or series to distinguish it from
all other classes and series of Shares; (b) specify the number of Shares to be
included in the class or series; (c) set, subject to the provisions of Article
VII and subject to the express terms of any class or series of 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 ("SDAT"). Any of the terms of any class or
series of Shares set pursuant to clause (c) of this Section 4 may be made
dependent upon facts or events ascertainable outside the Articles of Amendment
and Restatement (including determinations by the Board of Trustees or other
facts or events within the control of the Trust) and may vary among holders
thereof, provided that the manner in which such facts, events or variations
shall operate upon the terms of such class or series of Shares is clearly and
expressly set forth in articles supplementary filed with the SDAT.
Section 5. 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 the Articles of Amendment and Restatement or the Bylaws.
Notwithstanding any other provision in the Articles of Amendment and
Restatement, no determination shall be made by the Board of Trustees nor shall
any transaction be entered into by the Trust that 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. Dividends and Distributions. The holders of all Common Shares
will participate equally in dividends payable to holders of Common Shares when
and as authorized and declared by the Board of Trustees and in net assets
available for distribution to holders of Common Shares upon liquidation or
dissolution. The Board of Trustees may from time to time authorize and declare
to shareholders such dividends or distributions, in cash 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 REIT under the Code; however, 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 shall be subject to the provisions of any
class or series of Shares at the time outstanding.
Section 7. General Nature of Shares. All Shares shall be personal
property entitling the shareholders only to those rights provided in the
Articles of Amendment and Restatement. 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.
Section 8. Fractional Shares. The Trust may, without the consent or
approval of any shareholder, 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 9. Declaration of Trust and Bylaws. All shareholders are subject
to the provisions of the Declaration of Trust and the Bylaws of the Trust.
<PAGE>
ARTICLE VII
RESTRICTIONS ON TRANSFER AND SHARES-IN-TRUST
Section 1. Restrictions on Transfer.
(A) Definitions. The following terms shall have the following
meanings:
(i) "Beneficial Ownership" shall mean ownership of Equity Shares (or
options to acquire Equity Shares) by a Person who would be treated as an owner
of such Equity Shares either (a) directly (including through a nominee or
similar arrangement) or (b) indirectly through the application of Section 544 of
the Code, as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial
Owner," "Beneficially Owns" and "Beneficially Owned" shall have correlative
meanings.
(ii) "Beneficiary" shall mean, with respect to any Share Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clause (vii)
or (viii) thereof) and Section 170(c)(2) of the Code that are named by the Share
Trust as the beneficiary or beneficiaries of such Share Trust, in accordance
with the provisions of Section 2(A) hereof.
(iii) "Board of Trustees" shall mean the Board of Trustees of the Trust.
(iv) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(v) "Constructive Ownership" shall mean ownership of Equity Shares (or
options to acquire Equity Shares) by a Person who would be treated as an owner
of such Equity Shares either directly or indirectly through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Owns," and "Constructively Owned" shall
have correlative meanings.
(vi) "Equity Shares" shall mean shares that are either Preferred Shares or
Common Shares. The term "Equity Shares" shall include all Preferred Shares and
Common Shares that are held as Shares-in-Trust in accordance with the provisions
of Section 2(A) hereof.
(vii) "Hersha Hospitality Partnership Agreement" shall mean the agreement
of limited partnership of Hersha Hospitality Limited Partnership, a Virginia
limited partnership, as amended and restated.
(viii) "Initial Public Offering" means the sale of Common Shares pursuant
to the Trust's first effective registration statement for such Common Shares
filed under the Securities Act of 1933, as amended.
(ix) "Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing Price"
on any date shall mean the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Equity Shares are not listed
or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Equity Shares
are listed or admitted to trading or, if the Equity 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 National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in use or, if
the Equity 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 the Equity Shares selected by the Board of Trustees. "Trading Day"
shall mean a day on which the principal national securities exchange on which
the Equity Shares are listed or admitted to trading is open for the transaction
of business or, if the Equity Shares are not listed or admitted to trading on
any national securities exchange, shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(x) "Non-Transfer Event" shall mean an event (other than a purported
Transfer) that would result in a change in Beneficial or Constructive Ownership
of the Equity Shares, including, but not limited to, the granting of any option
or entering into any agreement for the sale, transfer or other disposition of
Equity Shares or the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Equity Shares.
(xi) "Ownership Limit" shall mean 9.9% of the number of
outstanding Common Shares and 9.9% of the number of outstanding shares of any
class or series of Preferred Shares, in each case considered separately on a
class by class or series by series basis.
(xii) "Partnership" shall mean Hersha Hospitality Limited Partnership, a
Virginia limited partnership.
(xiii) "Partnership Unit" shall mean a fractional, undivided share of the
partnership interests of Hersha Hospitality Limited Partnership, a Virginia
limited partnership.
(xiv) "Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with the provisions of Section 2(E) hereof.
(xv) "Person" shall mean an individual, corporation, partnership, estate,
trust, a 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.
(xvi) "Prohibited Owner" shall mean, with respect to any purported Transfer
or Non-Transfer Event, any Person who, but for the provisions of Section 1(C)
hereof, would own record title to Equity Shares.
(xvii) "Redemption Rights" shall mean the rights granted under the Hersha
Hospitality Partnership Agreement to the limited partners to redeem, under
certain circumstances, their Partnership Units for cash (or, at the option of
the Trust, Common Shares).
(xviii) "REIT" shall mean a real estate investment trust under Section 856
of the Code.
(xix) "Restriction Termination Date" shall mean the first day after the
date of the Initial Public Offering on which the Board of Trustees and the
shareholders of the Trust determine, pursuant to Article V, Section 1(C), that
it is no longer in the best interests of the Trust to attempt to, or continue
to, qualify as a REIT or for any other reason, the Board of Trustees and the
shareholders amend the Articles of Amendment and Restatement to terminate the
provisions of this Article VII.
(xx) "Shares-in-Trust" shall mean any Equity Shares designated
Shares-in-Trust pursuant to Section 1(C) hereof.
(xxi) "Share Trust" shall mean any separate trust created pursuant to
Section 1(C) hereof and administered in accordance with the terms of Section 2
hereof, for the exclusive benefit of any Beneficiary.
(xxii) "Share Trustee" shall mean any person or entity unaffiliated with
both the Trust and any Prohibited Owner designated by the Trust to act as
trustee of any Share Trust, or any successor trustee thereof.
(xxiii) "Transfer" (as a noun) shall mean any sale, transfer, gift,
assignment, devise or other disposition of Equity Shares, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether by
operation of law or otherwise. "Transfer" (as a verb) shall have the correlative
meaning.
(B) Restriction on Transfers.
(1) Except as provided in Section 1(G) hereof, from the date of the Initial
Public Offering and prior to the Restriction Termination Date, no Person shall
Beneficially Own or Constructively Own outstanding Equity Shares in excess of
the Ownership Limit.
(2) Except as provided in Section 1(G) hereof and subject to Section 1(H)
hereof, from the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer that, if effective, would result in
any Person Beneficially Owning or Constructively Owning Equity Shares in excess
of the Ownership Limit shall be void ab initio as to the Transfer of that number
of Equity Shares that would be otherwise Beneficially Owned or Constructively
Owned by such Person in excess of the Ownership Limit and the intended
transferee shall acquire no rights in such excess Equity Shares.
(3) Except as provided in Section 1(G) hereof, and subject to Section 1(H)
hereof, from the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer that, if effective, would result in
the Equity Shares being beneficially owned by fewer than 100 Persons (determined
without reference to any rules of attribution) shall be void ab initio as to the
Transfer of that number of shares that would be otherwise beneficially owned
(determined without reference to any rules of attribution) by the transferee,
and the intended transferee shall acquire no rights in such excess Equity
Shares.
(4) Subject to Section 1(G) and 1(H) hereof, from the date of the Initial
Public Offering and prior to the Restriction Termination Date, any Transfer of
Equity Shares that, if effective, would result in the Trust being "closely held"
within the meaning of Section 856(h) of the Code shall be void ab initio as to
the Transfer of that number of Equity Shares that would cause the Trust to be
"closely held" within the meaning of Section 856(h) of the Code, and the
intended transferee shall acquire no rights in such excess Equity Shares.
(5) Except as provided in Section 1(G) hereof and subject to Section 1(H)
hereof, from the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer of Equity Shares that, if effective,
would cause the Trust to Constructively Own 10% or more of the ownership
interests in a tenant of the Trust's or the Partnership's real property, within
the meaning of Section 856(d)(2)(B) of the Code, shall be void ab initio as to
the Transfer of that number of Equity Shares that would cause the Trust to
Constructively Own 10% or more of the ownership interests in a tenant of the
Trust's or the Partnership's real property, within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights in
such excess Equity Shares.
(C) Transfer to Share Trust.
(1) If, notwithstanding the other provisions contained in this Section 1,
at any time after the date of the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer or Non-Transfer
Event such that any Person would either Beneficially Own or Constructively Own
Equity Shares in excess of the Ownership Limit, then (x) except as otherwise
provided in Section 1(G) hereof, the purported transferee shall acquire no right
or interest (or, in the case of a Non-Transfer Event, the person holding record
title to the Equity Shares Beneficially Owned or Constructively Owned by such
Beneficial Owner or Constructive Owner, shall cease to own any right or
interest) in such number of Equity Shares that would cause such Beneficial Owner
or Constructive Owner to Beneficially Own or Constructively Own Equity Shares in
excess of the Ownership Limit, (y) such number of Equity Shares in excess of the
Ownership Limit (rounded up to the nearest whole share) shall be designated
Shares-in-Trust and, in accordance with the provisions of Section 2 hereof,
transferred automatically and by operation of law to a Share Trust to be held in
accordance with that Section 2, and (z) the Prohibited Owner shall submit such
number of Equity Shares to the Trust for registration in the name of the Share
Trust. Such transfer to a Share Trust and the designation of shares as
Shares-in-Trust shall be effective as of the close of business on the business
day prior to the date of the Transfer or Non-Transfer Event, as the case may be.
(2) If, notwithstanding the other provisions contained in this Section 1,
at any time after the date of the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer or Non-Transfer
Event that, if effective, would (i) result in the Equity Shares being
beneficially owned by fewer than 100 Persons (determined without reference to
any rules of attribution), (ii) result in the Trust being "closely held" within
the meaning of Section 856(h) of the Code, or (iii) cause the Trust to
Constructively Own 10% or more of the ownership interests in a tenant of the
Trust's or the Partnership's real property, within the meaning of Section
856(d)(2)(B) of the Code, then (x) the purported transferee shall not acquire
any right or interest (or, in the case of a Non-Transfer Event, the person
holding record title of the Equity Shares with respect to which such
Non-Transfer Event occurred, shall cease to own any right or interest) in such
number of Equity Shares, the ownership of which by such purported transferee or
record holder would
(A) result in the Equity Shares being beneficially owned by fewer than 100
Persons (determined without reference to any rules of attribution),
(B) result in the Trust being "closely held" within the meaning of Section
856(h) of the Code or
(C) cause the Trust to Constructively Own 10% or more of the ownership
interests in a tenant of the Trust's or the Partnership's real property, within
the meaning of Section 856(d)(2)(B) of the Code, (y) such number of Equity
Shares (rounded up to the nearest whole share) shall be designated
Shares-in-Trust and, in accordance with the provisions of Section 2 hereof,
transferred automatically and by operation of law to the Share Trust to be held
in accordance with that Section 2 and (z) the Prohibited Owner shall submit such
number of Equity Shares to the Trust for registration in the name of the Share
Trust. Such transfer to a Share Trust and the designation of shares as
Shares-in-Trust shall be effective as of the close of business on the business
day prior to the date of the Transfer or Non-Transfer Event, as the case may be.
(D) Remedies For Breach. If the Trust, or its designees, shall at any time
determine in good faith that a Transfer has taken place in violation of Section
1(B) hereof or that a Person intends to acquire or has attempted to acquire
Beneficial Ownership or Constructive Ownership of any Equity Shares in violation
of Section 1(B) hereof, the Trust shall take such action as it deems advisable
to refuse to give effect to or to prevent such Transfer or acquisition,
including, but not limited to, refusing to give effect to such Transfer on the
books of the Trust or instituting proceedings to enjoin such Transfer or
acquisition.
(E) Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire Equity Shares in violation of Section 1(B) hereof, or any Person who
owned Equity Shares that were transferred to the Share Trust pursuant to the
provisions of Section 1(C) hereof, shall immediately give written notice to the
Trust of such event and shall provide to the Trust such other information as the
Trust may request in order to determine the effect, if any, of such Transfer or
Non-Transfer Event, as the case may be, on the Trust's status as a REIT.
(F) Owners Required To Provide Information. From the date of the Initial
Public Offering and prior to the Restriction Termination Date:
(1) Every Beneficial Owner or Constructive Owner of more than 5%, or such
lower percentages as required pursuant to regulations under the Code, of the
outstanding Equity Shares of the Trust shall, within 30 days after December 31
of each year, provide to the Trust a written statement or affidavit stating the
name and address of such Beneficial Owner or Constructive Owner, the number of
Equity Shares Beneficially Owned or Constructively Owned, and a description of
how such shares are held. Each such Beneficial Owner or Constructive 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 or
Constructive Ownership on the Trust's status as a REIT and to ensure compliance
with the Ownership Limit.
2) Each Person who is a Beneficial Owner or Constructive Owner of Equity
Shares and each Person (including the shareholder of record) who is holding
Equity Shares for a Beneficial Owner or Constructive Owner shall provide to the
Trust a written statement or affidavit stating such information as the Trust may
request in order to determine the Trust's status as a REIT and to ensure
compliance with the Ownership Limit.
(G) Exception to Ownership Limit. The Ownership Limit shall not apply to
the acquisition of Equity Shares by an underwriter that participates in a public
offering of such shares, for a period of 90 days following the purchase by such
underwriter of such shares. In addition, the Board of Trustees, upon receipt of
advice of counsel or other evidence satisfactory to the Board of Trustees, in
its sole and absolute discretion, in each case to the effect that the
restrictions contained in Sections 1(B)(3), (4) and (5) hereof will not be
violated and that REIT status will not otherwise be lost, may, in its sole and
absolute discretion, exempt a Person from the Ownership Limit if such Person is
not an individual for purposes of Section 542(a)(2) of the Code, provided that
(i) the Board of Trustees obtains such representations and undertakings from
such Person as are reasonably necessary to ascertain that no individual's
Beneficial Ownership or Constructive Ownership of Equity Shares will violate the
Ownership Limit as a result of the exemption and (ii) such Person agrees that
any violation or attempted violation of the terms of the exemption will result
in a transfer to the Share Trust of Equity Shares pursuant to Section 1(C)
hereof.
(H) New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Articles of Amendment and
Restatement shall preclude the settlement of any transaction entered into
through the facilities of the New York Stock Exchange.
Section 2. Shares-in-Trust.
(A) Share Trust. Any Equity Shares transferred to a Share Trust and
designated Shares-in-Trust pursuant to Section 1(C) hereof shall be held for the
exclusive benefit of a Beneficiary. The Trust shall name a Beneficiary of each
Share Trust within five days after discovery of the existence thereof. Any
transfer to a Share Trust, and subsequent designation of Equity Shares as
Shares-in-Trust, pursuant to Section 1(C) hereof shall be effective as of the
close of business on the business day prior to the date of the Transfer or
Non-Transfer Event that results in the transfer to the Share Trust.
Shares-in-Trust shall remain issued and outstanding Equity Shares of the Trust
and shall be entitled to the same rights and privileges on identical terms and
conditions as are all other issued and outstanding Equity Shares of the same
class and series. When transferred to a Permitted Transferee in accordance with
the provisions of Section 2(E) hereof, such Shares-in-Trust shall cease to be
designated as Shares-in-Trust.
(B) Dividend Rights. The Share Trust, as record holder of Shares-in-Trust,
shall be entitled to receive all dividends and distributions as may be declared
by the Board of Trustees on such Equity Shares and shall hold such dividends or
distributions in trust for the benefit of the Beneficiary. The Prohibited Owner
with respect to Shares-in-Trust shall repay to the Share Trust the amount of any
dividends or distributions received by it that (i) are attributable to any
Equity Shares designated Shares-in-Trust and (ii) the record date for which was
on or after the date that such shares became Shares-in-Trust. The Trust shall
take all measures that it determines reasonably necessary to recover the amount
of any such dividend or distribution paid to a Prohibited Owner, including, if
necessary, withholding any portion of future dividends or distributions payable
on Equity Shares Beneficially Owned or Constructively Owned by the Person who,
but for the provisions of Section 1(C) hereof, would Constructively Own or
Beneficially Own the Shares-in-Trust; and, as soon as reasonably practicable
following the Trust's receipt or withholding thereof, shall pay over to the
Share Trust for the benefit of the Beneficiary the dividends so received or
withheld, as the case may be.
(C) Rights Upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution of the assets of,
the Trust, each holder of Shares-in-Trust shall be entitled to receive, ratably
with each other holder of Equity Shares of the same class or series, that
portion of the assets of the Trust that is available for distribution to the
holders of such class and series of Equity Shares. The Share Trust shall
distribute to the Prohibited Owner the amounts received upon such liquidation,
dissolution or winding up, or distribution; provided, however, that the
Prohibited Owner shall not be entitled to receive amounts pursuant to this
Section 2(C) in excess of (i) in the case of a purported Transfer in which the
Prohibited Owner gave value for Equity Shares and which Transfer resulted in the
transfer of the shares to the Share Trust, the price per share, if any, such
Prohibited Owner paid for the Equity Shares and (ii) in the case of a
Non-Transfer Event or Transfer in which the Prohibited Owner did not give value
for such shares (e.g., if the shares were received through a gift or devise) and
which Non-Transfer Event or Transfer, as the case may be, resulted in the
transfer of shares to the Share Trust, the price per share equal to the Market
Price on the date of such Non-Transfer Event or Transfer. Any remaining amount
in such Share Trust shall be distributed to the Beneficiary.
(D) Voting Rights. The Share Trustee shall be entitled to vote all
Shares-in-Trust. Any vote by a Prohibited Owner as a holder of Equity Shares
prior to the discovery by the Trust that the Equity Shares are Shares-in-Trust
shall, subject to applicable law, be rescinded and shall be void ab initio with
respect to such Shares-in-Trust and the Prohibited Owner shall be deemed to have
given, as of the close of business on the business day prior to the date of the
purported Transfer or Non-Transfer Event that results in the transfer to the
Share Trust of Equity Shares under Section 1(C) hereof, an irrevocable proxy to
the Share Trustee to vote the Shares-in-Trust in the manner in which the Share
Trustee, in its sole and absolute discretion, desires; provided, however, that
if the Trust has already taken irreversible trust action, the Share Trustee
shall not have the authority to reclassify and recast such vote.
(E) Designation of Permitted Transferee. The Share Trustee shall have the
exclusive and absolute right to designate a Permitted Transferee of any and all
Shares-in-Trust. In an orderly fashion so as not to materially adversely affect
the Market Price of the Shares-in-Trust, the Share Trustee shall designate any
Person as Permitted Transferee, provided, however, that (i) the Permitted
Transferee so designated purchases for valuable consideration (whether in a
public or private sale), at a price as set forth in Section 2(G) hereof, the
Shares-in-Trust and (ii) the Permitted Transferee so designated may acquire such
Shares-in-Trust without such acquisition resulting in a transfer to a Share
Trust and the redesignation of such Equity Shares so acquired as Shares-in-Trust
under Section 1(C) hereof. Upon the designation by the Share Trustee of a
Permitted Transferee in accordance with the provisions of this Section 2(E), the
Share Trustee shall (i) cause to be transferred to the Permitted Transferee that
number of Shares-in-Trust acquired by the Permitted Transferee, (ii) cause to be
recorded on the books of the Trust that the Permitted Transferee is the holder
of record of such number of Equity Shares, (iii) cause the Shares-in-Trust to be
canceled and (iv) distribute to the Beneficiary any and all amounts held with
respect to the Shares-in-Trust after making the payment to the Prohibited Owner
pursuant to Section 2(F) hereof.
(F) Compensation to Record Holder of Equity Shares that Become
Shares-in-Trust. Any Prohibited Owner shall be entitled (following discovery of
the Shares-in-Trust and subsequent designation of the Permitted Transferee in
accordance with Section 2(E) hereof or following the acceptance of the offer to
purchase such shares in accordance with Section 2(G) hereof) to receive from the
Share Trustee following the sale or other disposition of such Shares-in-Trust
the lesser of (i) in the case of (a) a purported Transfer in which the
Prohibited Owner gave value for Equity Shares and which Transfer resulted in the
transfer of the shares to the Share Trust, the price per share, if any, such
Prohibited Owner paid for the Equity Shares, or (b) a Non-Transfer Event or
Transfer in which the Prohibited Owner did not give value for such shares (e.g.,
if the shares were received through a gift or devise) and which Non-Transfer
Event or Transfer, as the case may be, resulted in the transfer of shares to the
Share Trust, the price per share equal to the Market Price on the date of such
Non-Transfer Event or Transfer and (ii) the price per share received by the
Share Trustee from the sale or other disposition of such Shares-in-Trust in
accordance with Section 2(E) hereof. Any amounts received by the Share Trustee
in respect of such Shares-in-Trust and in excess of such amounts to be paid the
Prohibited Owner pursuant to this Section 2(F) shall be distributed to the
Beneficiary in accordance with the provisions of Section 2(E) hereof. Each
Beneficiary and Prohibited Owner waive any and all claims that they may have
against the Share Trustee and the Share Trust arising out of the disposition of
Shares-in-Trust, except for claims arising out of the gross negligence or
willful misconduct of, or any failure to make payments in accordance with this
Section 2 by, such Share Trustee or the Trust.
(G) Purchase Right in Shares-in-Trust. Shares-in-Trust 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 created
such Shares-in-Trust (or, in the case of devise, gift or Non-Transfer Event, the
Market Price at the time of such devise, gift or Non-Transfer Event) 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 for a period of ninety days
after the later of (i) the date of the Non-Transfer Event or purported Transfer
that resulted in such Shares-in-Trust and (ii) the date the Trust determines in
good faith that a Transfer or Non-Transfer Event resulting in Shares-in-Trust
has occurred, if the Trust does not receive a notice of such Transfer or
Non-Transfer Event pursuant to Section 1(E) hereof. Section 3. Remedies Not
Limited. Subject to Section 1(H) hereof, nothing contained in this Article VII
shall limit the authority of the Trust to take such other action as it deems
necessary or advisable to protect the Trust and the interests of its
shareholders by preservation of the Trust's status as a REIT and to ensure
compliance with the Ownership Limit.
Section 4. Ambiguity. In the case of an ambiguity in the application of any
of the provisions of Article VII, including any definition contained in Section
1(A) hereof, the Board of Trustees shall have the power to determine the
application of the provisions of this Article VII with respect to any situation
based on the facts known to it.
Section 5. Legend. Each certificate for Equity Shares shall bear
substantially the following legend: "The [Common or Preferred] Shares
represented by this certificate are subject to restrictions on transfer. Subject
to certain further restrictions and except as provided in the Articles of
Amendment and Restatement of the Trust, no Person may (i) Beneficially or
Constructively Own Common Shares in excess of 9.9% of the number of outstanding
Common Shares, (ii) Beneficially or Constructively Own Preferred Shares of any
class or series of Preferred Shares in excess of 9.9% of the number of
outstanding Preferred Shares of such class or series, (iii) Beneficially Own
Equity Shares that would result in the Equity Shares being beneficially owned by
fewer than 100 Persons (determined without reference to any rules of
attribution), (iv) Beneficially Own Equity Shares that would result in the Trust
being "closely held" under Section 856(h) of the Internal Revenue Code of 1986,
as amended (the "Code"), or (v) Constructively Own Equity Shares that would
cause the Trust to Constructively Own 10% or more of the ownership interests in
a tenant of the Trust's or the Partnership's real property, within the meaning
of Section 856(d)(2)(B) of the Code. Any Person who attempts to Beneficially or
Constructively Own shares of Equity Shares in excess of the above limitations
must immediately notify the Trust in writing. If any restrictions above are
violated, the Equity Shares represented hereby will be transferred automatically
to a Share Trust and shall be designated Shares-in-Trust to a trustee of a 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. All capitalized terms in
this legend have the meanings defined in the Trust's Articles of Amendment and
Restatement, 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."
In place of the foregoing legend, the certificate may state that the Trust
will furnish a full statement about certain restrictions or transferability to a
shareholder on request and without charge.
Section 6. Severability. If any provision of this Article VII or any
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
Section 7. Non-Waiver. No delay or failure on the part of the Trust or the
Board of Trustees in exercising any 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 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) 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 Articles of Amendment and Restatement, 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 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) termination of REIT status as provided in Article V,
Section (1)(C), (b) election of Trustees as provided in Article V, Section 2(A)
and the removal of Trustees as provided in Article V, Section 3; (c) amendment
of the Articles of Amendment and Restatement as provided in Article X; (d)
termination of the Trust as provided in Article XII, Section 2; (e) merger or
consolidation of the Trust, or the sale or disposition of substantially all of
the Trust Property (as hereinafter defined), as provided in Article XI; and (f)
such other matters with respect to which a vote of the shareholders is required
by applicable law or 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. 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 3. Preemptive and Appraisal Rights. Except as may be provided by
the Board of Trustees in setting the terms of classified or reclassified Shares
pursuant to Article VI, Section 4, no holder of Shares shall, as such holder,
(a) have any preemptive or preferential right to purchase or subscribe for any
additional Shares of the Trust or any other security of the Trust that it may
issue or sell or (b), except as expressly required by Title 8, have any right to
require the Trust to pay him the fair value of his Shares in an appraisal or
similar proceeding.
Section 4. Extraordinary Actions. Except as specifically provided in
Article V, Sections 1(C) and 3, Article X, Sections 2 and 3, and Article XII,
Section 2 of this Articles of Amendment and Restatement, if the provisions of
applicable law require a vote of holders of Shares entitled to be cast on a
matter or action that is greater than a majority but such law permits the
Articles of Amendment and Restatement to reduce such voting requirement, any
such matter or action shall be effective and valid if taken or authorized by the
affirmative vote of holders of Shares entitled to cast a majority of all the
votes entitled to be cast on the matter or action.
Section 5. Board Approval. The submission of any action to the shareholders
for their consideration shall first be approved as advised by the Board of
Trustees.
Section 6. Action By Shareholders Without a Meeting. The Bylaws may provide
that any action required or permitted to be taken by the shareholders may be
taken without a meeting by the written consent of the shareholders entitled to
cast a sufficient number of votes to approve the matter as required by statute,
the Articles of Amendment and Restatement or the Bylaws, as the case may be.
ARTICLE IX
LIABILITY LIMITATION, INDEMNIFICATION
AND TRANSACTIONS WITH THE TRUST
Section 1. Limitation of Shareholder 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 shareholder 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 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 REIT, no Trustee or officer of the Trust
shall be liable to the Trust or to any shareholder for money damages. Neither
the amendment nor repeal of this Section, nor the adoption or amendment of any
other provision of the Articles of Amendment and Restatement or Bylaws
inconsistent with this section, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act that occurred prior to such amendment, repeal or adoption. In the absence of
any Maryland statute limiting the liability of trustees and officers of a
Maryland REIT for money damages in a suit by or on behalf of the Trust or by any
shareholder, no Trustee or officer of the Trust shall be liable to the Trust or
to any shareholder 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 the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
Section 3. Express Exculpatory Clauses in Instruments. 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 Persons shall look solely to the Trust Property 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. As used in this Articles of Amendment and Restatement, "Trust
Property" means any and all property, real, personal or otherwise, tangible or
intangible, which is transferred or conveyed to the Trust or the Trustees
(including all rents, income, profits and gains therefrom), which is owned or
held by, or for the account of, the Trust or the Trustees.
Section 4. 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 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 as 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 5. Transactions Between the Trust and its Trustees, Officers,
Employees and Agents. Subject to any express restrictions in the Articles of
Amendment and Restatement 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.
ARTICLE X
AMENDMENTS
Section 1. General. The Trust reserves the right from time to time to
make any amendment to the Articles of Amendment and Restatement, now or
hereafter authorized by law, including any amendment altering the terms or
contract rights, as expressly set forth in the Articles of Amendment and
Restatement, of any Shares. All rights and powers conferred by this Articles of
Amendment and Restatement on shareholders, Trustees and officers are granted
subject to this reservation. An amendment to the Articles of Amendment and
Restatement (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 with SDAT as provided in Article XIII, Section 5
and (c) shall become effective as of the later of the time the SDAT accepts the
amendment for record or the time established in the amendment, not to exceed 30
days after the amendment is accepted for record. All references to the Articles
of Amendment and Restatement shall include all amendments thereto.
Section 2. By Trustees. The Trustees by a two-thirds vote may amend the
Articles of Amendment and Restatement from time to time in the manner provided
by Title 8, without any action by the shareholders, to qualify as a REIT under
the Code or under Title 8.
Section 3. By Shareholders. Other than amendments pursuant to Section 2
of this Article X and Section 1 of Article VI, any amendment to the Declaration
of Trust shall be valid only if approved by the affirmative vote of at least a
majority of all the votes entitled to be cast on the matter, except that any
amendment to Article V, Article VII, Article X, Sections 2 and 3, and Article
XII, Section 2 of this Articles of Amendment and Restatement shall be valid only
if approved by the affirmative vote of two-thirds of all the votes entitled to
be cast on the matter; but in each case only after due authorization, advice and
approval of the Board of Trustees.
ARTICLE XI
MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY
Subject to the provisions of any class or series of Shares at the time
outstanding, the Trust may (a) merge the Trust 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 all or substantially all of the
Trust Property. Any such action must be approved as advised by the Board of
Trustees and, after notice to all shareholders entitled to vote on the matter,
by the affirmative vote of a majority of all the votes entitled to be cast on
the matter.
ARTICLE XII
DURATION AND TERMINATION OF TRUST
Section 1. Duration. The Trust shall continue perpetually unless terminated
pursuant to Section 2 of this Article XII or pursuant to any applicable
provision of Title 8.
Section 2. Termination.
(a) Subject to the provision 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, after due authorization, advice and approval thereof by
the Board of Trustees. 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 the Articles of Amendment and Restatement
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 Trust Property to one or
more persons at public or private sale for consideration that 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 releases, indemnities and agreements as it
deems necessary for its protection, the Trust may distribute the remaining Trust
Property 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 Trust
Property 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 1. Governing Law. The Articles of Amendment and Restatement is
executed 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 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 the Articles of Amendment and
Restatement or of the Bylaws as a true and complete copy as then in force; (e)
an amendment to the Articles of Amendment and Restatement; (f) the termination
of the Trust; or (g) the existence of any fact 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 3. Severability.
(A) The provisions of the Articles of Amendment and
Restatement are severable, and if the Board of Trustees shall determine, with
the advice of counsel, that any one or more of such provisions (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 the Articles of Amendment and
Restatement, even without any amendment of the Articles of Amendment and
Restatement pursuant to Article X and without affecting or impairing any of the
remaining provisions of the Articles of Amendment and Restatement 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. In
the event of any such determination by the Board of Trustees, the Board shall
amend the Articles of Amendment and Restatement in the manner provided in
Article X, Section 2.
(B) If any provision of the Articles of Amendment and
Restatement 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
the Articles of Amendment and Restatement in any jurisdiction.
Section 4. Construction. In the Articles of Amendment and Restatement,
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 the
Articles of Amendment and Restatement. 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. In furtherance and not in limitation
of the foregoing, in accordance with the provisions of Title 3, Subtitles 6 and
7, of the Corporations and Associations Article of the Annotated Code of
Maryland, the Trust shall be included within the definition of "corporation" for
purposes of such provisions.
Section 5. Recordation. The Declaration of Trust, inclusive of these
Articles of Amendment and Restatement, and any 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 the Declaration
of Trust, inclusive of these Articles of Amendment and Restatement, or any
amendment hereto, in any office other than in the State of Maryland shall not
affect or impair the validity or effectiveness of the Declaration of Trust or
any part thereof. 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
amendments thereto.
SECOND: These Articles of Amendment and Restatement have been duly adopted
by the Board of Trustees and approved by the Shareholders of the Trust as
required by law.
THIRD: The total number of shares of beneficial interest which the
Trust had authority to issue immediately prior to the filing of these Articles
of Amendment and Restatement was 1,000, all of which were common shares of
beneficial interest, par value $.01 per share. The aggregate par value of all
shares of beneficial interest having par value was $10.00.
The total number of shares of beneficial interest which the Trust has
authority to issue pursuant to these Articles of Amendment and Restatement is
60,000,000, consisting of 50,000,000 common shares of beneficial interest, par
value $.01 per share and 10,000,000 of preferred shares of beneficial interest,
par value $.01 per share. The aggregate par value of all authorized shares of
beneficial interest having par value is $60,000.00.
FOURTH: The undersigned Chairman of the Board of Trustees and Chief
Executive Officer acknowledges these Articles of Amendment and Restatement to be
the trust act of the Trust and, as to all matters or facts required to be
verified under oath, the undersigned Chairman of the Board of Trustees and Chief
Executive Officer acknowledges that, to the best of his knowledge, information
and belief, these matters are true in all material respects and that this
statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its Chairman of
the Board of Trustees and Chief Executive Officer, and attest to by its
Secretary, on this ____ day of July, 1998.
HERSHA HOSPITALITY TRUST
ATTEST:
- ------------------------------ ------------------------------------
Secretary Hasu P. Shah
Chairman of the Board of Trustees
and Chief Executive Officer
HERSHA HOSPITALITY TRUST
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of 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 Trustees may from time to time determine or the business of
the Trust may require.
Section 3. FISCAL AND TAXABLE YEARS. The fiscal and taxable years of the
Trust shall begin on January 1 and end on December 31.
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. 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, or at such other
time determined by the Board of Trustees 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 1999. Failure to hold an annual meeting shall 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 of beneficial interest in the Trust ("Shares")
entitled to cast not less than 25% 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. The Secretary shall inform such
shareholders of the reasonably estimated cost of preparing and mailing notice of
the meeting and,
<PAGE>
upon payment by such shareholders to the Trust of such costs, the Secretary
shall 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. Subject to Section 13 of this Article II, 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 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 that 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
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 that might have been transacted at the meeting as
originally notified.
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<PAGE>
Section 8. VOTING. A plurality of all the votes cast at a meeting of
shareholders duly called and at which a 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 that
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 and shall be revocable unless stated in writing that the proxy is
irrevocable at the time of filing. 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 thereof, 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 that 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.
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<PAGE>
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. 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.
Section 11. INSPECTORS. At any meeting of shareholders, the chairman of
the meeting may, or upon the request of any shareholder shall, 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.
(a) 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 such 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 20 days after the annual meeting of shareholders, 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.
(b) Not later than 60 days after the end of each of the first three
quarterly periods of each fiscal year, the Trustees shall deliver or cause to be
delivered an interim report to the shareholders containing unaudited financial
statements for such quarter and for the period from the beginning of the fiscal
year to the end of such quarter, and such further information as the Trustees
may determine is required pursuant to any law or regulation to which the Trust
is subject.
Section 13. NOMINATIONS AND SHAREHOLDER BUSINESS.
(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 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
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<PAGE>
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. To be timely, a shareholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Trust not less than 120 days 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 the 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 public
announcement of the 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 (i) as to each
person whom the shareholder proposes to nominate for election or reelection as a
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 in the 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 that are owned
beneficially and of record by such shareholder and such beneficial owner.
(b) Special Meetings of 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 the event the Trust calls a special meeting of shareholders
for the purpose of electing one or more Trustees to the Board of Trustees, any
such shareholder may nominate a person or
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persons (as the case may be) for election to such position as specified in the
Trust's notice of meeting, if the shareholder's notice containing the
information required by paragraph (a)(2) of this Section 13 shall be delivered
to the Secretary at the principal executive offices of the Trust not later than
the tenth day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Trustees to
be elected at such meeting.
(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 presiding officer 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 this Section 13 and, if any proposed
nomination or business is not in compliance with this Section 13, to declare
that such defective 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,
Associated Press or comparable news service or in a document publicly filed by
the Trust with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Exchange Act.
(3) In addition to 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.
Section 14. VOTING BY BALLOT. Voting on any question or in any election may
be viva voce unless the presiding officer shall order or any shareholder 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. Trustees need not be shareholders of the Trust.
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.
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Section 2. 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 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 3. SPECIAL MEETINGS. Special meetings of the Trustees may be
called by or at the request of the Chairman of the Board or the President or by
two 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 4. NOTICE. Unless otherwise waived by a quorum present at a
special meeting, 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 or by telephone. 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 5. QUORUM. A majority of the entire Board of Trustees shall
constitute a quorum for transaction of business at 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 that 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 6. VOTING. (a) Except as provided in subsection (b) of this
Section 6, the action of the majority of the Trustees present at a meeting at
which a quorum is initially present shall be the action of the Trustees, unless
the concurrence of a greater proportion is required for such action by
applicable statute.
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(b) Notwithstanding anything in these Bylaws to the contrary, any
transaction involving the Trust, including the purchase, sale, lease or mortgage
of any real estate asset, in which a Trustee or officer of the Trust, or any
affiliate (as defined in the Declaration of Trust) thereof, has an interest
(other than solely as a result of his status as a Trustee, officer or
shareholder of the Trust), must be approved by a majority of the Independent
Trustees (as defined in the Declaration of Trust), even if the Independent
Trustees constitute less than a quorum.
Section 7. 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 8. 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.
Section 9. VACANCIES. If for any reason any or all 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 remaining Trustees, or if no
Trustees remain, by a majority of the shareholders. Any individual so elected as
Trustee shall hold office for the unexpired term of the Trustee he is replacing.
Section 10. COMPENSATION.
(a) Compensation. Trustees shall not receive any stated salary for their
services as Trustees but, by resolution of the Trustees, may receive a fixed sum
of cash and/or Shares (or options to acquire Shares) per year and/or per visit
to real property owned or to be acquired by the Trust and for any service or
activity they performed or engaged in as Trustees. 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 Trustee from serving the Trust in any other capacity and receiving
compensation therefor.
(b) Financial Assistance to Trustees. The Trust may lend money to,
guarantee an obligation of or otherwise assist a Trustee or a trustee of its
direct or indirect subsidiary. The loan, guarantee or other assistance may be
with or without interest, unsecured or secured in any manner that the Board of
Trustees, including a majority of the Independent Trustees, approves, including
a pledge of Shares.
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Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any time, remove
any Trustee in the manner provided in the Declaration of Trust.
Section 12. 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 13. 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 14. 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 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 15. NUMBER AND CLASSIFICATION. The number of Trustees of the Trust
shall not be less than three (3) nor more than nine (9). The Trustees shall be
classified, with respect to the terms for which they severally hold office, into
separate classes, if and in the manner prescribed in the Trust's Declaration of
Trust. At any regular meeting or at any special meeting called for that purpose,
a vote of at least 80% of the members of the Board of Trustees shall be required
in order to establish, increase or decrease the number of Trustees, provided
that the number thereof shall never be less than required by Maryland law and
further provided that the tenure of office of a Trustee shall not be affected by
any decrease in the number of Trustees.
Section 16. 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 17. 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, officer, employee or agent of the Trust
(other than a full-time officer 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.
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ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS; VACANCIES. The Board of
Trustees may appoint from among its members an Executive Committee and other
committees comprised of two or more Trustees. A majority of the members of any
committee so appointed shall be Independent Trustees. The Board of Trustees
shall appoint an audit committee comprised of not less than two members, all of
whom are Independent Trustees.
Notice of committee meetings shall be given in the same manner as notice
for special meetings of the Board of Trustees.
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 alternative members, to replace any absent or
disqualified member or to dissolve any such committee.
Section 2. POWERS. The Trustees may delegate to committees appointed under
Section 1 of this Article any of the powers of the Trustees, except as
prohibited by law.
Section 3. MEETINGS. One-third, but not less than two, 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 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; provided, however, that in the event of the
absence or disqualification of an Independent Trustee, such appointee shall be
an Independent Trustee.
Each committee shall keep minutes of its proceedings and shall report the
same to the Board of Trustees at the meeting next succeeding, and any action by
the committees shall be subject to 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.
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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.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust may consist of a
Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer,
one or more Chief Operating Officers, a President, one or more Vice Presidents,
a Treasurer, one or more Assistant Treasurers, a Secretary and one or more
Assistant Secretaries. 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
officer shall hold office until his successor is elected and qualified 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 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 Trustees
for the balance of the term.
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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. The Chief Executive Officer shall be an ex officio member of all
committees of the Board of Trustees. In the absence of both the Chairman and the
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. CHIEF OPERATING OFFICER. The Trustees may designate one or more
Chief Operating Officers from among the elected officers. Said officer will have
the responsibilities and duties as set forth by the Trustees.
Section 6. 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 Trustees or the Chief Executive
Officer.
Section 7. CHAIRMAN AND 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 of 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 some other officer or 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 8. 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 Trustees from time to time.
Section 9. 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 initial election as Vice President) 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
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time to time may be assigned to him by the President or by the Trustees. The
Trustees may designate one or more Vice Presidents as Executive Vice President
or as Vice President for particular areas of responsibility.
Section 10. 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 by the Trustees.
Section 11. 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.
He 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 President
and Trustees, at the regular meetings of the Trustees or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the Trust.
If required by the Trustees, he 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 office and for the restoration to the
Trust, in case of his death, resignation, retirement or removal from office, of
all books, papers, vouchers, moneys and other property of whatever kind in his
possession or under his control belonging to the Trust.
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
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,
if any, 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 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 officers, agent or agents 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 that shall represent and certify the number of
Shares of each class 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 that are
restricted as to their transferability or voting powers, that are preferred or
limited as to their dividends or as to their allocable portion of the assets
upon liquidation or that 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. No
transfers of Shares shall be made if (i) void ab initio pursuant to any
provision of the Declaration of Trust or (ii) the Board of Trustees, pursuant to
any provision of the Declaration of Trust, shall have refused to permit the
transfer of such Shares. Permitted transfers of Shares shall be made on the
share records of the Trust only upon
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the instruction of the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent or transfer clerk, and upon surrender of the certificate
or certificates, if issued, for such Shares properly endorsed or accompanied by
a duly executed share transfer power and the payment of all taxes thereon. Upon
surrender to the Trust or the transfer agent of the Trust of a certificate for
Shares duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, as to any transfers not prohibited by any provision of
the Declaration of Trust or by action of the Board of Trustees thereunder, it
shall be the duty of the Trust to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
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 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,
the 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 and/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 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.
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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.
Section 5. STOCK 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
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
Shares 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, 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 such sum or sums as the Trustees may from time to time, in their
absolute discretion, think proper as a reserve
-16-
<PAGE>
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 IX
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 required to place 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 X
INDEMNIFICATION AND ADVANCE FOR 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 X 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 real estate investment trust, corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, shareholder, partner or trustee of such real estate
investment trust, 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 indemnification, pay or reimburse,
in advance of final disposition of a
-17-
<PAGE>
proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or
former Trustee, officer or shareholder made a party to a proceeding by reason
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 its 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 repeal 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 that 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 XI
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.
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<PAGE>
ARTICLE XII
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; provided, however, that any
amendment to Article III, Section 6(b) and to the provisions of Article IV
relating to requirements that Independent Trustees serve on certain committees
shall require affirmative vote of at least 80% of the members of the Board of
Trustees, including a majority of the Independent Trustees, or the affirmative
vote of not less than two-thirds of shareholders entitled to vote thereon.
ARTICLE XIII
MISCELLANEOUS
All references to the Declaration of Trust shall include any amendments
thereto.
-19-
Exhibit 4.1
Organized Under the Laws of the State of Maryland
- ----- ----
HERSHA HOSPITALITY TRUST
Common Stock
$.01 Par Value
SEE LEGEND ON REVERSE SIDE
--------------------- SPECIMEN --------------------
Hersha Hospitality Trust, a Maryland real estate investment trust,
fully-paid and nonassessable
- ------------------- -------------------
---------
<PAGE>
IMPORTANT NOTICE
The Trust will furnish to any shareholder, on request and without charge, a
full statement of the information required by Section 8-203(d) of the
Corporations and Associations Article of the Annotated Code of Maryland with
respect to the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms and conditions of redemption of the
shares of each class of beneficial interest which the Trust has authority to
issue and, if the Trust is authorized to issue any preferred or special class in
series, (i) the differences in the relative rights and preferences between the
shares of each series to the extent they have been set, and (ii) the authority
of the Board of Trustees to set the relative rights and preferences of
subsequent series. The foregoing summary does not purport to be complete and is
subject to and qualified in its entirety by reference to the Declaration of
Trust of the Trust, a copy of which will be sent without charge to each
shareholder who so requests. Such request must be made to the Secretary of the
Trust at its principal office.
The Common Shares represented by this certificate are subject to restrictions
on transfer. Subject to certain further restrictions and except as provided in
the Amended and Restated Declaration of Trust of the Trust, no Person may (i)
Beneficially or Constructively Own Common Shares in excess of 9.9% of the number
of outstanding Common Shares, (ii) Beneficially or Constructively own Preferred
Shares of any class or series of Preferred Shares in excess of 9.9% of the
number of outstanding Preferred Shares of such class or series, (iii)
Beneficially Own Equity Shares that would result in the Equity Shares being
beneficially owned by fewer than 100 persons (determined without reference to
any rules of attribution), (iv) Beneficially Own Equity Shares that would result
in the Trust being "closely held" under Section 856(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), or (v) Constructively Own Equity 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)(b) of the Code. Any Person who attempts to Beneficially or
Constructively Own shares of Equity Shares in excess of the above limitations
must immediately notify the Trust in writing. If the restrictions above are
violated, the Equity Shares represented hereby will be transferred automatically
to a Share Trust and shall be designated Shares-in-Trust to a trustee of a 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. 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.
Exhibit 10.1
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HERSHA HOSPITALITY LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINED TERMS................................................................................................... 1
ARTICLE II
FORMATION OF PARTNERSHIP........................................................................................ 8
2.01 Name, Office and Registered Agent............................................................. 8
2.02 Partners...................................................................................... 9
2.03 Term and Dissolution.......................................................................... 9
2.04 Filing of Certificate and Perfection of Limited Partnership................................... 10
2.05 Certificates Describing Partnership Units..................................................... 10
ARTICLE III
BUSINESS OF THE PARTNERSHIP..................................................................................... 10
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS.............................................................................. 11
4.01 Capital Contributions......................................................................... 11
4.02 Additional Capital Contributions and Issuances of Additional Partnership Interests............ 11
4.03 Additional Funding............................................................................ 13
4.04 Capital Accounts.............................................................................. 14
4.05 Percentage Interests.......................................................................... 14
4.06 No Interest on Contributions.................................................................. 14
4.07 Return of Capital Contributions............................................................... 14
4.08 No Third Party Beneficiary.................................................................... 15
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS............................................................................... 15
5.01 Allocation of Profit and Loss................................................................. 15
5.02 Distribution of Cash.......................................................................... 17
5.03 REIT Distribution Requirements................................................................ 18
5.04 No Right to Distributions in Kind............................................................. 18
5.05 Limitations on Return of Capital Contributions................................................ 18
5.06 Distributions Upon Liquidation................................................................ 19
5.07 Substantial Economic Effect................................................................... 19
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER................................................................................... 19
6.01 Management of the Partnership................................................................. 19
6.02 Delegation of Authority....................................................................... 22
6.03 Indemnification and Exculpation of Indemnitees................................................ 23
6.04 Liability of the General Partner.............................................................. 24
6.05 Partnership Obligations....................................................................... 25
6.06 Outside Activities............................................................................ 26
6.07 Employment or Retention of Affiliates......................................................... 26
6.08 General Partner Participation................................................................. 26
6.09 Title to Partnership Assets................................................................... 27
6.10 Miscellaneous................................................................................. 27
ARTICLE VII
CHANGES IN GENERAL PARTNER...................................................................................... 27
7.01 Transfer of the General Partner's Partnership Interest........................................ 27
7.02 Admission of a Substitute or Additional General............................................... 29
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner.................. 30
7.04 Removal of a General Partner.................................................................. 31
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS......................................................................................... 32
8.01 Management of the Partnership................................................................. 32
8.02 Power of Attorney............................................................................. 32
8.03 Limitation on Liability of Limited Partners................................................... 32
8.04 Ownership by Limited Partner of Corporate General Partner or Affiliate........................ 32
8.05 Redemption Right.............................................................................. 33
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS...................................................................... 39
9.01 Purchase for Investment....................................................................... 39
9.02 Restrictions on Transfer of Limited Partnership Interests..................................... 40
9.03 Admission of Substitute Limited Partner....................................................... 41
9.04 Rights of Assignees of Partnership Interests.................................................. 42
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner................. 43
9.06 Joint Ownership of Interests.................................................................. 43
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS...................................................................... 43
10.01 Books and Records............................................................................... 43
10.02 Custody of Partnership Funds; Bank Accounts..................................................... 44
10.03 Fiscal and Taxable Year......................................................................... 44
10.04 Annual Tax Information and Report............................................................... 44
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments................................... 44
10.06 Reports to Limited Partners..................................................................... 45
ARTICLE XI
AMENDMENT OF AGREEMENT; MERGER.................................................................................. 45
ARTICLE XII
GENERAL PROVISIONS.............................................................................................. 46
12.01 Notices......................................................................................... 46
12.02 Survival of Rights.............................................................................. 46
12.03 Additional Documents............................................................................ 46
12.04 Severability.................................................................................... 46
12.05 Entire Agreement................................................................................ 47
12.06 Pronouns and Plurals............................................................................ 47
12.07 Headings........................................................................................ 47
12.08 Counterparts.................................................................................... 47
12.09 Governing Law................................................................................... 47
</TABLE>
EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - Notice of Exercise of Redemption Right
EXHIBIT C - Certification of Non-Foreign Status
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HERSHA HOSPITALITY LIMITED PARTNERSHIP
RECITALS
Hersha Hospitality Limited Partnership (the "Partnership") was formed
as a limited partnership under the laws of the Commonwealth of Virginia,
pursuant to a Certificate of Limited Partnership filed with the Virginia State
Corporation Commission effective as of _____________, 1998. This Amended and
Restated Agreement of Limited Partnership is entered into this ___ day of
_______, 1998 among Hersha Hospitality Trust, a Maryland real estate investment
trust (the "General Partner" or the "Company"), and the Limited Partners set
forth on Exhibit A hereto, for the purpose of amending and restating the
Agreement of Limited Partnership.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the Agreement of Limited Partnership to read in its entirety as
follows:
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have the
meanings specified below:
"Act" means the Virginia Revised Uniform Limited Partnership Act, as it
may be amended from time to time.
"Additional Funds" has the meaning set forth in Section 4.03 hereof.
"Additional Securities" means any additional REIT Shares (other than
REIT Shares issued in connection with an exchange pursuant to Section 8.05
hereof) or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.02(a)(ii).
"Administrative Expenses" means (i) all administrative and operating
costs and expenses incurred by the Partnership, (ii) those administrative costs
and expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses; provided, however, that
Administrative Expenses shall not include any administrative costs and expenses
incurred by the Company that are attributable to Properties or partnership
interests in a Subsidiary Partnership that are owned by the Company other than
in its role as General Partner.
"Affiliate" means, (i) any Person that, directly or indirectly,
controls or is controlled by or is under common control with such Person, (ii)
any other Person that owns, beneficially, directly or indirectly, 10% or more of
the outstanding capital stock, shares or equity interests of such Person, or
(iii) any officer, director, employee, partner, member, manager or trustee of
such Person or any Person controlling, controlled by or under common control
with such Person (excluding trustees and persons serving in similar capacities
who are not otherwise an Affiliate of such Person). For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
through the ownership of voting securities or partnership interests or
otherwise.
"Agreed Value" means the fair market value of a Partner's non-cash
Capital Contribution as of the date of contribution as agreed to by such Partner
and the General Partner. The names and addresses of the Partners, number of
Partnership Units issued to each Partner, and the Agreed Value of non-cash
Capital Contributions as of the date of contribution is set forth on Exhibit A.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership.
"Capital Account" has the meaning provided in Section 4.04 hereof.
"Capital Contribution" means the total amount of cash, cash
equivalents, and the Agreed Value of any Property or other asset contributed or
agreed to be contributed, as the context requires, to the Partnership by each
Partner pursuant to the terms of the Agreement. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Partnership Interest of such Partner.
"Cash Amount" means an amount of cash per Partnership Unit equal to the
Value of the REIT Shares Amount on the date of receipt by the Company of a
Notice of Redemption.
"Certificate" means any instrument or document that is required under
the laws of the Commonwealth of Virginia, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and filed for recording in the
appropriate public offices within the Commonwealth of Virginia or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the Commonwealth of Virginia or such other
jurisdiction.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means Hersha Hospitality Trust, a Maryland real estate
investment trust.
"Conversion Factor" means 1.0, provided that in the event that the
Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its outstanding REIT Shares or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT 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 REIT Shares (determined without the above assumption)
issued and outstanding on such date and, provided further, that in the event
that an entity other than an Affiliate of the Company shall become General
Partner pursuant to any merger, consolidation or combination of the Company with
or into another entity (the "Successor Entity"), the Conversion Factor shall be
adjusted by multiplying the Conversion Factor by the number of shares of the
Successor Entity into which one REIT Share is converted pursuant to such merger,
consolidation or combination, determined as of the date of such merger,
consolidation or combination. Any adjustment to the Conversion Factor shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event; provided, however, that if the
Company receives a Notice of Redemption after the record date, but prior to the
effective date of such dividend, distribution, subdivision or combination, the
Conversion Factor shall be determined as if the Company had received the Notice
of Redemption immediately prior to the record date for such dividend,
distribution, subdivision or combination.
"Declaration of Trust" means the Declaration of Trust of the Company
filed with the Maryland State Department of Assessments and Taxation, as amended
or restated from time to time.
"Event of Bankruptcy" as to any Person means the filing of a petition
for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.
"General Partner" means the Company and any Person who becomes a
substitute or additional General Partner as provided herein, and any of their
successors as General Partner.
"General Partnership Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of its status as the Company, the General Partner or a director, officer
or employee of the Company, the Partnership or the General Partner, and (ii)
such other Persons (including Affiliates of the Company, General Partner or the
Partnership) as the General Partner may designate from time to time, in its sole
and absolute discretion.
"Independent Trustee" shall have the same meaning ascribed to it in the
Declaration of Trust.
"Limited Partner" means any Person named as a Limited Partner on
Exhibit A attached hereto, and any Person who becomes a Substitute or Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
"Limited Partnership Interest" means the ownership interest of a
Limited Partner in the Partnership at any particular time, including the right
of such Limited Partner to any and all benefits to which such Limited Partner
may be entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"Loss" has the meaning provided in Section 5.01(f) hereof.
"Minimum Limited Partnership Interest" means the lesser of (i) 1% or
(ii) if the total Capital Contributions to the Partnership exceed $50 million,
1% divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
shall not be less than 0.2% at any time.
"Notice of Redemption" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit B hereto.
"NYSE" means the New York Stock Exchange.
"Offer" has the meaning set forth in Section 7.01(c) hereof.
"Offering" means the initial offer and sale by the Company and the
purchase by the Underwriters (as defined in the Prospectus) of REIT Shares for
sale to the public.
"Original Limited Partners" means the Limited Partners designated as
"Original Limited Partners" on Exhibit A hereto.
"Partner" means any General Partner or Limited Partner.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"Partnership Interest" means an ownership interest in the Partnership
held by either a Limited Partner or the General Partner 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.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability, and then aggregating the separately
computed gains. A Partner's share of Partnership Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(g)(1).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of cash pursuant to Section 5.02 hereof,
which record date shall be the same as the record date established by the
Company for a distribution to its shareholders of some or all of its portion of
such distribution.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued hereunder. The allocation of
Partnership Units among the Partners shall be as set forth on Exhibit A, as may
be amended from time to time.
"Percentage Interest" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding.
The Percentage Interest of each Partner shall be as set forth on Exhibit A, as
may be amended from time to time.
"Person" means any individual, partnership, corporation, limited
liability company, joint venture, trust or other entity.
"Profit" has the meaning provided in Section 5.01(f) hereof.
"Property" means any hotel property or other investment in which the
Partnership holds an ownership interest.
"Prospectus" means the final prospectus delivered to purchasers of REIT
Shares in the Offering.
"Redemption Amount" means either the Cash Amount or the REIT Shares
Amount, as selected by the General Partner in its sole and absolute discretion
pursuant to Section 8.05(b) hereof.
"Redemption Right" has the meaning provided in Section 8.05(a) hereof.
"Redeeming Partner" has the meaning provided in Section 8.05(a) hereof.
"Regulations" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through
860 of the Code.
"REIT Expenses" means (i) costs and expenses relating to the formation
and continuity of existence and operation of the Company and any Subsidiaries
thereof (which Subsidiaries shall, for purposes hereof, be included within the
definition of Company), including taxes, fees and assessments associated
therewith, any and all costs, expenses or fees payable to any director, officer
or employee of the Company, (ii) costs and expenses relating to any public
offering and registration of securities by the Company and all statements,
reports, fees and expenses incidental thereto, including, without limitation,
underwriting discounts and selling commissions applicable to any such offering
of securities, and any costs and expenses associated with any claims made by any
holders of such securities or any underwriters or placement agents thereof,
(iii) costs and expenses associated with any repurchase of any securities by the
Company, (iv) costs and expenses associated with the preparation and filing of
any periodic or other reports and communications by the Company under federal,
state or local laws or regulations, including filings with the Commission, (v)
costs and expenses associated with compliance by the Company with laws, rules
and regulations promulgated by any regulatory body, including the Commission and
any securities exchange, (vi) costs and expenses associated with any 401(k)
plan, incentive plan, bonus plan or other plan providing for compensation for
the employees of the Company, (vii) costs and expenses incurred by the Company
relating to any issuing or redemption of Partnership Interests and (viii) all
other operating or administrative costs of the Company incurred in the ordinary
course of its business on behalf of or in connection with the Partnership.
"REIT Share" means a common share of beneficial interest in the Company
(or Successor Entity, as the case may be).
"REIT Shares Amount" means a number of REIT Shares equal to the product
of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor as adjusted to and including the
Specified Redemption Date; provided that in the event the Company issues to all
holders of REIT Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase REIT Shares,
or any other securities or property (collectively, the "rights"), and the rights
have not expired at the Specified Redemption Date, then the REIT Shares Amount
shall also include the rights issuable to a holder of the REIT Shares Amount on
the record date fixed for purposes of determining the holders of REIT Shares
entitled to rights.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Specified Redemption Date" means the first business day of the month
that is at least 60 calendar days after the receipt by the Company of a Notice
of Redemption.
"Subsidiary" means, with respect to any Person, any corporation 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.
"Subsidiary Partnership" means any partnership in which the Company, a
wholly-owned subsidiary of the Company or the Partnership owns a partnership
interest.
"Substitute Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to Section 9.03 hereof.
"Successor Entity" has the meaning provided in the definition of
"Conversion Factor" contained herein.
"Surviving General Partner" has the meaning set forth in Section
7.01(d) hereof.
"Transaction" has the meaning set forth in Section 7.01(c) hereof.
"Transfer" has the meaning set forth in Section 9.02(a) hereof.
"Transfer Restriction Date" means ______________________.
"Value" means, with respect to any security, the average of the daily
market price of such security for the ten consecutive trading days immediately
preceding the date of such valuation. The market price for each such trading day
shall be: (i) if security is listed or admitted to trading on any securities
exchange or the NYSE, the sale 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,
regular way, on such day, (ii) if security is not listed or admitted to trading
on any securities exchange or the NYSE, the last reported sale price on such day
or, if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
Company, or (iii) if security is not listed or admitted to trading on any
securities exchange or the NYSE and no such last reported sale price or closing
bid and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reliable quotation source designated
by the Company, or if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most recent
day (not more than ten days prior to the date in question) for which prices have
been so reported; provided that if there are no bid and asked prices reported
during the ten days prior to the date in question, the value of the security
shall be determined by the Company acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate. In the event the security includes any additional rights, then the
value of such rights shall be determined by the Company acting in good faith on
the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
ARTICLE II
FORMATION OF PARTNERSHIP
2.01 Name, Office and Registered Agent. The name of the Partnership is Hersha
Hospitality Limited Partnership. The specified office and place of business
of the Partnership shall be 148 Sheraton Drive, Box A, New Cumberland,
Pennsylvania 17070. The General Partner may at any time change the location of
such office, provided the General Partner gives notice to the Partners of
any such change. The name and address of the Partnership's registered
agent is_______________________________________.
The sole duty of the registered agent as such is to forward to the Partnership
any notice that is served on him as registered agent.
2.02 Partners.
(a) The General Partner of the Partnership is Hersha
Hospitality Trust, a Maryland real estate investment trust. Its principal place
of business is the same as that of the Partnership.
(b) The Limited Partners are those Persons identified as
Limited Partners on Exhibit A hereto, as amended from time to time.
2.03 Term and Dissolution.
(a) The term of the Partnership shall continue in full force
and effect until December 31, 2050, except that the Partnership shall be
dissolved upon the first to occur of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to
a General Partner or the dissolution, death, removal or
withdrawal of a General Partner unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof;
provided that if a General Partner is on the date of such
occurrence a partnership, the dissolution of such General
Partner as a result of the dissolution, death, withdrawal,
removal or Event of Bankruptcy of a partner in such
partnership shall not be an event of dissolution of the
Partnership if the business of such General Partner is
continued by the remaining partner or partners, either alone
or with additional partners, and such General Partner and such
partners comply with any other applicable requirements of this
Agreement;
(ii) The passage of 90 days after the sale or other
disposition of all or substantially all of the assets of the
Partnership (provided that if the Partnership receives an
installment obligation as consideration for such sale or other
disposition, the Partnership shall continue, unless sooner
dissolved under the provisions of this Agreement, until such
time as such note or notes are paid in full);
(iii) The redemption of all Limited Partnership
Interests (other than any of such interests held by the
General Partner or Affiliates of the General Partner); or
(iv) The election by the General Partner that the
Partnership should be dissolved.
(b) Upon dissolution of the Partnership (unless the business
of the Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.04 Filing of Certificate and Perfection of Limited Partnership. The General
Partner shall execute, acknowledge, record and file at the expense of the
Partnership the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
2.05 Certificates Describing Partnership Units. At the request of a Limited
Partner, the General Partner, at its option, may issue a certificate
summarizing the terms of such Limited Partner's interest in the Partnership,
including the number of Partnership Units owned and the Percentage
Interest represented by such Partnership Units as of the date of such
certificate. Any such certificate (i) shall be in form and substance as approved
by the General Partner, (ii) shall not be negotiable and (iii) shall bear a
legend to the following effect:
This certificate is not negotiable. The Partnership Units
represented by this certificate are governed by and
transferable only in accordance with the provisions of the
Agreement of Limited Partnership of Hersha Hospitality Limited
Partnership, as amended from time to time.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
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
business shall be limited to and conducted in such a manner as to permit the
Company at all times to qualify as a REIT, unless the Company otherwise ceases
to qualify as a REIT, (ii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing or the ownership of
interests in any entity engaged in any of the foregoing and (iii) to do anything
necessary or incidental to the foregoing. In connection with the foregoing, and
without limiting the Company's right in its sole and absolute discretion to
cease qualifying as a REIT, the Partners acknowledge that the Company's current
status as a REIT and the avoidance of income and excise taxes on the Company
inures to the benefit of all the Partners and not solely to the Company.
Notwithstanding the foregoing, the Limited Partners agree that the Company may
terminate its status as a REIT under the Code at any time to the full extent
permitted under the Declaration of Trust. The General Partner shall also be
empowered to do any and all acts and things necessary or prudent to ensure that
the Partnership will not be classified as a "publicly traded partnership" for
purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 Capital Contributions. The General Partner and the Limited Partners have
made capital contributions to the Partnership in exchange for the Partnership
Interests set forth opposite their names on Exhibit A, as amended from time to
time.
4.02 Additional Capital Contributions and Issuances of Additional Partnership
Interests. Except as provided in this Section 4.02 or in Section 4.03, the
Partners shall have no right or obligation to make any additional Capital
Contributions or loans to the Partnership. The General Partner may contribute
additional capital to the Partnership, from time to time, and receive
additional Partnership Interests in respect thereof, in the manner contemplated
in this Section 4.02.
(a) Issuances of Additional Partnership Interests.
(i) General. The General Partner is hereby
authorized to cause the Partnership to issue such additional Partnership
Interests in the form of Partnership Units for any Partnership purpose at any
time or from time to time to the Partners (including the General Partner) or
to other Persons for such consideration and on such terms and conditions as
shall be established by the General Partner in its sole and absolute
discretion, all without the approval of any Limited Partners. Any
additional Partnership Interests issued thereby may be issued in one or more
classes, or 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 by the General Partner in its
sole and absolute discretion and without the approval of any Limited Partner,
subject to Virginia law, 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, however, that no additional
Partnership Interests shall be issued to the General Partner unless:
(1)(A) the additional Partnership Interests are issued in
connection with an issuance of REIT Shares of or other interests in the
General Partner, which shares or interests have designations,
preferences and other rights, all such that the economic interests are
substantially similar to the designations, preferences and other rights
of the additional Partnership Interests issued to the General Partner
by the Partnership in accordance with this Section 4.02 and (B) the
General Partner shall make a Capital Contribution to the Partnership in
an amount equal to the proceeds raised in connection with the issuance
of such shares of stock of or other interests in the General Partner;
(2) the additional Partnership Interests are issued in
exchange for property owned by the General Partner with a fair market
value, as determined by the General Partner, in good faith, equal to
the value of the Partnership Interests; or
(3) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership.
(ii) Upon Issuance of Additional Securities. The
General Partner shall not issue any additional REIT Shares (other than REIT
Shares issued in connection with an exchange pursuant to Section 8.05
hereof) or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase REIT Shares
(collectively, "Additional Securities") other than to all holders of REIT
Shares, unless (A) the General Partner shall cause 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 similar to those of the Additional Securities, and
(B) the General Partner contributes the proceeds from the issuance of such
Additional Securities and from any exercise of rights contained in such
Additional Securities to the Partnership; provided, however, that the General
Partner is allowed to issue Additional Securities in connection with an
acquisition of a property to be held directly by the General Partner, but if and
only if, such direct acquisition and issuance of Additional Securities have been
approved and determined to be in the best interests of the General Partner and
the Partnership by a majority of the Independent Trustees (as defined in the
Company's Amended and Restated Declaration of Trust). Without limiting the
foregoing, the General Partner is expressly authorized to issue Additional
Securities for less than fair market value, and to cause the Partnership to
issue to the General Partner corresponding Partnership Interests, so long as (x)
the General Partner concludes in good faith that such issuance is in the best
interests of the General Partner and the Partnership, including without
limitation, the issuance of REIT Shares and corresponding Partnership Units
pursuant to an employee share purchase plan providing for employee purchases of
REIT Shares at a discount from fair market value or employee stock options that
have an exercise price that is less than the fair market value of the REIT
Shares, either at the time of issuance or at the time of exercise, and (y) the
General Partner contributes all proceeds from such issuance to the Partnership.
For example, in the event the General Partner issues REIT Shares for a cash
purchase price and contributes all of the proceeds of such issuance to the
Partnership as required hereunder, the General Partner shall be issued a number
of additional Partnership Units equal to the product of (A) the number of such
REIT Shares issued by the General Partner, the proceeds of which were so
contributed, multiplied by (B) a fraction, the numerator of which is 100%, and
the denominator of which is the Conversion Factor in effect on the date of such
contribution.
(b) Certain Contributions of Proceeds of Issuance of REIT
Shares. In connection with any and all issuances of REIT Shares, the General
Partner shall make Capital Contributions to the Partnership of the proceeds
therefrom, provided that if the proceeds actually received and contributed by
the General Partner are less than the gross proceeds of such issuance as a
result of any underwriter's discount or other expenses paid or incurred in
connection with such issuance, then the General Partner shall make a Capital
Contribution of such net proceeds to the Partnership but shall receive
additional Partnership Units with a value equal to the aggregate amount of the
gross proceeds of such issuance pursuant to Section 4.02(a) hereof. Upon any
such Capital Contribution by the General Partner, the General Partner's Capital
Account shall be increased by the actual amount of its Capital Contribution
pursuant to Section 4.04 hereof.
(c) Minimum Limited Partnership Interest. In the event that
either a redemption pursuant to Section 8.05 hereof or additional Capital
Contributions by the General Partner would result in the Limited Partners (other
than the General Partner), in the aggregate, owning less than the Minimum
Limited Partnership Interest, the General Partner and the Limited Partners shall
form another partnership and contribute sufficient Limited Partnership Interests
together with such other Limited Partners so that the limited partners (other
than the General Partner) of such partnership own at least the Minimum Limited
Partnership Interest.
(d) If the General Partner shall repurchase shares of any
class of the General Partner's capital stock, the purchase price thereof and all
costs incurred in connection with such repurchase shall be reimbursed to the
General Partner by the Partnership pursuant to Section 6.05 hereof and the
General Partner shall cause the Partnership to cancel a number of Partnership
Interests of the appropriate class held by the General Partner equal to the
quotient of the number of such shares of the General Partner's capital stock
divided by the Conversion Factor.
4.03 Additional Funding. If the General Partner determines that it is in the
best interests of the Partnership to provide for additional Partnership funds
("Additional Funds") for any Partnership purpose, the General Partner may (i)
cause the Partnership to obtain such funds from outside borrowings, or (ii)
elect to have the General Partner or any of its Affiliates provide such
Additional Funds to the Partnership through loans or otherwise.
4.04 Capital Accounts. A separate capital account (a "Capital Account")
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than
a de minimis Capital Contribution, (ii) the Partnership distributes to a
Partner more than a de minimis amount of Partnership property as
consideration for a Partnership Interest or (iii) the Partnership is
liquidated within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g), the
General Partner shall revalue the property of the Partnership to its fair market
value (as determined by the General Partner, in its sole and absolute
discretion, and taking into account Section 7701(g) of the Code) in accordance
with Regulations Section 1.704-1(b)(2)(iv)(f). When the Partnership's property
is revalued by the General Partner, the Capital Accounts of the Partners shall
be adjusted in accordance with Regulations Sections 1.704-1(b)(2)(iv)(f)
and (g), which generally require such Capital Accounts to be adjusted to
reflect the manner in which the unrealized gain or loss inherent in such
property (that has not been reflected in the Capital Accounts
previously) would be allocated among the Partners pursuant to Section 5.01 if
there were a taxable disposition of such property for its fair market value (as
determined by the General Partner, in its sole and absolute discretion, and
taking into account Section 7701(g) of the Code) on the date of the revaluation.
4.05 Percentage Interests. If the number of outstanding Partnership Units
increases or decreases during a taxable year, each Partner's Percentage
Interest shall be adjusted by the General Partner effective as of the
effective date of each such increase or decrease to a percentage equal to the
number of Partnership Units held by such Partner divided by the aggregate
number of Partnership Units outstanding after giving effect to such
increase or decrease. If the Partners' Percentage Interests are adjusted
pursuant to this Section 4.05, the Profits and Losses for the taxable year in
which the adjustment occurs shall be allocated between the part of the year
ending on the day when the Partnership's property is revalued by the General
Partner and the part of the year beginning on the following day either (i) as
if the taxable year had ended on the date of the adjustment or (ii) based on
the number of days in each part. The General Partner, in its sole and absolute
discretion, shall determine which method shall be used to allocate Profits and
Losses for the taxable year in which the adjustment occurs. The allocation
of Profits and Losses for the earlier part of the year shall be based on the
Percentage Interests before adjustment, and the allocation of Profits and Losses
for the later part shall be based on the adjusted Percentage Interests.
4.06 No Interest on Contributions. No Partner shall be entitled to interest on
its Capital Contribution.
4.07 Return of Capital Contributions. No Partner shall be entitled to withdraw
any part of its Capital Contribution or its Capital Account or to receive any
distribution from the Partnership, except as specifically provided in this
Agreement. Except as otherwise provided herein, there shall be no obligation
to return to any Partner or withdrawn Partner any part of such Partner's
Capital Contribution for so long as the Partnership continues in existence.
4.08 No Third Party Beneficiary. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being
understood and agreed that the provisions of this Agreement shall be solely
for the benefit of, and may be enforced solely by, the parties hereto and their
respective successors and assigns. None of the rights or obligations of the
Partners herein set forth to make Capital Contributions or loans to the
Partnership shall be deemed an asset of the Partnership for any purpose by
any creditor or other third party, nor may such rights or obligations be sold,
transferred or assigned by the Partnership or pledged or encumbered by the
Partnership to secure any debt or other obligation of the Partnership or of any
of the Partners. In addition, it is the intent of the parties hereto that no
distribution to any Limited Partner shall be deemed a return of money or other
property in violation of the Act. However, if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, any
Limited Partner is obligated to return such money or property, such obligation
shall be the obligation of such Limited Partner and not of the General Partner.
Without limiting the generality of the foregoing, a deficit Capital Account of a
Partner shall not be deemed to be a liability of such Partner nor an asset or
property of the Partnership.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
5.01 Allocation of Profit and Loss.
(a) General. Profit and Loss of the Partnership for each
fiscal year of the Partnership shall be allocated among the Partners in
accordance with their respective Percentage Interests.
(b) Minimum Gain Chargeback. Notwithstanding any provision to
the contrary, (i) any expense of the Partnership that is a "nonrecourse
deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be
allocated in accordance with the Partners' respective Percentage Interests, (ii)
any expense of the Partnership that is a "partner nonrecourse deduction" within
the meaning of Regulations Section 1.704-2(i)(2) shall be allocated to the
Partner that bears the "economic risk of loss" of such deduction in accordance
with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, then, subject to the exceptions set forth in
Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and income
shall be allocated among the Partners in accordance with Regulations Section
1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j),
and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership
taxable year, then, subject to the exceptions set forth in Regulations Section
1.704(2)(g), items of gain and income shall be allocated among the Partners in
accordance with Regulations Section 1.704-2(i)(4) and the ordering rules
contained in Regulations Section 1.704-2(j). A Partner's "interest in
partnership profits" for purposes of determining its share of the nonrecourse
liabilities of the Partnership within the meaning of Regulations Section
1.752-3(a)(3) shall be such Partner's Percentage Interest.
(c) Qualified Income Offset. If a Partner receives in any
taxable year an adjustment, allocation or distribution described in
subparagraphs (4), (5) or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a deficit balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such deficit Capital
Account balance as quickly as possible as provided in Regulations Section
1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to
a Partner in accordance with this Section 5.01(c), to the extent permitted by
Regulations Section 1.704-1(b), items of expense or loss shall be allocated to
such Partner in an amount necessary to offset the income or gain previously
allocated to such Partner under this Section 5.01(c).
(d) Capital Account Deficits. Loss shall not be allocated to a
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to each Partner under
this Section 5.01(d).
(e) Allocations Between Transferor and Transferee. If a
Partner transfers any part or all of its Partnership Interest, the distributive
shares of the various items of Profit and Loss allocable among the Partners
during such fiscal year of the Partnership shall be allocated between the
transferor and the transferee Partner either (i) as if the Partnership's fiscal
year had ended on the date of the transfer, or (ii) based on the number of days
of such fiscal year that each was a Partner without regard to the results of
Partnership activities in the respective portions of such fiscal year in which
the transferor and the transferee were Partners. The General Partner, in its
sole and absolute discretion, shall determine which method shall be used to
allocate the distributive shares of the various items of Profit and Loss between
the transferor and the transferee Partner.
(f) Definition of Profit and Loss. "Profit" and "Loss" and any
items of income, gain, expense or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Sections 5.01(b), 5.01(c) or 5.01(d). All allocations of income,
Profit, gain, Loss and expense (and all items contained therein) for federal
income tax purposes shall be identical to all allocations of such items set
forth in this Section 5.01, except as otherwise required by Section 704(c) of
the Code and Regulations Section 1.704-1(b)(4). The Partnership shall use the
traditional method for allocating items of income, gain and expense as required
by Section 704(c) of the Code with respect to the properties acquired by the
Partnership in connection with the Offering. With respect to other properties
acquired by the Partnership, the General Partner shall have the authority to
elect the method to be used by the Partnership for allocating items of income,
gain and expense as required by Section 704(c) of the Code with respect to such
properties, and such election shall be binding on all Partners.
5.02 Distribution of Cash.
(a) The Partnership shall distribute cash on a quarterly (or,
at the election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole and absolute discretion, to the
Partners who are Partners on the Partnership Record Date with respect to such
quarter (or other distribution period) in accordance with their respective
Percentage Interests on the Partnership Record Date; provided, however, that if
a new or existing Partner acquires an additional Partnership Interest in
exchange for a Capital Contribution on any date other than a Partnership Record
Date, the cash distribution attributable to such additional Partnership Interest
relating to the Partnership Record Date next following the issuance of such
additional Partnership Interest shall be reduced in the proportion to (i) the
number of days that such additional Partnership Interest is held by such Partner
bears to (ii) the number of days between such Partnership Record Date and the
immediately preceding Partnership Record Date.
(b) Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required to withhold and pay
over to any taxing authority any amount resulting from the allocation or
distribution of income to a Partner or assignee (including by reason of Section
1446 of the Code), either (i) if the actual amount to be distributed to the
Partner (the "Distributable Amount") equals or exceeds the amount required to be
withheld by the Partnership (the "Withheld Amount"), the entire Distributable
Amount shall be treated as a distribution of cash to such Partner, or (ii) if
the Distributable Amount is less than the Withheld Amount, the excess of the
Withheld Amount over the Distributable Amount shall be treated as a loan (a
"Partnership Loan") from the Partnership to the Partner on the day the
Partnership pays over such amount to a taxing authority. A Partnership Loan
shall be repaid through withholding by the Partnership with respect to
subsequent distributions to the applicable Partner or assignee. In the event
that a Limited Partner (a "Defaulting Limited Partner") fails to pay any amount
owed to the Partnership with respect to the Partnership Loan within 15 days
after demand for payment thereof is made by the Partnership on the Limited
Partner, the General Partner, in its sole and absolute discretion, may elect to
make the payment to the Partnership on behalf of such Defaulting Limited
Partner. In such event, on the date of payment, the General Partner shall be
deemed to have extended a loan (a "General Partner Loan") to the Defaulting
Limited Partner in the amount of the payment made by the General Partner and
shall succeed to all rights and remedies of the Partnership against the
Defaulting Limited Partner as to that amount. Without limitation, the General
Partner shall have the right to receive any distributions that otherwise would
be made by the Partnership to the Defaulting Limited Partner until such time as
the General Partner Loan has been paid in full, and any such distributions so
received by the General Partner shall be treated as having been received by the
Defaulting Limited Partner and immediately paid to the General Partner.
Any amounts treated as a Partnership Loan or a
General Partner Loan pursuant to this Section 5.02(b) shall bear interest at
the lesser of (i) 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, or (ii) the maximum lawful rate of interest on such
obligation, such interest to accrue from the date the Partnership or the
General Partner, as applicable, is deemed to extend the loan until such loan is
repaid in full.
(c) In no event may a Partner receive a distribution of cash
with respect to a Partnership Unit if such Partner is entitled to receive a cash
dividend as the holder of record of a REIT Share for which all or part of such
Partnership Unit has been or will be redeemed.
5.03 REIT Distribution Requirements. The General Partner shall use its
reasonable efforts to cause the Partnership to distribute amounts sufficient
to enable the General Partner to pay shareholder dividends that will
allow the General Partner to (i) meet its distribution requirement for
qualification as a REIT as set forth in Section 857 of the Code and (ii) avoid
any federal income or excise tax liability imposed by the Code, other than to
the extent the General Partner elects to retain and pay income tax on its net
capital gain.
5.04 No Right to Distributions in Kind. No Partner shall be entitled to demand
property other than cash in connection with any distributions by the
Partnership.
5.05 Limitations on Return of Capital Contributions. Notwithstanding any of the
provisions of this Article V, no Partner shall have the right to receive, and
the General Partner shall not have the right to make, a distribution that
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, the sum of
all Partnership liabilities, other than the liabilities to a Partner for the
return of his Capital Contribution, does not exceed the fair market value of
the Partnership's assets.
5.06 Distributions Upon Liquidation. Upon liquidation of the Partnership, after
payment of, or adequate provision for, debts and obligations of the
Partnership, including any Partner loans, any remaining assets of the
Partnership shall be distributed to all Partners with positive Capital Accounts
in accordance with their respective positive Capital Account balances. For
purposes of the preceding sentence, the Capital Account of each Partner shall be
determined after (i) all adjustments made in accordance with Sections 5.01
and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, and (ii)
allocating to the General Partner an amount equal to the excess of (A) the value
of the Partnership Units it received in exchange for Capital Contributions of
the proceeds of an issuance of REIT Shares pursuant to Section 4.02(b) hereof
over (B) the actual amount of its Capital Contributions pursuant to Section
4.02(b) hereof (i.e., as a result of any underwriters' discount or other
expenses paid or incurred in connection with such issuance). Any distributions
pursuant to this Section 5.06 shall be made by the end of the Partnership's
taxable year in which the liquidation occurs (or, if later, within 90 days after
the date of the liquidation). To the extent deemed advisable by the General
Partner, appropriate arrangements (including the use of a liquidating trust) may
be made to assure that adequate funds are available to pay any contingent debts
or obligations.
5.07 Substantial Economic Effect. It is the intent of the Partners that the
allocations of Profit and Loss under the Agreement have substantial economic
effect (or be consistent with the Partners' interests in the Partnership in
the case of the allocation of losses attributable to nonrecourse debt) within
the meaning of Section 704(b) of the Code as interpreted by the Regulations
promulgated pursuant thereto. Article V and other relevant provisions of this
Agreement shall be interpreted in a manner consistent with such intent.
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
6.01 Management of the Partnership.
(a) Except as otherwise expressly provided in this Agreement,
the General Partner shall have full, complete and exclusive discretion to manage
and control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, operate, lease and
dispose of any real property and any other property or assets
including, but not limited to, notes and mortgages that the
General Partner determines are necessary or appropriate or in
the best interests of the business of the Partnership;
(ii) to construct buildings and make other
improvements on the properties owned or leased by the
Partnership;
(iii) to authorize, issue, sell, redeem or otherwise
purchase any Partnership Interests or any securities
(including secured and unsecured debt obligations of the
Partnership, debt obligations of the Partnership convertible
into any class or series of Partnership Interests, or options,
rights, warrants or appreciation rights relating to any
Partnership Interests) of the Partnership;
(iv) to borrow or lend money for the Partnership,
issue or receive evidences of indebtedness in connection
therewith, refinance, increase the amount of, modify, amend or
change the terms of, or extend the time for the payment of,
any such indebtedness, and secure such indebtedness by
mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
(v) to pay, either directly or by reimbursement, for
all operating costs and general administrative expenses of the
Partnership to third parties or to the General Partner or its
Affiliates as set forth in this Agreement;
(vi) to guarantee or become a comaker of indebtedness
of any Subsidiary of the Company, refinance, increase the
amount of, modify, amend or change the terms of, or extend the
time for the payment of, any such guarantee or indebtedness,
and secure such guarantee or indebtedness by mortgage, deed of
trust, pledge or other lien on the Partnership's assets;
(vii) to use assets of the Partnership (including,
without limitation, cash on hand) for any purpose consistent
with this Agreement, including, without limitation, payment,
either directly or by reimbursement, of all operating costs
and general administrative expenses of the General Partner,
the Partnership or any Subsidiary of either, to third parties
or to the General Partner as set forth in this Agreement;
(viii) to lease all or any portion of any of the
Partnership's assets, whether or not the terms of such leases
extend beyond the termination date of the Partnership and
whether or not any portion of the Partnership's assets so
leased are to be occupied by the lessee, or, in turn,
subleased in whole or in part to others, for such
consideration and on such terms as the General Partner may
determine;
(ix) to prosecute, defend, arbitrate or compromise
any and all claims or liabilities in favor of or against the
Partnership, on such terms and in such manner as the General
Partner may reasonably determine, and similarly to prosecute,
settle or defend litigation with respect to the Partners, the
Partnership or the Partnership's assets; provided, however,
that the General Partner may not, without the consent of all
of the Partners, confess a judgment against the Partnership
that is in excess of $20,000 or is not covered by insurance;
(x) to file applications, communicate and otherwise
deal with any and all governmental agencies having
jurisdiction over, or in any way affecting, the Partnership's
assets or any other aspect of the Partnership business;
(xi) to make or revoke any election permitted or
required of the Partnership by any taxing authority;
(xii) to maintain such insurance coverage for public
liability, fire and casualty, and any and all other insurance
for the protection of the Partnership, for the conservation of
Partnership assets, or for any other purpose convenient or
beneficial to the Partnership, in such amounts and such types,
as it shall determine from time to time;
(xiii) to determine whether or not to apply any
insurance proceeds for any property to the restoration of such
property or to distribute the same;
(xiv) to establish one or more divisions of the
Partnership, to hire and dismiss employees of the Partnership
or any division of the Partnership, and to retain legal
counsel, accountants, consultants, real estate brokers and
such other persons as the General Partner may deem necessary
or appropriate in connection with the Partnership business and
to pay therefor such reasonable remuneration as the General
Partner may deem reasonable and proper;
(xv) to retain other services of any kind or nature
in connection with the Partnership business, and to pay
therefor such remuneration as the General Partner may deem
reasonable and proper;
(xvi) to negotiate and conclude agreements on behalf
of the Partnership with respect to any of the rights, powers
and authority conferred upon the General Partner;
(xvii) to maintain accurate accounting records and to
file promptly all federal, state and local income tax returns
on behalf of the Partnership;
(xviii) to distribute Partnership cash or other
Partnership assets in accordance with this Agreement;
(xix) to form or acquire an interest in, and
contribute property to, any further limited or general
partnerships, joint ventures or other relationships that it
deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property
to, its Subsidiaries and any other Person in which it has an
equity interest from time to time);
(xx) to establish Partnership reserves for working
capital, capital expenditures, contingent liabilities or any
other valid Partnership purpose;
(xxi) to merge, consolidate or combine the
Partnership with or into another person;
(xxii) to do any and all acts and things necessary or
prudent to ensure that the Partnership will not be classified
as a "publicly traded partnership" for purposes of Section
7704 of the Code; and
(xxiii) to take such other action, execute,
acknowledge, swear to or deliver such other documents and
instruments, and perform any and all other acts that the
General Partner deems necessary or appropriate for the
formation, continuation and conduct of the business and
affairs of the Partnership (including, without limitation, all
actions consistent with allowing the General Partner at all
times to qualify as a REIT unless the General Partner
voluntarily terminates its REIT status) and to possess and
enjoy all of the rights and powers of a general partner as
provided by the Act.
(b) Except as otherwise provided herein, to the extent the
duties of the General Partner require expenditures of funds to be paid to third
parties, the General Partner shall not have any obligations hereunder except to
the extent that partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any individual
liability or obligation on behalf of the Partnership.
6.02 Delegation of Authority. The General Partner may delegate any or all
of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
6.03 Indemnification and Exculpation of Indemnitees.
(a) The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership as set forth in this Agreement
in which any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, unless it is established that: (i) the act or 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. 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 6.03(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 6.03(a). Any indemnification pursuant to this Section 6.03 shall be
made only out of the assets of the Partnership.
(b) The Partnership shall reimburse an Indemnitee for
reasonable expenses incurred by an Indemnitee who is a party to a proceeding in
advance of the final disposition of the proceeding 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 6.03 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) The indemnification provided by this Section 6.03 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.
(d) The Partnership may purchase and maintain insurance, on
behalf of the Indemnitees 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 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) For purposes of this Section 6.03, the Partnership shall
be deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by the Indemnitee with respect to an employee benefit 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 the plan shall be deemed
to be for a purpose that is not opposed to the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited Partners
to personal liability by reason of the indemnification provisions set forth in
this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole
or in part under this Section 6.03 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) The provisions of this Section 6.03 are for the benefit of
the Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons.
(i) Any amendment, modification or repeal of this Section 6.03
or any provision hereof shall be prospective only and shall not in any way
affect the indemnification of an Indemnitee by the Partnership under this
Section 6.03 as in effect immediately prior to such amendment, modification or
repeal with respect to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when claims relating to such
matters may arise or be asserted.
6.04 Liability of the General Partner.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith. The General Partner shall not be in breach of any duty that
the General Partner may owe to the Limited Partners or the Partnership or any
other Persons under this Agreement or of any duty stated or implied by law or
equity provided the General Partner, acting in good faith, abides by the terms
of this Agreement.
(b) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, 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 the tax consequences of
some, but not all, of the Limited Partners) in deciding whether to cause the
Partnership to take (or decline to take) any actions. In the event of a conflict
between the interests of the shareholders of the General Partner on one hand and
the Limited Partners on the other, the General Partner shall endeavor in good
faith to resolve the conflict in a manner not adverse to either the shareholders
of the General Partner or the Limited Partners; provided, however, that for so
long as the General Partner owns a controlling interest in the Partnership, any
such conflict that the General Partner, in its sole and absolute discretion,
determines cannot be resolved in a manner not adverse to either the shareholders
of the General Partner or the Limited Partners shall be resolved in favor of the
shareholders. 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) Subject to its obligations and duties as General Partner
set forth in Section 6.01 hereof, the General Partner may exercise any of the
powers granted to it under this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
(d) 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 Company to
continue to qualify as a REIT or (ii) to prevent the Company from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04
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 6.04 as in effect immediately prior to
such amendment, modification or repeal with respect to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when claims relating to such matters may arise or be asserted.
6.05 Partnership Obligations.
(a) Except as provided in this Section 6.05 and elsewhere in
this Agreement (including the provisions of Articles 5 and 6 regarding
distributions, payments and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general partner of
the Partnership.
(b) All REIT Expenses and Administrative Expenses shall be
obligations of the Partnership, and the General Partner shall be entitled to
reimbursement by the Partnership for any expenditure (including REIT Expenses
and Administrative Expenses) incurred by it on behalf of the Partnership that
shall be made other than out of the funds of the Partnership.
6.06 Outside Activities. Subject to Section 6.08 hereof, the Declaration of
Trust and any agreements entered into by the General Partner or its Affiliates
with the Partnership or a Subsidiary, any officer, director, employee,
agent, trustee, Affiliate or shareholder of the General Partner, the General
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 substantially similar or identical to those
of the Partnership. Neither the Partnership nor any of the Limited Partners
shall have any rights by virtue of this Agreement in any such business ventures,
interest or activities. None of the Limited Partners nor any other Person
shall have any rights by virtue of this Agreement or the partnership
relationship established hereby in any such business ventures, interests or
activities, and the General Partner shall have no obligation pursuant to
this Agreement to offer any interest in any such business ventures,
interests and activities to the Partnership or any Limited Partner, even if
such opportunity is of a character that, if presented to the Partnership or
any Limited Partner, could be taken by such Person.
6.07 Employment or Retention of Affiliates.
(a) Any Affiliate of the General Partner may be employed or
retained by the Partnership and may otherwise deal with the Partnership (whether
as a buyer, lessor, lessee, manager, furnisher of goods or services, broker,
agent, lender or otherwise) and may receive from the Partnership any
compensation, price or other payment therefor that the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries
or other Persons in which it has an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Subsidiary or any other
Person.
(c) The Partnership may transfer assets to joint ventures,
other partnerships, corporations or other business entities in which it is or
thereby becomes a participant upon such terms and subject to such conditions as
the General Partner deems are consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither
the General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.
6.08 General Partner Participation. The General Partner agrees that all
business activities of the General Partner, including activities pertaining
to the acquisition, development or ownership of hotel property or other
property, shall be conducted through the Partnership or one or more Subsidiary
Partnerships; provided, however, that the General Partner is allowed to make
a direct acquisition, but if and only if, such acquisition is made in
connection with the issuance of Additional Securities, which direct
acquisition and issuance have been approved and determined to be in the
best interests of the General Partner and the Partnership by a majority
of the Independent Trustees.
6.09 Title of 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 Partner, 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 declares and warrants 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 the
General Partner for the use and benefit of the Partnership in accordance with
the provisions of this Agreement; provided, however, that the General Partner
shall use its best efforts to cause beneficial and record title to such assets
to be vested in the Partnership as soon as reasonably practicable. 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.
6.10 Miscellaneous. In the event the General Partner redeems any REIT Shares,
then the General Partner shall cause the Partnership to purchase from the
General Partner a number of Partnership Units as determined based on the
application of the Conversion Factor on the same terms that the General
Partner redeemed such REIT Shares. Moreover, if the General Partner makes a
cash tender offer or other offer to acquire REIT Shares, then the General
Partner shall cause the Partnership to make a corresponding offer to the
General Partner to acquire an equal number of Partnership Units held by the
General Partner. In the event any REIT Shares are redeemed by the General
Partner pursuant to such offer, the Partnership shall redeem an equivalent
number of the General Partner's Partnership Units for an equivalent
purchase price based on the application of the Conversion Factor.
ARTICLE VII
CHANGES IN GENERAL PARTNER
7.01 Transfer of the General Partner's Partnership Interest.
(a) The General Partner shall not transfer all or any portion
of its General Partnership Interest or withdraw as General Partner except as
provided in or in connection with a transaction contemplated by Section 7.01(c),
(d) or (e).
(b) The General Partner agrees that its Percentage Interest
will at all times be in the aggregate at least 1%.
(c) Except as otherwise provided in Section 7.01(d) or (e)
hereof, the General Partner shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets (other than in connection with a change in the General
Partner's state of incorporation or organizational form), in each case which
results in a change of control of the General Partner (a "Transaction"), unless:
(i) the consent of Limited Partners (other than the
General Partner or any Subsidiary) holding more than 50% of
the Percentage Interests of the Limited Partners (other than
those held by the General Partner or any Subsidiary) is
obtained;
(ii) as a result of such Transaction all Limited
Partners will receive for each Partnership Unit an amount of
cash, securities or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities
or other property paid in the Transaction to a holder of one
REIT Share in consideration of one REIT Share, provided that
if, in connection with the Transaction, a purchase, tender or
exchange offer ("Offer") shall have been made to and accepted
by the holders of more than 50% of the outstanding REIT
Shares, each holder of Partnership Units shall be given the
option to exchange its Partnership Units for the greatest
amount of cash, securities or other property that a Limited
Partner would have received had it (A) exercised its
Redemption Right and (B) sold, tendered or exchanged pursuant
to the Offer the REIT Shares received upon exercise of the
Redemption Right immediately prior to the expiration of the
Offer; or
(iii) the General Partner is the surviving entity in
the Transaction and either (A) the holders of REIT Shares do
not receive cash, securities or other property in the
Transaction or (B) all Limited Partners (other than the
General Partner or any Subsidiary) receive an amount of cash,
securities or other property (expressed as an amount per REIT
Share) that is no less than the product of the Conversion
Factor and the greatest amount of cash, securities or other
property (expressed as an amount per REIT Share) received in
the Transaction by any holder of REIT Shares.
(d) Notwithstanding Section 7.01(c), the General Partner may
merge with or into or consolidate with another entity if immediately after such
merger or consolidation (i) substantially all of the assets of the successor or
surviving entity (the "Survivor"), other than Partnership Units held by the
General Partner, are contributed, directly or indirectly, to the Partnership as
a Capital Contribution in exchange for Partnership Units with a fair market
value equal to the value of the assets so contributed as determined by the
Survivor in good faith and (ii) the Survivor expressly agrees to assume all
obligations of the General Partner hereunder. Upon such contribution and
assumption, the Survivor shall have the right and duty to amend this Agreement
as set forth in this Section 7.01(d). The Survivor shall in good faith arrive at
a new method for the calculation of the Cash Amount, the REIT Shares Amount and
Conversion Factor for a Partnership Unit after any such merger or consolidation
so as to approximate the existing method for such calculation as closely as
reasonably possible. Such calculation shall take into account, among other
things, the kind and amount of securities, cash and other property that was
receivable upon such merger or consolidation by a holder of REIT Shares or
options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been exchanged
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for with respect to the Conversion Factor. The Survivor also shall in good faith
modify the definition of REIT Shares and make such amendments to Section 8.05
hereof so as to approximate the existing rights and obligations set forth in
Section 8.05 as closely as reasonably possible. The above provisions of this
Section 7.01(d) shall similarly apply to successive mergers or consolidations
permitted hereunder.
In respect of any transaction described in the preceding
Paragraph, the General Partner is required to use its commercially reasonable
efforts to structure such transaction to avoid causing the Limited Partners to
recognize a gain for federal income tax purposes by virtue of the occurrence of
or their participation in such transaction, provided such efforts are consistent
with the exercise of the Board of Trustees' fiduciary duties to the shareholders
of the General Partner under applicable law.
(e) Notwithstanding Section 7.01(c),
(i) a General Partner may transfer all or any portion
of its General Partnership Interest to (A) a wholly-owned
Subsidiary of such General Partner or (B) the owner of all of
the ownership interests of such General Partner, and following
a transfer of all of its General Partnership Interest, may
withdraw as General Partner; and
(ii) the General Partner may engage in a transaction
required by law or by the rules of any national securities
exchange on which the REIT Shares are listed to be submitted
to the vote of the holders of the REIT Shares.
7.02 Admission of a Substitute or Additional General Partner. A Person shall be
admitted as a substitute or additional General Partner of the Partnership only
if the following terms and conditions are satisfied:
(a) the Person to be admitted as a substitute or additional
General Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 hereof in connection
with such admission shall have been performed;
(b) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership, it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(c) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the Person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
General Partner.
(a) Upon the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Partnership shall be dissolved and
terminated unless the Partnership is continued pursuant to Section 7.03(b)
hereof. The merger of the General Partner with or into any entity that is
admitted as a substitute or successor General Partner pursuant to Section 7.02
hereof shall not be deemed to be the withdrawal, dissolution or removal of the
General Partner.
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after such
occurrence, may elect to continue the business of the Partnership for the
balance of the term specified in Section 2.04 hereof by selecting, subject to
Section 7.02 hereof and any other provisions of this Agreement, a substitute
General Partner by consent of a majority in interest of the Limited Partners. If
the Limited Partners elect to continue the business of the Partnership and admit
a substitute General Partner, the relationship with the Partners and of any
Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.
7.04 Removal of a General Partner.
(a) Upon the occurrence of an Event of Bankruptcy as to, or
the dissolution of, a General Partner, such General Partner shall be deemed to
be removed automatically; provided, however, that if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners. The Limited Partners
may not remove the General Partner, with or without cause.
(b) If a General Partner has been removed pursuant to this
Section 7.04 and the Partnership is continued pursuant to Section 7.03 hereof,
such General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners in accordance with Section 7.03(b)
hereof and otherwise admitted to the Partnership in accordance with Section 7.02
hereof. At the time of assignment, the removed General Partner shall be entitled
to receive from the substitute General Partner the fair market value of the
General Partnership Interest of such removed General Partner as reduced by any
damages caused to the Partnership by such General Partner. Such fair market
value shall be determined by an appraiser mutually agreed upon by the General
Partner and a majority in interest of the Limited Partners within 10 days
following the removal of the General Partner. In the event that the parties are
unable to agree upon an appraiser, the removed General Partner and a majority in
interest of the Limited Partners each shall select an appraiser. Each such
appraiser shall complete an appraisal of the fair market value of the removed
General Partner's General Partnership Interest within 30 days of the General
Partner's removal, and the fair market value of the removed General Partner's
General Partnership Interest shall be the average of the two appraisals;
provided, however, that if the higher appraisal exceeds the lower appraisal by
more than 20% of the amount of the lower appraisal, the two appraisers, no later
than 40 days after the removal of the General Partner, shall select a third
appraiser who shall complete an appraisal of the fair market value of the
removed General Partner's General Partnership Interest no later than 60 days
after the removal of the General Partner. In such case, the fair market value of
the removed General Partner's General Partnership Interest shall be the average
of the two appraisals closest in value.
(c) The General Partnership Interest of a removed General
Partner, during the time after default until transfer under Section 7.04(b),
shall be converted to that of a special Limited Partner; provided, however, such
removed General Partner shall not have any rights to participate in the
management and affairs of the Partnership, and shall not be entitled to any
portion of the income, expense, profit, gain or loss allocations or cash
distributions allocable or payable, as the case may be, to the Limited Partners.
Instead, such removed General Partner shall receive and be entitled only to
retain distributions or allocations of such items that it would have been
entitled to receive in its capacity as General Partner, until the transfer is
effective pursuant to Section 7.04(b).
(d) All Partners shall have given and hereby do give such
consents, shall take such actions and shall execute such documents as shall be
legally necessary and sufficient to effect all the foregoing provisions of this
Section.
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
8.01 Management of the Partnership. The Limited Partners shall not
participate in the management or control of Partnership business nor shall
they transact any business for the Partnership, nor shall they have the power
to sign for or bind the Partnership, such powers being vested solely and
exclusively in the General Partner.
8.02 Power of Attorney. Each Limited Partner hereby irrevocably appoints the
General Partner its true and lawful attorney-in-fact, who may act for each
Limited Partner and in its name, place and stead, and for its use and benefit,
to sign, acknowledge, swear to, deliver, file or record, at the appropriate
public offices, any and all documents, certificates and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the
provisions of this Agreement and the Act in accordance with their terms, which
power of attorney is coupled with an interest and shall survive the death,
dissolution or legal incapacity of the Limited Partner, or the transfer by the
Limited Partner of any part or all of its Partnership Interest.
8.03 Limitation on Liability of Limited Partners. No Limited Partner shall be
liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to
make payments of its Capital Contribution, if any, as and when due hereunder.
After its Capital Contribution is fully paid, no Limited Partner shall, except
as otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 Ownership by Limited Partner of Corporate General Partner or Affiliate. No
Limited Partner shall at any time, either directly or indirectly, own any
stock or other interest in the General Partner or in any Affiliate thereof, if
such ownership by itself or in conjunction with other stock or other interests
owned by other Limited Partners would, in the opinion of counsel for the
Partnership, jeopardize the classification of the Partnership as a partnership
for federal income tax purposes. The General Partner shall be entitled to make
such reasonable inquiry of the Limited Partners as is required to establish
compliance by the Limited Partners with the provisions of this Section.
8.05 Redemption Right.
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e) and
8.05(f) and the provisions of any agreements between the Partnership and one or
more Limited Partners with respect to Partnership Units held by them, each
Limited Partner, other than the Company, shall have the right (the "Redemption
Right") to require the Partnership to redeem on a Specified Redemption Date all
or a portion of the Partnership Units held by such Limited Partner at a
redemption price equal to and in the form of the Cash Amount to be paid by the
Partnership, provided that such Partnership Units shall have been outstanding
for at least one year, except that such Partnership Units issued in connection
with the exercise of the warrants granted in connection with the initial public
offering of the General Partner shall be immediately redeemable. The 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"); provided, however,
that the Partnership shall not be obligated to satisfy such Redemption Right if
the General Partner elects to purchase the Partnership Units subject to the
Notice of Redemption pursuant to Section 8.05(b); and provided, further, that no
Limited Partner may deliver more than two Notices of Redemption during each
calendar year. A Limited Partner may not exercise the Redemption Right for less
than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000
Partnership Units, all of the Partnership Units held by such Partner. The
Redeeming Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any distribution paid with respect to Partnership Units if
the record date for such distribution is on or after the Specified Redemption
Date.
(b) Notwithstanding the provisions of Section 8.05(a), a
Limited Partner that exercises the Redemption Right shall be deemed to have
offered to sell the Partnership Units described in the Notice of Redemption to
the General Partner, and the General Partner may, in its sole and absolute
discretion, elect to purchase directly and acquire such Partnership Units by
paying to the Redeeming Partner either the Cash Amount or the REIT Shares
Amount, as elected by the General Partner (in its sole and absolute discretion),
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. If the General Partner shall elect to exercise its right to purchase
Partnership Units under this Section 8.05(b) with respect to a Notice of
Redemption, it shall so notify the Redeeming Partner within five Business Days
after the receipt by the General Partner of such Notice of Redemption. Unless
the General Partner (in its sole and absolute discretion) shall exercise its
right to purchase Partnership Units from the Redeeming Partner pursuant to this
Section 8.05(b), the General Partner shall have no obligation to the Redeeming
Partner or the Partnership with respect to the Redeeming Partner's exercise of
the Redemption Right. In the event the General Partner shall exercise its right
to purchase Partnership Units with respect to the exercise of a Redemption Right
in the manner described in the first sentence of this Section 8.05(b), the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of such Redemption Right, and
each of the Redeeming Partner, the Partnership and the General Partner shall
treat the transaction between the General Partner and the Redeeming Partner for
federal income tax purposes as a sale of the Redeeming Partner's Partnership
Units to the General Partner. Each Redeeming Partner agrees to execute such
documents as the General Partner may reasonably require in connection with the
issuance of REIT Shares upon exercise of the Redemption Right.
(c) Notwithstanding the provisions of Section 8.05(a) and
8.05(b), a Limited Partner shall not be entitled to exercise the Redemption
Right if the delivery of REIT Shares to such Partner on the Specified Redemption
Date by the General Partner pursuant to Section 8.05(b) (regardless of whether
or not the General Partner would in fact exercise its rights under Section
8.05(b)) would (i) result in such Partner or any other person owning, directly
or indirectly, REIT Shares in excess of the Ownership Limitation (as defined in
the Declaration of Trust) and calculated in accordance therewith, except as
provided in the Declaration of Trust, (ii) result in REIT Shares being owned by
fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the General Partner being "closely held" within
the meaning of Section 856(h) of the Code, (iv) cause the General Partner to
own, directly or constructively, 10% or more of the ownership interests in a
tenant of the General Partner's, the Partnership's or a Subsidiary Partnership's
real property, within the meaning of Section 856(d)(2)(B) of the Code, or (v)
cause the acquisition of REIT Shares by such Partner to be "integrated" with any
other distribution of REIT Shares for purposes of complying with the
registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"). The General Partner, in its sole and absolute discretion, may
waive the restriction on redemption set forth in this Section 8.05(c); provided,
however, that in the event such restriction is waived, the Redeeming Partner
shall be paid the Cash Amount.
(d) Any Cash Amount to be paid to a Redeeming Partner pursuant
to this Section 8.05 shall be paid on the Specified Redemption Date; provided,
however, that the General Partner may elect to cause the Specified Redemption
Date to be delayed for up to an additional 90 days to the extent required for
the General Partner to cause additional REIT Shares to be issued to provide
financing to be used to make such payment of the Cash Amount. Notwithstanding
the foregoing, the General Partner agrees to use its best efforts to cause the
closing of the acquisition of redeemed Partnership Units hereunder to occur as
quickly as reasonably possible.
(e) Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
that apply upon a Redeeming Partner=s exercise of the Redemption Right. If a
Redeeming Partner believes that it is exempt from such withholding upon the
exercise of the Redemption Right, such Partner must furnish the General Partner
with a FIRPTA Certificate in the form attached hereto as Exhibit C. If the
Partnership or the General Partner is required to withhold and pay over to any
taxing authority any amount upon a Redeeming Partner=s exercise of the
Redemption Right and if the Redemption Amount equals or exceeds the Withheld
Amount, the Withheld Amount shall be treated as an amount received by such
Partner in redemption of its Partnership Units. If, however, the Redemption
Amount is less than the Withheld Amount, the Redeeming Partner shall not receive
any portion of the Redemption Amount, the Redemption Amount shall be treated as
an amount received by such Partner in redemption of its Partnership Units, and
the Partner shall contribute the excess of the Withheld Amount over the
Redemption Amount to the Partnership to the Partner before the Partnership is
required to pay over such excess to a taxing authority.
(f) Notwithstanding any other provision of this Agreement, the
General Partner shall place appropriate restrictions on the ability of the
Limited Partners to exercise their Redemption Rights as and if deemed necessary
to ensure that the Partnership does not constitute a "publicly traded
partnership" under section 7704 of the Code. If and when the General Partner
determines that imposing such restrictions is necessary, the General Partner
shall give prompt written notice thereof (a "Restriction Notice") to each of the
Limited Partners, which notice shall be accompanied by a copy of an opinion of
counsel to the Partnership that states that, in the opinion of such counsel,
restrictions are necessary in order to avoid the Partnership being treated as a
"publicly traded partnership" under section 7704 of the Code.
8.06 Registration. Subject to the terms of any agreement between the
General Partner and one or more Limited Partners with respect to Partnership
Units held by them:
(a) Shelf Registration of the Common Stock. The General
Partner agrees to file with the Securities and Exchange Commission (the
"Commission") a shelf registration statement under Rule 415 of the Securities
Act (a "Registration Statement"), or any similar rule that may be adopted by the
Commission, covering the resale of all of the Common Shares that may be issued
upon redemption of such Partnership Units pursuant to Section 8.05 hereof
("Redemption Shares") in the event that the Limited Partners, as a group,
request registration covering the resale of at least 250,000 Common Shares;
provided however, that only two such registrations may occur each year. The
Limited Partners may request "piggyback" registration of their Redemption
Shares. If, during the prior two years there has not been an opportunity for a
piggyback registration, the Limited Partners holding Units redeemable for at
least 50,000 Common Shares may request a registration of those shares. Upon any
of such requests, the Company will:
(i) provide written notice (the "Notice") of
such request within 10 days of the receipt of such request to the Limited
Partners not a party to the request;
(ii) use its best efforts to have such Registration
Statement declared effective and to keep it effective for a period of 180 days
(the "Effective Period");
(iii) give each holder of Redemption Shares, their
underwriters, if any, and their counsel and accountants a reasonable
opportunity to participate in the preparation of the Registration
Statement and give such persons reasonable access to its books, records,
officers and independent public accountants;
(iv) furnish to each holder of Redemption Shares such
numbers of copies of prospectuses, and supplements or amendments thereto, and
such other documents as such holder reasonably requests;
(v) register or qualify the securities covered
by the Registration Statement under the securities or blue sky laws of such
jurisdictions within the United States as any holder of Redemption Shares shall
reasonably request, and do such other reasonable acts and things as may be
required of it to enable such holders to consummate the sale or other
disposition in such jurisdictions of the Redemption Shares; provided, however,
that the General Partner shall not be required to (i) qualify as a foreign
corporation or consent to a general or unlimited service or process in any
jurisdictions in which it would not otherwise be required to be qualified or so
consent or (ii) qualify as a dealer in securities;
(vi) furnish, at the request of the holders of
Redemption Shares, on the date Redemption Shares are delivered to the
Underwriters for sale pursuant to such registration, or, if such Redemption
Shares are not being sold through underwriters, on the date the
Registration Statement with respect to such Redemption Shares becomes
effective, (A) a securities opinion of counsel representing the General
Partner for the purposes of such registration covering such legal matters as
are customarily included in such opinions and (B) letters of the firm of
independent public accountants that certified the financial statements
included in the Registration Statement, addressed to the
underwriters, covering substantially the same matters as are customarily covered
in accountants' letters delivered to underwriters in underwritten public
offerings of securities and such other financial matters as such holders (or the
underwriters, if any) may reasonably request;
(vii) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission;
(vii) enter into and perform an underwriting
agreement with the managing underwriter, if any, selected as provided herein,
containing customary (A) terms of offer and sale of the securities, payment
provisions, underwriting discounts and commissions and (B) representations,
warranties, covenants, indemnities, terms and conditions; and
(ix) keep the holders of the Redemption Shares
advised as to the initiation and progress of the registration.
The General Partner further agrees to supplement or make amendments to
each Registration Statement, if required by the rules, regulations or
instructions applicable to the registration form utilized by the General Partner
or by the Securities Act or rules and regulations thereunder for such
Registration Statement. Notwithstanding the foregoing, if for any reason the
effectiveness of a Registration Statement is delayed or suspended or it ceases
to be available for sales of Redemption Shares thereunder, the Effective Period
shall be extended by the aggregate number of days of such delay, suspension or
unavailability.
(b) Listing on Securities Exchange. If the General Partner
shall list or maintain the listing of any Common Shares on any securities
exchange or national market system, it will at its expense and as necessary to
permit the registration and sale of the Redemption Shares hereunder, list
thereon, maintain and, when necessary, increase such listing to include such
Redemption Shares.
(c) Registration Not Required. Notwithstanding the foregoing,
the General Partner shall not be required to file or maintain the effectiveness
of a registration statement relating to Redemption Shares after the first date
upon which, in the opinion of counsel to the General Partner, all of the
Redemption Shares covered thereby could be sold by the holders thereof in any
period of three months pursuant to Rule 144 under the Securities Act, or any
successor rule thereto.
(d) Allocation of Expenses. The Partnership shall pay all
expenses in connection with the Registration Statement, including without
limitation (i) all expenses incident to filing with the National Association of
Securities Dealers, Inc., (ii) registration fees, (iii) printing expenses, (iv)
accounting and legal fees and expenses, except to the extent holders of
Redemption Shares elect to engage accountants or attorneys in addition to the
accountants and attorneys engaged by the General Partner or the Partnership, (v)
accounting expenses incident to or required by any such registration or
qualification and (vi) expenses of complying with the securities or blue sky
laws of any jurisdictions in connection with such registration or qualification;
provided, however, the Partnership shall not be liable for (A) any discounts or
commissions to any underwriter or broker attributable to the sale of Redemption
Shares, or (B) any fees or expenses incurred by holders of Redemption Shares in
connection with such registration that, according to the written instructions of
any regulatory authority, the Partnership is not permitted to pay.
(e) Indemnification.
(i) In connection with the Registration
Statement, the General Partner and the Partnership agree to indemnify holders
of Redemption Shares within the meaning of Section 15 of the Securities Act,
against all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) caused by any untrue, or alleged untrue,
statement of a material fact contained in the Registration Statement,
preliminary prospectus or prospectus (as amended or supplemented if the
General Partner shall have furnished any amendments or supplements thereto)
or caused by any omission or alleged omission, to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities
or expenses are caused by any untrue statement, alleged untrue statement,
omission, or alleged omission based upon information furnished to the General
Partner expressly for use therein. The General Partner and each officer,
director and controlling person of the General Partner shall be
indemnified by each holder of Redemption Shares covered by the Registration
Statement for all such losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) caused by any such untrue, or
alleged untrue, statement or any such omission, or alleged omission, based upon
information furnished to the General Partner expressly for use therein in a
writing signed by the holder.
(ii) Promptly upon receipt by a party indemnified
under this Section 8.06(e) of notice of the commencement of any action against
such indemnified party in respect of which indemnity or reimbursement may
be sought against any indemnifying party under this Section 8.06(e), such
indemnified party shall notify the General Partner in writing of the
commencement of such action, but the failure to so notify the General
Partner shall not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 8.06(e) unless such
failure shall materially adversely affect the defense of such action. In
case notice of commencement of any such action shall be given to the General
Partner as above provided, the General Partner shall be entitled to
participate in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of such action
at its own expense, with counsel chosen by it and reasonably satisfactory to
such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the General
Partner or the Partnership agrees to pay the same, (ii) the General Partner
fails to assume the defense of such action with counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) have been advised by such counsel that
representation of such indemnified party and the General Partner by the same
counsel would be inappropriate under applicable standards of professional
conduct (in which case the General Partner shall not have the right to assume
the defense of such action on behalf of such indemnified party). No indemnifying
party shall be liable for any settlement entered into without its consent.
(f) Contribution.
(i) If for any reason the indemnification
provisions contemplated by Section 8.06(e) are either unavailable or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities referred to therein, then the party that
would otherwise be required to provide indemnification or the
indemnifying party (in either case, for purposes of this Section 8.06(f), the
"Indemnifying Party") in respect of such losses, claims, damages or
liabilities, shall contribute to the amount paid or payable by the party that
would otherwise be entitled to indemnification or the indemnified party (in
either case, for purposes of this Section 8.06(f), the "Indemnified Party")
as a result of such losses, claims, damages, liabilities or expense, in such
proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact related to information supplied by the
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party. In no event shall any holder of Redemption Shares covered by the
Registration Statement be required to contribute an amount greater than the
dollar amount of the proceeds received by such holder from the sale of
Redemption Shares pursuant to the registration giving rise to the liability.
(ii) The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 8.06(f) were
determined by pro rata allocation (even if the holders or any underwriters or
all of them were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. No person or entity
determined to have committed a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
(iii) The contribution provided for in this Section
8.06(f) shall survive the termination of this Agreement and shall remain in
full force and effect regardless of any investigation made by or on behalf of
any Indemnified Party.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01 Purchase for Investment.
(a) Each Limited Partner hereby represents and warrants to the
General Partner and to the Partnership that the acquisition of his Partnership
Interests is made as a principal for his account for investment purposes only
and not with a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign
or otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
9.02 Restrictions on Transfer of Limited Partnership Interests.
(a) Subject to the provisions of Sections 9.02(b), (c) and
(d), no Limited Partner may offer, sell, assign, hypothecate, pledge or
otherwise transfer all or any portion of his Limited Partnership Interest, or
any of such Limited Partner's economic rights as a Limited Partner, whether
voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a "Transfer") without the consent of the General Partner, which
consent may be granted or withheld in its sole and absolute discretion. Any such
purported transfer undertaken without such consent shall be considered to be
null and void ab initio and shall not be given effect. Each Original Limited
Partner acknowledges that the General Partner has agreed not to grant any such
consent prior to the Transfer Restriction Date. The General Partner may require,
as a condition of any Transfer to which it consents, that the transferor assume
all costs incurred by the Partnership in connection therewith.
(b) No Limited Partner may withdraw from the Partnership other
than as a result of a permitted Transfer (i.e., a Transfer consented to as
contemplated by clause (a) above or clause (c) below or a Transfer pursuant to
Section 9.05 below) of all of his Partnership Units pursuant to this Article IX
or pursuant to a redemption of all of his Partnership Units pursuant to Section
8.05. Upon the permitted Transfer or redemption of all of a Limited Partner's
Partnership Units, such Limited Partner shall cease to be a Limited Partner.
(c) Subject to Sections 9.02(d), (e) and (f) below, a Limited
Partner may Transfer, with the consent of the General Partner, all or a portion
of his Partnership Units to (i) a parent or parent's spouse, natural or adopted
descendant or descendants, spouse of such descendant, or brother or sister, or a
trust created by such Limited Partner for the benefit of such Limited Partner
and/or any such person(s), of which trust such Limited Partner or any such
person(s) is a trustee, (ii) a corporation, partnership or limited liability
company controlled by a Person or Persons named in (i) above or (iii) if the
Limited Partner is an entity, its beneficial owners.
(d) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act or would otherwise
violate any applicable federal or state securities or blue sky law (including
investment suitability standards).
(e) No Transfer by a Limited Partner of its Partnership Units,
in whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
ability of the Company to continue to qualify as a REIT or subject the Company
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.
(f) No transfer of any Partnership Units may be made to a
lender to the Partnership or any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a nonrecourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion, provided that as a condition to
such consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Cash 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.
(g) Any Transfer in contravention of any of the provisions of
this Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
(h) Prior to the consummation of any Transfer under this
Article IX, the transferor and/or the transferee shall deliver to the General
Partner such opinions, certificates and other documents as the General Partner
shall request in connection with such Transfer.
9.03 Admission of Substitute Limited Partner.
(a) Subject to the other provisions of this Article IX, an
assignee of the Limited Partnership Interest of a Limited Partner (which shall
be understood to include any purchaser, transferee, donee or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only with the consent of the General
Partner and upon the satisfactory completion of the following:
(i) The assignee shall have accepted and agreed to
be bound by the terms and provisions of this Agreement by
executing a counterpart or an amendment thereof, including a
revised Exhibit A, and such other documents or instruments as
the General Partner may require in order to effect the
admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate
evidencing the admission of such Person as a Limited Partner
shall have been signed, acknowledged and filed for record in
accordance with the Act.
(iii) The assignee shall have delivered a letter
containing the representation set forth in Section 9.01(a)
hereof and the agreement set forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership
or trust, the assignee shall have provided the General Partner
with evidence satisfactory to counsel for the Partnership of
the assignee's authority to become a Limited Partner under the
terms and provisions of this Agreement.
(v) The assignee shall have executed a power of
attorney containing the terms and provisions set forth in
Section 8.02 hereof.
(vi) The assignee shall have paid all legal fees and
other expenses of the Partnership and the General Partner and
filing and publication costs in connection with its
substitution as a Limited Partner.
(vii) The assignee has obtained the prior written
consent of the General Partner to its admission as a
Substitute Limited Partner, which consent may be given or
denied in the exercise of the General Partner's sole and
absolute discretion.
(b) For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section 9.03(a)(ii) hereof or, if no such filing is required, the later of the
date specified in the transfer documents or the date on which the General
Partner has received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person
seeking to become a Substitute Limited Partner by preparing the documentation
required by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to the admission of such
Person as a Limited Partner of the Partnership.
9.04 Rights of Assignees of Partnership Interests.
(a) Subject to the provisions of Sections 9.01 and 9.02
hereof, except as required by operation of law, the Partnership shall not be
obligated for any purposes whatsoever to recognize the assignment by any Limited
Partner of its Partnership Interest until the Partnership has received notice
thereof.
(b) Any Person who is the assignee of all or any portion of a
Limited Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such Limited
Partnership Interest, shall be subject to all the provisions of this Article IX
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of its Limited Partnership Interest.
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited
Partner. The occurrence of an Event of Bankruptcy as to a Limited Partner, the
death of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the
business of the Partnership shall continue if an order for relief in a
bankruptcy proceeding is entered against a Limited Partner, the trustee or
receiver of his estate or, if he dies, his executor, administrator or
trustee, or, if he is finally adjudicated incompetent, his committee,
guardian or conservator, shall have the rights of such Limited Partner for
the purpose of settling or managing his estate property and such power as
the bankrupt, deceased or incompetent Limited Partner possessed to assign all
or any part of his Partnership Interest and to join with the assignee in
satisfying conditions precedent to the admission of the assignee as a
Substitute Limited Partner.
9.06 Joint Ownership of Interests. A Partnership Interest may be acquired by
two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the
action of the owners of such Partnership Interest; provided, however, that
the written consent of only one joint owner will be required if the
Partnership has been provided with evidence satisfactory to the counsel for the
Partnership that the actions of a single joint owner can bind both owners
under the applicable laws of the state of residence of such joint owners. Upon
the death of one owner of a Partnership Interest held in a joint tenancy with
a right of survivorship, the Partnership Interest shall become owned solely
by the survivor as a Limited Partner and not as an assignee. The Partnership
need not recognize the death of one of the owners of a jointly-held Partnership
Interest until it shall have received notice of such death. Upon notice to
the General Partner from either owner, the General Partner shall cause the
Partnership Interest to be divided into two equal Partnership Interests,
which shall thereafter be owned separately by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01 Books and Records. At all times during the continuance of the
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full
name and last known business address of each Partner, (b) a copy of the
Certificate of Limited Partnership and all certificates of amendment thereto,
(c) copies of the Partnership's federal, state and local income tax returns
and reports, (d) copies of the Agreement and any financial statements of the
Partnership for the three most recent years and (e) all documents and
information required under the Act. Any Partner or its duly authorized
representative, upon paying the costs of collection, duplication and mailing,
shall be entitled to inspect or copy such records during ordinary business
hours.
10.02 Custody of Partnership Funds; Bank Accounts.
(a) All funds of the Partnership not otherwise invested shall
be deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation
of the business of the Partnership may be invested by the General Partner in
investment grade instruments (or investment companies whose portfolio consists
primarily thereof), government obligations, certificates of deposit, bankers'
acceptances and municipal notes and bonds. The funds of the Partnership shall
not be commingled with the funds of any other Person except for such commingling
as may necessarily result from an investment in those investment companies
permitted by this Section 10.02(b).
10.03 Fiscal and Taxable Year. The fiscal and taxable year of the Partnership
shall be the calendar year.
10.04 Annual Tax Information and Report. Within 75 days after the end of each
fiscal year of the Partnership, the General Partner shall furnish to each
person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns
as shall be reasonably required by law.
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.
(a) The General Partner shall be the Tax Matters Partner of
the Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to take
all actions authorized and required, respectively, by the Code for the Tax
Matters Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the
Partnership under the Code or any applicable state or local tax law shall be
made by the General Partner in its sole and absolute discretion.
(c) In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only the
successor in interest to the transferring Partner and in no event shall be taken
into account in establishing, maintaining or computing Capital Accounts for the
other Partners for any purpose under this Agreement. Each Partner will furnish
the Partnership with all information necessary to give effect to such election.
10.06 Reports to Limited Partners.
(a) As soon as practicable after the close of each fiscal
quarter (other than the last quarter of the fiscal year), the General Partner
shall cause to be mailed to each Limited Partner a quarterly report containing
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
for such fiscal quarter, presented in accordance with generally accepted
accounting principles. As soon as practicable after the close of each fiscal
year, the General Partner shall cause to be mailed to each Limited Partner an
annual report containing financial statements of the Partnership, or of the
General Partner if such statements are prepared solely on a consolidated basis
with the General Partner, for such fiscal year, presented in accordance with
generally accepted accounting principles. The annual financial statements shall
be audited by accountants selected by the General Partner.
(b) Any Partner shall further have the right to a private
audit of the books and records of the Partnership, provided such audit is made
for Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT; MERGER
The General Partner's consent shall be required for any amendment to
this Agreement. The General Partner, without the consent of the Limited
Partners, may amend this Agreement in any respect or merge or consolidate the
Partnership with or into any other domestic or foreign partnership, limited
partnership, limited liability company or corporation in a transaction pursuant
to Section 7.01(c), (d) or (e) hereof; provided, however, that the following
amendments and any other merger or consolidation of the Partnership shall
require the consent of Limited Partners (other than the General Partner or any
Subsidiary) holding more than 50% of the Percentage Interests of the Limited
Partners (other than the General Partner or any Subsidiary):
(a) any amendment affecting the operation of the Conversion
Factor or the Redemption Right (except as provided in Section 8.05(d) or 7.01(d)
hereof) in a manner adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of
the Limited Partners to receive the distributions payable to them hereunder,
other than with respect to the issuance of additional Partnership Units pursuant
to Section 4.02 hereof;
(c) any amendment that would alter the Partnership's
allocations of Profit and Loss to the Limited Partners, other than with respect
to the issuance of additional Partnership Units pursuant to Section 4.02 hereof;
or
(d) any amendment that would impose on the Limited Partners
any obligation to make additional Capital Contributions to the Partnership.
ARTICLE XII
GENERAL PROVISIONS
12.01 Notices. All communications required or permitted under this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or upon deposit in the United States mail, registered, postage
prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed
to its specified office.
12.02 Survival of Rights. Subject to the provisions hereof limiting transfers,
this Agreement shall be binding upon and inure to the benefit of the Partners
and the Partnership and their respective legal representatives, successors,
transferees and assigns.
12.03 Additional Documents. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents that
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
12.04 Severability. If any provision of this Agreement shall be declared
illegal, invalid or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall
not affect the remainder hereof.
12.05 Entire Agreement. This Agreement and exhibits attached hereto constitute
the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.06 Pronouns and Plurals. When the context in which words are used in the
Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.07 Headings. The Article headings or sections in this Agreement are for
convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.
12.08 Counterpartsa. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original copy and all of which together
shall constitute one and the same instrument binding on all parties hereto,
notwithstanding that all parties shall not have signed the same counterpart.
12.09 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Amended and Restated Agreement of Limited Partnership, all as
of the ___ day of __________, 1998.
GENERAL PARTNER
HERSHA HOSPITALITY TRUST
By: ______________________________
Name:______________________________
Title: ____________________________
LIMITED PARTNERS
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Agreed Value of
Capital
Cash Contribution Partnership Percentage
Partner Contribution Units Interest
<S> <C>
General Partner:
Hersha Hospitality Trust
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Limited Partners:
</TABLE>
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Amended and Restated Agreement
of Limited Partnership (the "Agreement") of Hersha Hospitality Limited
Partnership, the undersigned hereby irrevocably (i) presents for redemption
________ Partnership Units in Hersha Hospitality Limited Partnership in
accordance with the terms of the Agreement and the Redemption Right referred to
in Section 8.05 thereof, (ii) surrenders such Partnership Units and all right,
title and interest therein and (iii) directs that the Cash Amount or REIT Shares
Amount (as defined in the Agreement) as determined by the General Partner
deliverable upon exercise of the Redemption Right be delivered to the address
specified below, and if REIT Shares (as defined in the Agreement) are to be
delivered, such REIT Shares be registered or placed in the name(s) and at the
address(es) specified below.
Dated:________ __, _____
Name of Limited Partner:
------------------------------
(Signature of Limited Partner)
------------------------------
(Mailing Address)
------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
<PAGE>
EXHIBIT C
For Redeeming Partners that are entities:
CERTIFICATION OF NON-FOREIGN STATUS
Under section 1445(e) of the Internal Revenue Code of 1986, as amended
(the "Code"), in the event of a disposition by a non-U.S. person of a
partnership interest in a partnership in which (i) 50% or more of the value of
the gross assets consists of United States real property interests ("USRPIs"),
as defined in section 897(c) of the Code, and (ii) 90% or more of the value of
the gross assets consists of USRPIs, cash, and cash equivalents, the transferee
will be required to withhold 10% of the amount realized by the non-U.S. person
upon the disposition. To inform Innkeepers USA Trust (the "Company") and
Innkeepers USA Limited Partnership (the "Partnership") that no withholding is
required with respect to the redemption by ____________ ("Partner") of its units
of limited partnership interest in the Partnership, the undersigned hereby
certifies the following on behalf of Partner:
<PAGE>
1. Partner is not a foreign corporation, foreign partnership, foreign trust,
or foreign estate, as those terms are defined in the Code and the Treasury
regulations thereunder.
2. The U.S. employer identification number of Partner is _____________.
3. The principal business address of Partner is:
_____________________________________ __________________________ and
Partner's place of incorporation is __________.
4. Partner agrees to inform the Company if it becomes a foreign person at any
time during the three-year period immediately following the date of this
notice.
5. Partner understands that this certification may be disclosed to the
Internal Revenue Service by the Company and that any false statement
contained herein could be punished by fine, imprisonment, or both.
PARTNER
By: _______________________________
Name: _____________________________
Its: ______________________________
Under penalties of perjury, I declare that I have examined this certification
and, to the best of my knowledge and belief, it is true, correct, and complete,
and I further declare that I have authority to sign this document on behalf of
Partner.
Date: _________________ [NAME]
---------------------------
Title
For Redeeming Partners that are individuals:
CERTIFICATION OF NON-FOREIGN STATUS
Under section 1445(e) of the Internal Revenue Code of 1986, as amended
(the "Code"), in the event of a disposition by a non-U.S. person of a
partnership interest in a partnership in which (i) 50% or more of the value of
the gross assets consists of United States real property interests ("USRPIs"),
as defined in section 897(c) of the Code, and (ii) 90% or more of the value of
the gross assets consists of USRPIs, cash, and cash equivalents, the transferee
will be required to withhold 10% of the amount realized by the non-U.S. person
upon the disposition. To inform Innkeepers USA Trust (the "Company") and
Innkeepers USA Limited Partnership (the "Partnership") that no withholding is
required with respect to my redemption of my units of limited partnership
interest in the Partnership, I, ___________, hereby certify the following:
6. I am not a nonresident alien for purposes of U.S. income taxation.
7. My U.S. taxpayer identification number (social security number) is
_____________.
8. My home address is: ______________________________________________________ .
9. I agree to inform the Company promptly if I become a nonresident alien at
any time during the three-year period immediately following the date of
this notice.
10. I understand that this certification may be disclosed to the Internal
Revenue Service by the Company and that any false statement contained
herein could be punished by fine, imprisonment, or both.
--------------------------
Name:
Under penalties of perjury, I declare that I have examined this certification
and, to the best of my knowledge and belief, it is true, correct, and complete.
Date: _________________ ________________________________
Name:
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
2144 ASSOCIATES,
a Pennsylvania limited partnership,
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 5
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUISITION PRICE........................................ 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 7
2.6 Determination of Number of LP Units........................................................... 7
2.7 Contributor's Transfer of LP Units to Contributor's Partner................................... 7
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Intentionally Omitted.......................................................................... 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 9
3.3 Noncontravention............................................................................... 9
3.4 No Special Taxes............................................................................... 9
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties..................................................................... 10
3.8 Insurance..................................................................................... 10
3.9 Condemnation Proceedings; Roadways............................................................ 10
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 11
3.13 Organizational Documents...................................................................... 11
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 12
3.16 Bankruptcy.................................................................................... 12
3.17 Intentionally Omitted......................................................................... 12
3.18 Hazardous Substances.......................................................................... 12
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
i
<PAGE>
3.22 Bulk Sale Compliance.......................................................................... 13
3.23 Intentionally Omitted......................................................................... 13
3.24 Sufficiency of Certain Items.................................................................. 13
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 14
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 15
4.4 Bankruptcy.................................................................................... 15
4.5 No Brokers.................................................................................... 15
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 16
5.6 Utilities..................................................................................... 16
5.7 Intentionally Omitted......................................................................... 16
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING ........................................................................ 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 19
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 21
ii
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 22
9.1 Completeness; Modification.................................................................... 22
9.2 Assignments................................................................................... 22
9.3 Successors and Assigns........................................................................ 22
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 22
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 24
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
iii
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributor's Partnership Agreement
Exhibit G - Contributor's Certificate of Limited Partnership
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
</TABLE>
iv
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998,
between 2144 ASSOCIATES, a Pennsylvania limited partnership (the "Contributor"),
and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the
"Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
<PAGE>
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Land pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $120,000, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Contributor's Organizational Documents" shall mean the
current partnership agreement and certificate of limited partnership of the
Contributor, true and correct copies of which are attached hereto as Exhibits F
and G.
"Deed" shall mean that certain deed conveying title to the
Land with special warranty from the Contributor to the Acquiror, subject only to
Permitted Title Exceptions. The description of the Land in the Deed shall be by
courses and distances and, if there is a discrepancy between the description of
the Land attached hereto as Exhibit A and the description of the Land as shown
on the Survey, the description of the Land in the Deed shall be identical to the
description shown on the Survey.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
2
<PAGE>
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land, to
the extent owned by Contributor.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger determined under Section
6.5, excluding (a) any of the aforesaid rights the Acquiror elects not to
acquire, (b) the Contributor's cash on hand, in bank accounts and invested with
financial institutions and (c) accounts receivable except for the above
described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in New Columbia, Union County, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributor therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases or real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Mangement, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
3
<PAGE>
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
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"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Land for the Consideration and in
accordance with the other terms and conditions set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Land for the purposes contemplated by the Acquiror, then the Acquiror may elect
to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
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(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
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(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd. as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated to Land in the manner indicated on Exhibit J
attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Transfer of LP Units to Contributor's Partners. On
the Closing Date, Contributor shall distribute all of the LP Units to its
partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the
amount specified on Exhibit K. On the date hereof, Contributor shall deliver or
cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the
form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by
the Contributor and each of the Transferees. On the Closing Date, Acquiror shall
issue certificates reflecting each of the Transferees' ownership of the LP Units
distributed by Contributor. The certificates evidencing the LP Units will bear
appropriate legends indicating (i) that the LP Units have been registered under
the Securities Act of 1933, as amended ("Securities Act"), and (ii) that the
Acquiror's Partnership Agreement restricts the transfer of LP Units. The
Acquiror shall assume no responsibility for any allocation of the consideration,
including LP Units, to the Transferees or any of Contributor's partners.
Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify
Acquiror and its affiliates for all costs, claims, damages and expenses,
including reasonable attorney's fees, incurred by Acquiror in connection with
such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement
shall be executed by or on behalf of each of the Transferees and the Transferees
shall become limited partners of Acquiror and agree to be bound by the
Partnership Agreement.
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2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributor acknowledges that the issuance of the common
shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the common shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M, and incorporated herein.
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2.10 Intentionally Omitted.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Land, the Contributor hereby makes the following representations, warranties and
covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributor is a limited partnership
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations hereunder and under any
document or instrument required to be executed and delivered on behalf of the
Contributor hereunder.
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3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in accordance with its terms.
There is no other person or entity who has an ownership interest in the Land or
whose consent is required in connection with the Contributor's performance of
its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributor, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Land or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
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3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
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3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Organizational Documents. The Contributor's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
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3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Holiday Hospitality, Inc. (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributor will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
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3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Intentionally Omitted.
3.24 Sufficiency of Certain Items. The Property contains not less
than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
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3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Property to the Acquiror and the receipt
of cash and LP Units as consideration therefor, (ii) the Transferees' admission
as partners of the Acquiror, and (iii) any other transaction contemplated by
this Agreement. The Contributor further represents and warrants that it (and
each of its partners) has not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the Contributor.
Acquiror acknowledges and agrees that, except for the representations and
warranties expressly set forth herein, Acquiror is acquiring the Land "AS-IS,
WHERE-IS" with no representations or warranties by or from Contributor or any of
its affiliates, express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Land, the Acquiror hereby makes the following representations,
warranties and covenants with respect to the Property, upon each of which the
Acquiror acknowledges and agrees that the Contributor is entitled to rely and
has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
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4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
16
<PAGE>
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Land shall be delivered to the Acquiror at Closing, subject only to Permitted
Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror all of the following instruments in its possession and control, each
of which shall have been executed and acknowledged, if applicable, on behalf of
the Contributor as of the date of Closing Date:
(a) The certificate required by Section 5.2.
(b) The Deed.
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
17
<PAGE>
(f) Certificate(s)/Registration of Title for any
vehicle owned by the Contributor and used in connection with the Property.
(g) Such agreements, affidavits or other
documents as may be required by the Title Company to issue the Owner's Title
Policy with affirmative coverage over mechanics' and materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all
warranties, if any, of manufacturers, suppliers and installers possessed by
the Contributor and relating to the Improvements and the Personal Property,
or any part thereof.
(j) Certified copies of the Contributor's
Organizational Documents.
(k) Appropriate resolutions of the partners of
the Contributor, together with all other necessary approvals and consents of
the Contributor, authorizing (A) the execution on behalf of the Contributor of
this Agreement and the documents to be executed and delivered by the
Contributor prior to, at or otherwise in connection with Closing, and (B)
the performance by the Contributor of its obligations hereunder and under
such documents.
(l) Valid, final and unconditional
certificate(s) of occupancy for the Real Property and Improvements, issued by
the appropriate governmental authority.
(m) The written consent of the Licensor to the
transfer of the license, if applicable, and if so required.
(n) If the Acquiror is assuming the
Contributor's obligations under any or all of the Operating Agreements, the
originals of such agreements, duly assigned to the Acquiror and with such
assignment acknowledged and approved by the other parties to such Operating
Agreements.
(o) Such proof as the Acquiror may reasonably
require with respect to Contributor's compliance with the bulk sales laws or
similar statutes.
(p) A written instrument executed by the
Contributor, conveying and transferring to the Acquiror all of the
Contributor's right, title and interest in any telephone numbers and
facsimile numbers relating to the Property, and, if the Contributor maintains
a post office box, conveying to the Acquiror all of its interest in and to
such post office box and the number associated therewith, so as to assure a
continuity in operation and communication.
(q) All current real estate and personal
property tax bills in the Contributor's possession or under its control.
18
<PAGE>
(r) A complete set of all guest registration
cards, guest transcripts, guest histories, and all other available guest
information.
(s) An updated schedule of employees, showing
salaries and duties with a statement of the length of service of each such
employee, brought current to a date not more than 48 hours prior to the Closing.
(t) A complete list of all advance room
reservations, functions and the like, in reasonable detail so as to enable the
Acquiror to honor the Contributor's commitments in that regard.
(u) A list of the Contributor's outstanding
accounts receivable as of midnight on the date prior to the Closing, specifying
the name of each account and the amount due the Contributor.
(v) Written notice executed by Contributor
notifying all interested parties, including all tenants under any leases of the
Property, that the Property has been conveyed to the Acquiror and directing
that all payments, inquiries and the like be forwarded to the Acquiror at the
address to be provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal
reports, files and other materials in the Contributor's possession or control
which are necessary in the Acquirors discretion to maintain continuity of '
operation of the Property.
(y) To the extent permitted under applicable law,
documents of transfer necessary to transfer to the Acquiror the Contributor's
employment rating for workmens' compensation and state unemployment tax
purposes.
(z) An assignment of all warranties and
guarantees from all contractors and subcontractors, manufacturers, and suppliers
in effect with respect to the Improvements.
(aa) Complete set of "as-built" drawings for the
Improvements.
(bb) Such agreements, affidavits or other
documents as may be required by the Title Company in order to issue affirmative
mechanics lien coverage in the Owner's Title Policy for the Property.
(cc) a completed version of the Questionnaire from
the Contributor and each Transferee.
(dd) Any other document or instrument reasonably
requested by the Acquiror or required hereby.
19
<PAGE>
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section
2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7
evidencing the Transferees ownership of the LP Units and the admission of the
Transferrees as limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested
by the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall also be paid by the Acquiror. The Acquiror shall
pay reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributor and the Acquiror. The Contributor shall be entitled to all income,
and responsible for all expenses for the period of time up to but not including
12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall
be entitled to all income and responsible for all expenses for the period of
time from, after and including the date of Closing. All adjustments shall be
shown on the settlement statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the settlement
statements) and shall increase or decrease (as the case may be) the amount
payable by the Acquiror pursuant to Section 2.4(d). Without limiting the
generality of the foregoing, the following items of income and expense shall be
allocated as of the date of Closing:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
20
<PAGE>
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributor prior to the Effective Date for dates after the date of Closing,
all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
21
<PAGE>
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
22
<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
23
<PAGE>
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
24
<PAGE>
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
[SIGNATURES ON FOLLOWING PAGE]
25
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTOR:
<TABLE>
<CAPTION>
<S> <C>
2144 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
its general partner
By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
President
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia limited partnership
By: Hersha Hospitality Trust, a Maryland business trust, its
sole general partner
By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
President
</TABLE>
26
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
Shree Associates, JSK Associates, Shanti Associates,
Shreeji Associates, Kunj Associates, Devi Associates, Neil Shah,
David Desfor, Madhusudan Patni, Manhar Gandhi and
Shreenathji Enterprises, Ltd.
as Contributors,
and
Hersha Hospitality Limited Partnership,
a Virginia limited partnership,
as Acquiror
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION.......................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 7
ARTICLE II
PURCHASE AND SALE; DEPOSIT;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION.............................8
2.1 Contribution and Acquisition....................................................................8
2.2 Study Period....................................................................................8
2.3 Payment of Consideration........................................................................9
2.4 Determination of Number of Partnership Units...................................................10
2.5 Contributors' Distribution of Partnership Units................................................10
2.6 Intentionally Omitted..........................................................................10
2.7 Intentionally Omitted..........................................................................10
2.8 Redemption.....................................................................................10
2.9 Registration of Common Shares..................................................................10
2.10 Intentionally Omitted..........................................................................11
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS...........................11
3.1 Organization and Power.........................................................................12
3.2 Authorization, No Violations and Notices ......................................................12
3.3 Litigation with respect to Contributors .......................................................13
3.4 Interest.......................................................................................13
3.5 Bankruptcy with respect to Contributors........................................................13
3.6 Brokerage Commission...........................................................................13
3.7 The Partnership................................................................................13
3.8 Liabilities, Debts and Obligations.............................................................14
3.9 Tax Matters with respect to Partnership........................................................14
3.10 Contracts and Agreements.......................................................................15
3.11 No Special Taxes...............................................................................15
3.12 Compliance with Existing Laws..................................................................15
3.13 Operating Agreements...........................................................................15
3.14 Warranties and Guaranties......................................................................16
3.15 Insurance......................................................................................16
3.16 Condemnation Proceedings; Roadways.............................................................16
3.17 Litigation with respect to Partnership.........................................................16
3.18 Labor Disputes and Agreements..................................................................16
3.19 Financial Information..........................................................................17
3.20 Organizational Documents.......................................................................17
3.21 Operation of Property..........................................................................17
3.22 Intentionally Omitted..........................................................................18
3.23 Bankruptcy with respect to Partnership.........................................................18
3.24 Hazardous Substances...........................................................................18
3.25 Room Furnishings...............................................................................18
3.26 License........................................................................................18
3.27 Independent Audit..............................................................................18
3.28 Bulk Sale Compliance...........................................................................19
3.29 Liquor License.................................................................................19
3.30 Sufficiency of Certain Items...................................................................19
3.31 Noncompetition.................................................................................19
3.32 Leases.........................................................................................19
3.33 Securities Law Matters.........................................................................19
3.34 Tax Matters with respect to Contributors.......................................................19
3.35 Noncontravention...............................................................................20
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............................20
4.1 Organization and Power.........................................................................20
4.2 Noncontravention...............................................................................21
4.3 Litigation.....................................................................................21
4.4 Bankruptcy.....................................................................................21
4.5 No Brokers.....................................................................................21
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.....................................21
5.1 Contributors' Deliveries.......................................................................21
5.2 Representations, Warranties and Covenants; Obligations of Contributors; Certificate............21
5.3 Title Insurance................................................................................22
5.4 Intentionally Omitted..........................................................................22
5.5 Condition of Improvements......................................................................22
5.6 Utilities......................................................................................22
5.7 Intentionally Omitted..........................................................................22
5.8 License........................................................................................22
5.9 Intentionally Omitted..........................................................................22
ARTICLE VI
CLOSING...........................................................22
6.1 Closing........................................................................................22
6.2 Contributors' Deliveries.......................................................................22
6.3 Acquiror's Deliveries..........................................................................25
6.4 Closing Costs..................................................................................25
6.5 Income and Expense Allocations.................................................................25
ARTICLE VII
CONDEMNATION; RISK OF LOSS..........................................26
7.1 Condemnation...................................................................................26
7.2 Risk of Loss...................................................................................27
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS..............................................27
8.1 Liability of Acquiror..........................................................................27
8.2 Indemnification by Contributors................................................................27
8.3 Termination by Acquiror........................................................................27
8.4 Termination by Contributors....................................................................27
ARTICLE IX
MISCELLANEOUS PROVISIONS...........................................28
9.1 Completeness; Modification.....................................................................28
9.2 Assignments....................................................................................28
9.3 Successors and Assigns.........................................................................28
9.4 Days...........................................................................................28
9.5 Governing Law..................................................................................28
9.6 Counterparts...................................................................................28
9.7 Severability...................................................................................28
9.8 Costs..........................................................................................28
9.9 Notices........................................................................................29
9.10 Incorporation by Reference.....................................................................30
9.11 Survival.......................................................................................31
9.12 Further Assurances.............................................................................31
9.13 No Partnership.................................................................................31
9.14 Time of Essence................................................................................31
9.15 Confidentiality................................................................................31
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributors' Partnership Agreement
Exhibit G - Contributors' Certificate of Limited Partnership
Exhibit H - Contributors' Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
Exhibit O - Shreenathji Enterprises, Ltd. Articles of Incorporation
Exhibit P - Shreenathji Enterprises, Ltd. Bylaws
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998,
between Shree Associates, a Pennsylvania limited partnership ("Shree"), JSK
Associates, a Pennsylvania limited partnership ("JSK"), Shanti Associates, a
Pennsylvania limited partnership ("Shanti"), Shreeji Associates, a Pennsylvania
limited partnership ("Shreeji"), Kunj Associates, a Pennsylvania limited
partnership ("Kunj"), Devi Associates, a Pennsylvania limited partnership
("Devi"), Neil Shah ("Shah"), David Desfor ("Desfor"), Madhusudan Patni
("Patni"), Manhar Gandhi ("Gandhi") and Shreenathji Enterprises, Ltd., a
Pennsylvania corporation ("SEL") (collectively, the "Contributors"), and Hersha
Hospitality Limited Partnership, a Virginia limited partnership (the
"Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Shree Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shree assigns and the
Acquiror assumes the Shree Interest.
"JSK Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby JSK assigns and the Acquiror
assumes the JSK Interest.
"Shanti Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shanti assigns and the
Acquiror assumes the Shanti Interest.
"Shreeji Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shreeji assigns and the
Acquiror assumes the Shreeji Interest.
"Kunj Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Kunj assigns and the
Acquiror assumes the Kunj Interest.
"Devi Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Devi assigns and the
Acquiror assumes the Devi Interest.
"Shah Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shah assigns and the
Acquiror assumes the Shah Interest.
"Desfor Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Desfor assigns and the
Acquiror assumes the Desfor Interest.
"Patni Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Patni assigns and the
Acquiror assumes the Patni Interest.
"SEL Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby SEL assigns and the Acquiror
assumes the SEL Interest.
"Gandhi Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Gandhi assigns and the
Acquiror assumes the Gandhi Interest.
"Assignment and Assumption Agreements" shall mean the Shree
Assignment and Assumption Agreement, JSK Assignment and Assumption Agreement,
the Shanti Assignment and Assumption Agreement, the Shreeji Assignment and
Assumption Agreement, the Kunj Assignment and Assumption Agreement, the Devi
Assignment and Assumption Agreement, the Shah Assignment and Assumption
Agreement, the Desfor Assignment and Assumption Agreement, the Patni Assignment
and Assumption Agreement, the Gandhi Assignment and Assumption Agreement and the
SEL Assignment and Assumption Agreement.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Closing" shall mean the Closing of the contribution and
acquisition of the Interests pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $10,399,000 payable to the
Contributors at Closing in the manner described in Section 2.3.
"Continuing Liabilities" shall include liabilities arising
under operating agreements, equipment leases, loan agreements, or proration
credits at Closing, but shall exclude any liabilities arising from any other
arrangement, agreement or pending litigation.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributors or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666,
Fax: (717) 234-8198.
"FIRPTA Certificates" shall mean the affidavit of each of the
Contributors under Section 1445 of the Internal Revenue Code certifying that
such Contributor is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person (as those terms are defined in the
Internal Revenue Code and the Income Tax Regulations), in form and substance
satisfactory to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Shree Interest" shall mean all right, title and interest of
Shree in the Partnership, consisting of a 4.88% limited partnership interest in
the Partnership.
"JSK Interest" shall mean all right, title and interest of JSK
in the Partnership, consisting of a 14.85% limited partnership interest in the
Partnership.
"Shanti Interest" shall mean all right, title and interest of
Shanti in the Partnership, consisting of a 14.85% limited partnership interest
in the Partnership.
"Shreeji Interest" shall mean all right, title and interest of
Shreeji in the Partnership, consisting of a 11.85% limited partnership interest
in the Partnership.
"Kunj Interest" shall mean all right, title and interest of
Kunj in the Partnership, consisting of a 9.87% limited partnership interest in
the Partnership.
"Devi Interest" shall mean all right, title and interest of
Devi in the Partnership, consisting of a 14.85% limited partnership interest in
the Partnership.
"Shah Interest" shall mean all right, title and interest of
Shah in the Partnership, consisting of a 14.85% limited partnership interest in
the Partnership.
"Desfor Interest" shall mean all right, title and interest of
Desfor in the Partnership, consisting of a 5% limited partnership interest in
the Partnership.
"Patni Interest" shall mean all right, title and interest of
Patni in the Partnership, consisting of a 5% limited partnership interest in the
Partnership.
"Gandhi Interest" shall mean all right, title and interest of
Gandhi in the Partnership, consisting of a 3% limited partnership interest in
the Partnership.
"SEL Interest" shall mean all right, title and interest of SEL
in the Partnership, consisting of a 1% general partnership interest in the
Partnership.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributors and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger as hereinafter defined,
excluding (a) any of the aforesaid rights the Acquiror elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial
institutions and (c) accounts receivable except for the above described share of
the Tray Ledger.
"Interests" shall mean the Shree Interest, JSK Interest, the
Shanti Interest, the Shreeji Interest, the Kunj Interest, the Devi Interest, the
Shah Interest, the Desfor Interest, the Patni Interest, the Gandhi Interest and
the SEL Interest.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in New Cumberland, York County, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributors therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Management L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Organizational Documents" shall mean the current partnership
agreement and certificate of limited partnership of each of the limited
partnership Contributors, true and correct copies of which are attached hereto
as Exhibits F and G and Articles of Incorporation and Bylaws of SEL, true and
correct copies of which are attached hereto as Exhibits O and P.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Partnership" shall mean 1244 Associates, a Pennsylvania
limited partnership that owns as its sole assets hotel improvements and land
located in New Cumberland, York County, Pennsylvania.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.2.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributors' Reservation
Terminal and Reservation System equipment and software, if any.
"Shree's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shree, true and
correct copies of which are attached hereto as Exhibits F and G.
"JSK's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of JSK, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shanti's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shanti, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shreeji's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shreeji, true
and correct copies of which are attached hereto as Exhibits F and G.
"Kunj's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Kunj, true and
correct copies of which are attached hereto as Exhibits F and G.
"Devi's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Devi, true and
correct copies of which are attached hereto as Exhibits F and G.
"SEL's Organizational Documents" shall mean the current
Articles of Incorporation and Bylaws of SEL, true and correct copies of which
are attached hereto as Exhibits O and P.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributors;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666,
Fax: (717) 234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Effective Date, exclusive
of food, beverage, telephone and similar charges which shall be retained by the
Contributors), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
CONTRIBUTION AND ACQUISITION; STUDY PERIOD; PAYMENT OF CONSIDERATION
2.1 Contribution and Acquisition. Each of the Contributors agrees to
contribute, assign and transfer its Interest to the Acquiror and the Acquiror
agrees to accept each Contributor's Interest in exchange for the Consideration
and the Contingent Consideration and in accordance with the other terms and
conditions set forth herein.
2.2 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributors that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the purchase of the
Property for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributors prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributors of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributors, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, and the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributors shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributors'
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributors against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributors of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributors shall notify the Acquiror whether the
Contributors are willing to cure such defects. Contributors may cure, but shall
not be obligated to cure such defects. If such defects consist of deeds of
trust, mechanics' liens, tax liens or other liens or charges in a fixed sum or
capable of computation as a fixed sum, the Contributors, at its option, shall
either pay and discharge (in which event, the Escrow Agent is authorized to pay
and discharge at Closing) such defects at Closing, or provide bonds or
indemnities in favor of the Title Company in order to remove such items from the
Title Policy at Closing. If the Contributors are unwilling or unable to cure any
other such defects by Closing, the Acquiror shall elect (1) to waive such
defects and proceed to Closing without any abatement in the Consideration or (2)
to terminate this Agreement. The Contributors shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributors of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.3 Payment of Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the
Consideration in an amount equal to the Contributor's closing costs
assumed and paid for by the Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the
Consideration in an amount equal to the outstanding balance (principal,
interest, fees and the like), as of the date of Closing, of the
existing mortgage loan encumbering the Property as such balance is
evidenced by a letter from the lender, which loan the Acquiror shall
take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the
Consideration in an amount equal to the outstanding balance (principal,
interest, fees and the like), as of the date of Closing, of the
Contributor's loan to Shreenathji Enterprises, Ltd. as such balance is
evidenced by a letter from the lender, which loan the Acquiror shall
assume.
(d) The Acquiror shall pay the balance of the Consideration,
as adjusted by the prorations pursuant to Section 6.5 hereof, in the
form of units of limited partnership interest in the Acquiror (the "LP
Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax
purposes as a contribution of such assets solely in exchange for a
partnership interest in Acquiror that qualifies as a tax-free
contribution under Section 721 of the Internal Revenue Code of 1986, as
amended.
2.4. Determination of Number of Partnership Units. For purposes of
determining the number of Partnership Units to be delivered by the Acquiror at
the Closing, each Partnership Unit shall be deemed to have a value equal to
$6.00. No fractional Partnership Units will be issued at Closing; in lieu of any
such fraction, the value shall be rounded up to a whole share value.
2.5 Contributors' Distribution of Partnership Units . On the Closing
Date, the Partnership Units shall be distributed among the Contributors , as set
forth on Exhibit K attached hereto, in the amount specified on Exhibit K. On the
date hereof, Contributors shall deliver or cause to be delivered to Acquiror an
Investor Questionnaire and Agreement in the form attached hereto as Exhibit F (a
"Questionnaire"), completed and executed by each of the Contributors . On the
Closing Date, Acquiror shall issue certificates reflecting each of the
Contributors ownership of the Partnership Units. The certificates evidencing the
Partnership Units will bear appropriate legends indicating (i) that the
Partnership Units have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement
restricts the transfer of Partnership Units. The Acquiror shall assume no
responsibility for any allocation of the consideration, including Partnership
Units, to any of the Contributors' partners. Contributors agree to hold Acquiror
and its affiliates harmless and to indemnify Acquiror and its affiliates for all
costs, claims, damages and expenses, including reasonable attorney's fees,
incurred by Acquiror in connection with such allocations. Upon receipt of
Partnership Units, the Acquiror's Partnership Agreement shall be executed by or
on behalf of each of the Contributors and the Contributors shall become limited
partners of Acquiror and agree to be bound by the Partnership Agreement.
2.6 Intentionally Omitted.
2.7 Intentionally Omitted.
2.8 Redemption. The Partnership Units may be redeemed upon delivery of
a notice ("Redemption Notice") from the Contributors , for common shares
("Common Shares") of beneficial interest in Hersha Hospitality Trust (the
"REIT") or for cash, in accordance with the Hersha Hospitality Limited
Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the Common
Shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the Common
<PAGE>
Shares issuable upon redemption registered in accordance with the Hersha
Hospitality Limited Partnership Agreement attached hereto as Exhibit M and
incorporated herein.
2.10 Intentionally Omitted.
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to purchase the
Property, the Contributors hereby make the following representations, warranties
and covenants on a joint and several basis , upon each of which the Contributors
acknowledge and agree that the Acquiror is entitled to rely and has relied:
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
3.1 Organization and Power. The Contributors are limited partnerships
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or individuals,
and have all requisite powers and all governmental licenses, authorizations,
consents and approvals necessary to carry on its business as now conducted, to
own, lease and operate its properties, to execute and deliver this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Contributors hereunder, to perform their obligations under this Agreement
and any such other documents or instruments and to consummate the transactions
contemplated hereby.
3.2 Authorization, No Violations and Notices.
(a) The execution, delivery and performance of this Agreement by the
Contributors, and the consummation of the transactions contemplated hereby have
been duly authorized, adopted and approved by the partners of the Contributors
for those Contributors that are partnerships to the extent required by its
organizational documents and applicable law. No other proceedings are necessary
to authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed by Shree, JSK, Shanti, Shreeji, Kunj, Devi,
Shah, Desfor, Patni, Gandhi and SEL and is a valid and binding obligation
enforceable against them in accordance with its terms.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the transactions
contemplated hereby, nor compliance by the Contributors with any of the
provisions hereof, will:
(i) violate, conflict with, result in a breach of any provision
of, constitute a default (or an event that, which, with or
lapse of time or both, would constitute a default) under,
result in the termination of, accelerate the performance
required by, or result in a right of termination or
acceleration, or the creation of any lien, security
interest, charge, or encumbrance upon any of the properties
or assets of the Partnership, under any of the terms,
conditions, or provisions of, its Partnership, or any note,
bond, mortgage, indenture, deed of trust, license, lease,
agreement, or other instrument, or obligation to which the
Partnership is a party, or by which the Partnership may be
bound, or to which the Partnership or its properties or
assets may be subject; or
(iii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or its property or assets that would not be
violated by the execution, delivery or performance of this
Agreement or the transactions contemplated hereby by the
Contributors or compliance by the Contributors with any of
the provisions hereof.
3.3 Litigation with respect to Contributors. There is no action, suit,
claim or proceeding pending or, to the Contributors knowledge, threatened
against or affecting the Contributors or their assets in any court, before any
arbitrator or before or by any governmental body or other regulatory authority
(i) that would adversely affect the Interests, (ii) that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or the
transactions contemplated hereby, or (iii) would delay the consummation of any
of the transactions contemplated hereby. The Contributors are not subject to any
judgment, decree, injunction, rule or order of any court relating to the
Contribtuors' participation in the transactions contemplated by this Agreement.
3.4 Interests. The Interests will be free and clear of all liens and
encumbrances on the Closing Date and the Contributors have good, merchantable
title thereto and the right to convey same in accordance with the terms of this
Agreement. Upon delivery of the Assignment and Assumption Agreements to the
Acquiror at Closing, good valid and merchantable title to the Interests, free
and clear of all liens and encumbrances, will pass to the Acquiror.
3.5 Bankruptcy with Respect to Contributors. No Act of Bankruptcy has
occurred with respect to the Contributors.
3.6 Brokerage Commission. The Contributors have not engaged the
services of, nor is it or will it or Acquiror become liable to, any real estate
agent, broker, finder or any other person or entity for any brokerage or
finder's fee, commission or other amount with respect to the transactions
described herein on account of any action by the Contributors.
3.7 The Partnership.
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers
necessary to carry on its business as now conducted, to own,
lease and operate its properties.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any provision
of, constitute a default (or an event that, with notice or
lapse of time or both, would constitute a default) under,
result in the termination of, accelerate the performance
required by, or result in a right of termination or
acceleration, or the creation of any lien, security
interest, charge, or encumbrance upon any of the properties
or assets of the Partnership, under any of the terms,
conditions, or provisions of, their articles of
incorporation or bylaws, or any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, or
other instrument or obligation to which the Partnership is a
party, or by which the Partnership may be bound, or to which
the Partnership or its properties or assets may be subject;
or
(ii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or any of the Partnership's properties or
assets.
(c) Except for the Contributors, no party has any interest in the
Partnership or the right or option to acquire any interest in
the Partnership or the property or any portion thereof. The
Partnership has no subsidiaries and does not directly or
indirectly own any securities of or interest in any other
entity, including, without limitation, any partnership or
joint venture.
3.8 Liabilities, Debts and Obligations. Except for the Continuing
Liabilities, the Partnership has no liability, debt or obligation.
3.9 Tax Matters with respect to Partnership.
(a) The Partnership has filed all income tax information returns on IRS Form
1065 (including K-1s for each partner) and applicable state and local
income tax forms required to be filed with the United States Government and
with all states and political subdivisions thereof where any such returns
are required to be filed and where the failure to file such return or
report would subject the Partnership or its partners to any material
liability or penalty. All taxes (other than sale taxes, rental taxes or the
equivalent and real property taxes) imposed by the United States, or by any
foreign country, or by any state, municipality, subdivision, or
instrumentality of the United States or of any foreign country or by any
other taxing authority, which are due and payable by the Partnership have
been paid in full or adequately provided for by reserves shown in their
records and books of account and in the Partnership's financial
information. The Partnership has not obtained or received any extension of
time (beyond the Closing Date) for the assessment of deficiencies for any
years or waived or extended the statute of limitations for the
determination or collection of any tax. To the Contributors' knowledge no
unassessed tax deficiency is proposed or threatened against the
Partnership.
(b) All taxes, rental taxes or the equivalent, and all interest and penalties
due thereon, required to be paid or collected by the Partnership in
connection with the operation of the Property as of the Closing Date will
have been collected and/or paid to the appropriate governmental
authorities, as required or such amounts shall be pro-rated as of the
Closing Date. The Partnership shall file, all necessary returns and
petitions required to be filed through the Closing Date. The Partnership
shall prepare and file all federal and state income tax returns for the tax
period ending on the Closing Date, which shall reflect the termination for
tax purposes of the Partnership. If requested by the Acquiror, the
Contributors shall cause the Partnership to make an election under Section
754 of the Code for the period ending on the Closing Date.
3.10 Contracts and Agreements. There is no loan agreement, guarantee,
note, bond, indenture and other debt instrument, lease and other contract to
which the Partnership is a party or by which its assets are bound other than
Permitted Title Encumbrances, the Leases, and the Operating Agreements.
3.11 No Special Taxes. The Contributors have no actual knowledge of,
nor have they received any written notice of, any special taxes or assessments
relating to the Partnership or Property or any part thereof or any planned
public improvements that may result in a special tax or assessment against the
Property.
3.12 Compliance with Existing Laws. The Partnership possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributors' actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Partnership has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributors have no actual knowledge of any change in
the circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributors have
no actual knowledge, nor have they received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.13 Operating Agreements. The Partnership has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Partnership shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Partnership enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributors have obtained the Acquiror's prior
written consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.14 Warranties and Guaranties. The Partnership shall not before
Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.15 Insurance. All of the Partnership's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Partnership on or before the due date therefor. The Partnership
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Partnership's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Partnership shall name the Acquiror as an additional insured
on each of the Partnership's Insurance Policies.
3.16 Condemnation Proceedings; Roadways. The Partnership has received
no written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributors have no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.17 Litigation with respect to Partnership. Except as set forth on
Exhibit I there is no action, suit or proceeding pending or known to be
threatened against or affecting the Partnership or its property in any court,
before any arbitrator or before or by any governmental agency which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement or any other material agreement or instrument to which the Partnership
are a party or by which they are bound and that is or is to be used in
connection with, or is contemplated by, this Agreement, (b) could materially and
adversely affect the business, financial position or results of operations of
the Partnership, (c) could materially and adversely affect the ability of the
Partnership perform its obligations hereunder, or under any document to be
delivered pursuant hereto, (d) could create a lien on the Property, any part
thereof or any interest therein, or (e) could otherwise materially adversely
affect the Property, any part thereof or any interest therein or the use,
operation, condition or occupancy thereof.
3.18 Labor Disputes and Agreements. The Partnership currently has no
labor disputes pending or, threatened as to the operation or maintenance of the
Property or any part thereof. The Partnership is not a party to any union or
other collective bargaining agreement with employees employed in connection with
the ownership, operation or maintenance of the Property. The Acquiror will not
be obligated to give or pay any amount to any employee of the Partnership, and
the Acquiror shall not have any liability under any pension or profit sharing
plan that the Partnership may have established with respect to the Property or
their or its employees.
3.19 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.20 Organizational Documents. The Partnership's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.21 Operation of Property. The Contributors covenant that between the
date hereof and the date of Closing they will make good faith efforts to cause
the Partnership to (a) operate the Property only in the usual, regular and
ordinary manner consistent with the Partnership's prior practice, (b) maintain
their books of account and records in the usual, regular and ordinary manner, in
accordance with sound accounting principles applied on a basis consistent with
the basis used in keeping its books in prior years, and (c) use all reasonable
efforts to preserve intact their present business organization, keep available
the services of their present officers and employees and preserve their
relationships with suppliers and others having business dealings with them. The
Contributor shall make good faith efforts to encourage the Partnership to
continue to make good efforts to take guest room reservations and to book
functions and meetings and otherwise to promote the business of the Property in
generally the same manner as the Partnership did prior to the execution of this
Agreement. Except as otherwise permitted hereby, from the date hereof until
Closing, the Contributors shall use its good faith efforts to ensure that the
Partnership shall not take any action or fail to take action the result of which
(i) would have a material adverse effect on the Property or the Acquiror's
ability to continue the operation thereof after the date of Closing in
substantially the same manner as presently conducted, (ii) reduce or cause to be
reduced any room rents or any other charges over which Contributors have
operational control, or (iii) would cause any of the representations and
warranties contained in this Article III to be untrue as of Closing.
3.22 Intentionally Omitted.
3.23 Bankruptcy with respect to Partnership. No Act of Bankruptcy has
occurred with respect to the Partnership.
3.24 Hazardous Substances. Except for matters in Partnership's or
Acquiror's audits, Contributors have no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributors
have no actual knowledge of any failure to comply with any applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributors shall have no liability
to Acquiror for any Hazardous Substances of which Contributors have no actual
knowledge.
3.25 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.26 License. The license from Holiday Hospitality, Inc. (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributors will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.27 Independent Audit. Contributors shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with Regulation S-X of the Securities and Exchange Commission (the
"Commission") and to enable them to prepare a registration statement, report or
disclosure statement for filing with the Commission. Contributors shall also
provide to Acquiror's representatives a signed representative letter and a hold
harmless letter which would be sufficient to enable an independent public
accountant to render an opinion on the financial statements related to the
Property.
3.28 Bulk Sale Compliance. Contributors shall indemnify Acquiror
against any claim, loss or liability arising under the bulk sales law in
connection with the transaction contemplated herein.
3.29 Liquor License. The liquor license for the restaurant located
within the Hotel (the "Liquor License") is in full force and effect and validly
licensed to the person(s) required to be licensed under Pennsylvania law.
3.30 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.31 Noncompetition. If Contributors develop or acquire other lodging
facilities, not owned at the time of the execution of this Agreement, within 15
miles of any facility owned or to be owned by the Acquiror, the Contributors
shall give the Acquiror the option to purchase the facility for a period of two
years following the opening or acquisition of such facility.
3.32 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributors, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributors and Contributors will have obtained consents all necessary
consents of any third party.
3.33 Securities Law Matters. Contributors further represent and warrant
that they have (i) received, reviewed, been given the opportunity to ask
questions of representatives of the Operating Partnership and the REIT
regarding, and understand the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributors and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.34 Tax Matters with Respect to Contributors. The Contributors
represent and warrant that they (and each of its partners) have obtained from
its own counsel advice regarding the tax consequences of (i) the transfer of the
Partnership Interest to the Acquiror and the receipt of Partnership Units as
consideration therefor, (ii) the Contributors' admission as partners of the
Acquiror, and (iii) any other transaction contemplated by this Agreement. The
Contributors further represent and warrant that they have not relied on the
Acquiror or the Acquiror's representatives or counsel for such advice.
3.35 Noncontravention. The execution and delivery of, and the
performance by the Contributors of their obligations under this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributors' Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributors, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributors (or any predecessor to or
representative of the Contributors) have agreed to contribute or have granted an
option or right of first refusal to acquire the Property or any part thereof.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the
Contributors. Acquiror acknowledges and agrees that, except for the
representations and warranties expressly set forth herein, Acquiror is acquiring
the Property "AS-IS, WHERE-IS" with no representations or warranties by or from
Contributors or any of its affiliates, express or implied, or any nature
whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributors to enter into this Agreement and to sell the
Property, the Acquiror hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Acquiror
acknowledges and agrees that the Contributors are entitled to rely and have
relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributors to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributors with
the following covenants:
5.1 Contributors' Deliveries. The Contributors shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributors
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributors; Certificate. All of the Contributors' representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributors shall have performed all of its material covenants
and other obligations under this Agreement and the Contributors shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.2.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributors shall not have diminished the quality or quantity of maintenance
and upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributors shall not have diminished the Inventory.
The Contributors shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributors shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998.
6.2 Contributors' Deliveries. At Closing, the Contributors shall
deliver to Acquiror all of the following instruments, each of which shall have
been duly executed and, where applicable, acknowledged on behalf of the
Contributors and shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Assignment and Assumption Agreements.
(c) Certificate(s)/Registration of Title for any vehicle owned by the
Contributors and used in connection with the Property.
(d) Such agreements, affidavits or other documents as may be required
by the Title Company to issue the Owner's Title Policy with
affirmative coverage over mechanics' and materialmen's liens.
(e) The FIRPTA Certificates.
(f) True, correct and complete copies of all warranties, if any, of
manufacturers, suppliers and installers possessed by the
Contributors and relating to the Improvements and the Personal
Property, or any part thereof.
(g) Certified copies of the Contributors' and the Partnership's
Organizational Documents.
(h) Appropriate resolutions of the partners of the Contributors,
together with all other necessary approvals and consents of the
Contributors, authorizing (A) the execution on behalf of the
Contributors of this Agreement and the documents to be executed
and delivered by the Contributors prior to, at or otherwise in
connection with Closing, and (B) the performance by the
Contributors of its obligations hereunder and under such
documents.
(i) Valid, final and unconditional certificate(s) of occupancy for
the Real Property and Improvements, issued by the appropriate
governmental authority.
(j) The written consent of the Licensor to the transfer of the
license, if applicable, and if so required.
(k) Such proof as the Acquiror may reasonably require with respect to
Contributors' compliance with the bulk sales laws or similar
statutes.
(l) A written instrument executed by the Contributors, conveying and
transferring to the Acquiror all of the Contributors' right,
title and interest in any telephone numbers and facsimile numbers
relating to the Property, and, if the Contributors maintains a
post office box, conveying to the Acquiror all of its interest in
and to such post office box and the number associated therewith,
so as to assure a continuity in operation and communication.
(m) All current real estate and personal property tax bills in the
Contributors' possession or under its control.
(n) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest
information.
(o) An updated schedule of employees, showing salaries and duties
with a statement of the length of service of each such employee,
brought current to a date not more than 48 hours prior to the
Closing.
(p) A complete list of all advance room reservations, functions and
the like, in reasonable detail so as to enable the Acquiror to
honor the Contributors' commitments in that regard.
(q) A list of the Contributors' outstanding accounts receivable as of
midnight on the date prior to the Closing, specifying the name of
each account and the amount due the Contributors.
(r) Intentionally Omitted
(s) All keys for the Property.
(t) All books, records, operating reports, appraisal reports, files
and other materials in the Contributors' possession or control
which are necessary in the Acquirors discretion to maintain
continuity of operation of the Property.
(u) To the extent permitted under applicable law, documents of
transfer necessary to transfer to the Acquiror the Contributors'
employment rating for workmens' compensation and state
unemployment tax purposes.
(v) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and suppliers in
effect with respect to the Improvements.
(w) Complete set of "as-built" drawings for the Improvements.
(x) Such agreements, affidavits or other documents as may be required
by the Title Company in order to issue affirmative mechanics lien
coverage in the Owner's Title Policy for the Property.
(y) a completed version of the Questionnaire from the Contributors
and each Transferee.
(z) Any other document or instrument reasonably requested by the
Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributors the following:
(a) The Consideration described in Section 2.3.
(b) The Assignment and Assumption Agreements.
(c) The certificates described in Section 2.5 evidencing the
Transferees ownership of the Partnership Units and the admission
of the Transferees as limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested by the
Contributors or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall be paid by the Acquiror. The Acquiror shall pay
reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.3(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributors and the Acquiror. The Contributors shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income
and responsible for all expenses for the period of time from, after and
including the Closing Date. All adjustments shall be shown on the settlement
statements (with such supporting documentation as the parties hereto may require
being attached as exhibits to the settlement statements) and shall increase or
decrease (as the case may be) the amount payable by the Acquiror pursuant to
Section 2.3(d). Without limiting the generality of the foregoing, the following
items of income and expense shall be allocated as of the Closing Date:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements.
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributors, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributors prior to the Closing Date for dates after the Closing Date, all
of which Acquiror shall honor.
The Tray Ledger shall be retained by the Contributors. The Contributors
shall be required to pay all sales taxes and similar impositions currently up to
the Closing Date.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the Closing Date for Contributors, but if Acquiror
collects same, such amounts will be promptly remitted to Contributors in the
form received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributors or the Acquiror with respect to the
Property after the date of Closing shall be promptly allocated in the manner
described herein and the parties shall promptly pay or reimburse any amount due.
The Contributors shall pay at Closing all special assessments and taxes
applicable to the Property.
The certificates evidencing the Contributors' ownership of the
Partnership Units will be dated as of the Closing Date, and the Contributors
will be entitled to any dividends accruing thereon on and after the Closing
Date.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributors shall give
written notice thereof to the Acquiror promptly after the Contributors learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributors. If any such
loss or damage to more than twenty five percent (25%) of the value of the
improvements occurs prior to Closing, the Acquiror shall have the right to
terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to
terminate this Agreement, all insurance proceeds and rights to proceeds arising
out of such loss or damage shall be paid or assigned, as applicable, to the
Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributors or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributors. The Contributors hereby
indemnifies and holds the Acquiror harmless from and against any and all claims,
costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees), subject to Section 9.11 that may at any time be
incurred by the Acquiror, whether before or after Closing, as a result of any
breach by the Contributors of any of its representations, warranties, covenants
or obligations set forth herein or in any other document delivered by the
Contributors pursuant hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributors fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement and all other rights and obligations of the Contributors and the
Acquiror hereunder shall terminate immediately, or (b) to waive its right to
terminate and, instead, to proceed to Closing.
8.4 Termination by Contributors. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to purchase the Property), and the Acquiror fails to cure any
such default within ten business days after notice thereof from the
Contributors, then the Contributors' sole remedy for such default shall be to
terminate this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributors and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributors: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia. PA 19106
Phone:(215) 238-1045
Fax:(215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Phone:(717) 770-2405
Fax:(717) 774-7383
If to the Acquiror:
Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Phone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Phone: (804) 788-8604
Fax: (804) 788-8218
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributors and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributors and the Acquiror each
covenant and agree to sign, execute and deliver, or cause to be signed, executed
and delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributors and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributors and its representatives, including
any professionals representing Contributors, shall keep the existence and terms
of this Agreement strictly confidential, except to the extent disclosure is
compelled by law, and then only to the extent of such compulsion.
<PAGE>
IN WITNESS WHEREOF, the Contributors and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTORS:
Shree Associates, a Pennsylvania limited partnership
By: /s/ Hasu P. Shah
----------------------------------
Hasu P. Shah
JSK Associates, a Pennsylvania limited partnership
By: /s/ Jay Shah
----------------------------------
Jay Shah, General Partner
Shanti Associates, a Pennsylvania limited partnership
By: /s/ K.D. Patel
------------------------------------
K.D. Patel, General Partner
Shreeji Associates, a Pennsylvania limited partnership
By: /s/ Rajendra Gandhi
------------------------------------
Rajendra Gandhi, General Partner
Kunj Associates, a Pennsylvania limited partnership
By: /s/ Kiran Patel
-----------------------------------
Kiran Patel, General Partner
Devi Associates, a Pennsylvania limited partnership
By: /s/ Bharat C. Mehta
----------------------------------
Bharat C. Mehta, General Partner
Shreenathji Enterprises, Ltd., a Pennsylvania corporation
By: /s/ Hasu P. Shah
----------------------------------
Hasu P. Shah, President
/s/ Neil Shah
-------------------
Neil Shah
/s/ David Desfor
--------------------
David Desfor
/s/ Madhusudan Patni
---------------------
Madhusudan Patni
/s/ Manhar Gandhi
----------------------
Manhar Gandhi
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia partnership
By: Hersha Hospitality Trust, a Maryland Business Trust,
its sole general partner
By: /s/ Hasu P. Shah
-----------------------
Hasu P. Shah, President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
JSK Associates, Shanti Associates, Shreeji Associates,
Kunj Associates, Devi Associates, Neil Shah,
David Desfor, and Shreenathji Enterprises, Ltd.
as Contributors,
and
Hersha Hospitality Limited Partnership,
a Virginia limited partnership,
as Acquiror
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction...........................................................................7
ARTICLE II
PURCHASE AND SALE; DEPOSIT;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION.............................7
2.1 Contribution and Acquisition....................................................................7
2.2 Study Period....................................................................................7
2.3 Payment of Consideration........................................................................8
2.4 Determination of Number of Partnership Units....................................................9
2.5 Contributors' Distribution of Partnership Units.................................................9
2.6 Intentionally Omitted..........................................................................10
2.7 Intentionally Omitted..........................................................................10
2.8 Redemption.....................................................................................10
2.9 Registration of Common Shares..................................................................10
2.10 Intentionally Omitted..........................................................................10
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS...........................11
3.1 Organization and Power.........................................................................11
3.2 Authorization, No Violations and Notices ......................................................11
3.3 Litigation with respect to Contributors .......................................................12
3.4 Interest.......................................................................................12
3.5 Bankruptcy with respect to Contributors........................................................12
3.6 Brokerage Commission...........................................................................12
3.7 The Partnership................................................................................12
3.8 Liabilities, Debts and Obligations.............................................................13
3.9 Tax Matters with respect to Partnership........................................................13
3.10 Contracts and Agreements.......................................................................14
3.11 No Special Taxes...............................................................................14
3.12 Compliance with Existing Laws..................................................................14
3.13 Operating Agreements...........................................................................15
3.14 Warranties and Guaranties......................................................................15
3.15 Insurance......................................................................................15
3.16 Condemnation Proceedings; Roadways.............................................................15
3.17 Litigation with respect to Partnership.........................................................15
3.18 Labor Disputes and Agreements..................................................................16
3.19 Financial Information..........................................................................16
3.20 Organizational Documents.......................................................................16
3.21 Operation of Property..........................................................................16
3.22 Intentionally Omitted..........................................................................17
3.23 Bankruptcy with respect to Partnership.........................................................17
3.24 Hazardous Substances...........................................................................17
3.25 Room Furnishings...............................................................................17
3.26 License........................................................................................17
3.27 Independent Audit..............................................................................18
3.28 Bulk Sale Compliance...........................................................................18
3.29 Liquor License.................................................................................18
3.30 Sufficiency of Certain Items...................................................................18
3.31 Noncompetition.................................................................................18
3.32 Leases.........................................................................................18
3.33 Securities Law Matters.........................................................................19
3.34 Tax Matters with respect to Contributors.......................................................19
3.35 Noncontravention...............................................................................19
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............................20
4.1 Organization and Power.........................................................................20
4.2 Noncontravention...............................................................................20
4.3 Litigation.....................................................................................20
4.4 Bankruptcy.....................................................................................20
4.5 No Brokers.....................................................................................20
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.....................................21
5.1 Contributors' Deliveries.......................................................................21
5.2 Representations, Warranties and Covenants; Obligations of Contributors; Certificate............21
5.3 Title Insurance................................................................................21
5.4 Intentionally Omitted..........................................................................21
5.5 Condition of Improvements......................................................................21
5.6 Utilities......................................................................................21
5.7 Intentionally Omitted..........................................................................21
5.8 License........................................................................................21
5.9 Intentionally Omitted..........................................................................22
ARTICLE VI
CLOSING...........................................................22
6.1 Closing........................................................................................22
6.2 Contributors' Deliveries.......................................................................22
6.3 Acquiror's Deliveries..........................................................................24
6.4 Closing Costs..................................................................................24
6.5 Income and Expense Allocations.................................................................24
ARTICLE VII
CONDEMNATION; RISK OF LOSS..........................................26
7.1 Condemnation...................................................................................26
7.2 Risk of Loss...................................................................................26
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS..............................................26
8.1 Liability of Acquiror..........................................................................26
8.2 Indemnification by Contributors................................................................26
8.3 Termination by Acquiror........................................................................27
8.4 Termination by Contributors....................................................................27
ARTICLE IX
MISCELLANEOUS PROVISIONS...........................................27
9.1 Completeness; Modification.....................................................................27
9.2 Assignments....................................................................................27
9.3 Successors and Assigns.........................................................................27
9.4 Days...........................................................................................27
9.5 Governing Law..................................................................................28
9.6 Counterparts...................................................................................28
9.7 Severability...................................................................................28
9.8 Costs..........................................................................................28
9.9 Notices........................................................................................28
9.10 Incorporation by Reference.....................................................................29
9.11 Survival.......................................................................................29
9.12 Further Assurances.............................................................................29
9.13 No Partnership.................................................................................29
9.14 Time of Essence................................................................................29
9.15 Confidentiality................................................................................30
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributors' Partnership Agreement
Exhibit G - Contributors' Certificate of Limited Partnership
Exhibit H - Contributors' Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
Exhibit O - Shreenathji Enterprises, Ltd. Articles of Incorporation
Exhibit P - Shreenathji Enterprises, Ltd. Bylaws
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998,
between JSK Associates, a Pennsylvania limited partnership ("JSK"), Shanti
Associates, a Pennsylvania limited partnership ("Shanti"), Shreeji Associates, a
Pennsylvania limited partnership ("Shreeji"), Kunj Associates, a Pennsylvania
limited partnership ("Kunj"), Devi Associates, a Pennsylvania limited
partnership ("Devi"), Neil Shah ("Shah"), David Desfor ("Desfor") and
Shreenathji Enterprises, Ltd., a Pennsylvania corporation ("SEL") (collectively,
the "Contributors"), and Hersha Hospitality Limited Partnership, a Virginia
limited partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"JSK Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby JSK assigns and the Acquiror
assumes the JSK Interest.
"Shanti Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shanti assigns and the
Acquiror assumes the Shanti Interest.
"Shreeji Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shreeji assigns and the
Acquiror assumes the Shreeji Interest.
"Kunj Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Kunj assigns and the
Acquiror assumes the Kunj Interest.
"Devi Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Devi assigns and the
Acquiror assumes the Devi Interest.
"Shah Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shah assigns and the
Acquiror assumes the Shah Interest.
"Desfor Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Desfor assigns and the
Acquiror assumes the Desfor Interest.
"SEL Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby SEL assigns and the Acquiror
assumes the SEL Interest.
"Assignment and Assumption Agreements" shall mean the JSK
Assignment and Assumption Agreement, the Shanti Assignment and Assumption
Agreement, the Shreeji Assignment and Assumption Agreement, the Kunj Assignment
and Assumption Agreement, the Devi Assignment and Assumption Agreement, the Shah
Assignment and Assumption Agreement, the Desfor Assignment and Assumption
Agreement, and the SEL Assignment and Assumption Agreement.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Closing" shall mean the Closing of the contribution and
acquisition of the Interests pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $6,169,891 payable to the
Contributors at Closing in the manner described in Section 2.3.
"Continuing Liabilities" shall include liabilities arising
under operating agreements, equipment leases, loan agreements, or proration
credits at Closing, but shall exclude any liabilities arising from any other
arrangement, agreement or pending litigation.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributors or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666,
Fax: (717) 234-8198.
"FIRPTA Certificates" shall mean the affidavit of each of the
Contributors under Section 1445 of the Internal Revenue Code certifying that
such Contributor is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person (as those terms are defined in the
Internal Revenue Code and the Income Tax Regulations), in form and substance
satisfactory to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"JSK Interest" shall mean all right, title and interest of JSK
in the Partnership, consisting of a 19.34% limited partnership interest in the
Partnership.
"Shanti Interest" shall mean all right, title and interest of
Shanti in the Partnership, consisting of a 8.83% limited partnership interest in
the Partnership.
"Shreeji Interest" shall mean all right, title and interest of
Shreeji in the Partnership, consisting of a 4.83% limited partnership interest
in the Partnership.
"Kunj Interest" shall mean all right, title and interest of
Kunj in the Partnership, consisting of a 4.83% limited partnership interest in
the Partnership.
"Devi Interest" shall mean all right, title and interest of
Devi in the Partnership, consisting of a 38.83% limited partnership interest in
the Partnership.
"Shah Interest" shall mean all right, title and interest of
Shah in the Partnership, consisting of a 19.34% limited partnership interest in
the Partnership.
"Desfor Interest" shall mean all right, title and interest of
Desfor in the Partnership, consisting of a 3% limited partnership interest in
the Partnership.
"SEL Interest" shall mean all right, title and interest of SEL
in the Partnership, consisting of a 1% general partnership interest in the
Partnership.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributors and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Clarion Suites" and all variations thereof, the Authorizations, escrow
accounts, insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger as hereinafter defined,
excluding (a) any of the aforesaid rights the Acquiror elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial
institutions and (c) accounts receivable except for the above described share of
the Tray Ledger.
"Interests" shall mean the JSK Interest, the Shanti Interest,
the Shreeji Interest, the Kunj Interest, the Devi Interest, the Shah Interest,
the Desfor Interest and the SEL Interest.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel or parcels of real
estate lying and being in Philadelphia, Philadelphia County, Pennsylvania, as
more particularly described on Exhibit A attached hereto, together with all
easements, rights, privileges, remainders, reversions and appurtenances
thereunto belonging or in any way appertaining, and all of the estate, right,
title, interest, claim or demand whatsoever of the Contributors therein, in the
streets and ways adjacent thereto and in the beds thereof, either at law or in
equity, in possession or expectancy, now or hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Management L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Organizational Documents" shall mean the current partnership
agreement and certificate of limited partnership of each of the limited
partnership Contributors, true and correct copies of which are attached hereto
as Exhibits F and G and Articles of Incorporation and Bylaws of SEL, true and
correct copies of which are attached hereto as Exhibits O and P.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Partnership" shall mean 1444 Associates, a Pennsylvania
limited partnership that owns as its sole assets hotel improvements and land and
adjacent garage located in Philadelphia, Philadelphia County, Pennsylvania.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.2.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, and the Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributors' Reservation
Terminal and Reservation System equipment and software, if any.
"JSK's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of JSK, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shanti's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shanti, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shreeji's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shreeji, true
and correct copies of which are attached hereto as Exhibits F and G.
"Kunj's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Kunj, true and
correct copies of which are attached hereto as Exhibits F and G.
"Devi's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Devi, true and
correct copies of which are attached hereto as Exhibits F and G.
"SEL's Organizational Documents" shall mean the current
Articles of Incorporation and Bylaws of SEL, true and correct copies of which
are attached hereto as Exhibits O and P.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributors;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666,
Fax: (717) 234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Effective Date, exclusive
of food, beverage, telephone and similar charges which shall be retained by the
Contributors), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
CONTRIBUTION AND ACQUISITION; STUDY PERIOD;PAYMENT OF CONSIDERATION
2.1 Contribution and Acquisition. Each of the Contributors agrees to
contribute, assign and transfer its Interest to the Acquiror and the Acquiror
agrees to accept each Contributor's Interest in exchange for the Consideration
and in accordance with the other terms and conditions set forth herein.
2.2 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributors that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the purchase of the
Property for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributors prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributors of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributors, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, and the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributors shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributors'
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributors against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributors of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributors shall notify the Acquiror whether the
Contributors are willing to cure such defects. Contributors may cure, but shall
not be obligated to cure such defects. If such defects consist of deeds of
trust, mechanics' liens, tax liens or other liens or charges in a fixed sum or
capable of computation as a fixed sum, the Contributors, at its option, shall
either pay and discharge (in which event, the Escrow Agent is authorized to pay
and discharge at Closing) such defects at Closing, or provide bonds or
indemnities in favor of the Title Company in order to remove such items from the
Title Policy at Closing. If the Contributors are unwilling or unable to cure any
other such defects by Closing, the Acquiror shall elect (1) to waive such
defects and proceed to Closing without any abatement in the Consideration or (2)
to terminate this Agreement. The Contributors shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributors of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.3 Payment of Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd. as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.4. Determination of Number of Partnership Units. For purposes of
determining the number of Partnership Units to be delivered by the Acquiror at
the Closing, each Partnership Unit shall be deemed to have a value equal to
$6.00. No fractional Partnership Units will be issued at Closing; in lieu of any
such fraction, the value shall be rounded up to a whole share value.
2.5 Contributors' Distribution of Partnership Units . On the Closing
Date, the Partnership Units shall be distributed among the Contributors , as set
forth on Exhibit K attached hereto, in the amount specified on Exhibit K. On the
date hereof, Contributors shall deliver or cause to be delivered to Acquiror an
Investor Questionnaire and Agreement in the form attached hereto as Exhibit F (a
"Questionnaire"), completed and executed by each of the Contributors . On the
Closing Date, Acquiror shall issue certificates reflecting each of the
Contributors ownership of the Partnership Units. The certificates evidencing the
Partnership Units will bear appropriate legends indicating (i) that the
Partnership Units have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement
restricts the transfer of Partnership Units. The Acquiror shall assume no
responsibility for any allocation of the consideration, including Partnership
Units, to any of the Contributors' partners. Contributors agree to hold Acquiror
and its affiliates harmless and to indemnify Acquiror and its affiliates for all
costs, claims, damages and expenses, including reasonable attorney's fees,
incurred by Acquiror in connection with such allocations. Upon receipt of
Partnership Units, the Acquiror's Partnership Agreement shall be executed by or
on behalf of each of the Contributors and the Contributors shall become limited
partners of Acquiror and agree to be bound by the Partnership Agreement.
2.6 Intentionally Omitted.
2.7 Intentionally Omitted.
2.8 Redemption. The Partnership Units may be redeemed upon delivery of
a notice ("Redemption Notice") from the Contributors , for common shares
("Common Shares") of beneficial interest in Hersha Hospitality Trust (the
"REIT") or for cash, in accordance with the Hersha Hospitality Limited
Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the Common
Shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the Common Shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M and incorporated herein.
2.10 Intentionally Omitted.
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<PAGE>
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to purchase the
Interests, the Contributors hereby make the following representations,
warranties and covenants on a joint and several basis , upon each of which the
Contributors acknowledge and agree that the Acquiror is entitled to rely and has
relied:
3.1 Organization and Power. The Contributors are limited partnerships
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or individuals,
and have all requisite powers and all governmental licenses, authorizations,
consents and approvals necessary to carry on its business as now conducted, to
own, lease and operate its properties, to execute and deliver this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Contributors hereunder, to perform their obligations under this Agreement
and any such other documents or instruments and to consummate the transactions
contemplated hereby.
3.2 Authorization, No Violations and Notices.
(a) The execution, delivery and performance of this Agreement by
the Contributors, and the consummation of the transactions
contemplated hereby have been duly authorized, adopted and
approved by the partners of the Contributors for those
Contributors that are partnerships to the extent required by
its organizational documents and applicable law. No other
proceedings are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly
executed by JSK, Shanti, Shreeji, Kunj, Shah, Desfor, Devi and
SEL and is a valid and binding obligation enforceable against
them in accordance with its terms.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that,
which, with or lapse of time or both, would constitute a
default) under, result in the termination of, accelerate
the performance required by, or result in a right of
termination or acceleration, or the creation of any lien,
security interest, charge, or encumbrance upon any of the
properties or assets of the Partnership, under any of the
terms, conditions, or provisions of, its Partnership, or
any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement, or other instrument, or
obligation to which the Partnership is a party, or by
which the Partnership may be bound, or to which the
Partnership or its properties or assets may be subject; or
(iii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or its property or assets that would not be
violated by the execution, delivery or performance of this
Agreement or the transactions contemplated hereby by the
Contributors or compliance by the Contributors with any of
the provisions hereof.
3.3 Litigation with respect to Contributors. There is no action, suit,
claim or proceeding pending or, to the Contributors knowledge, threatened
against or affecting the Contributors or their assets in any court, before any
arbitrator or before or by any governmental body or other regulatory authority
(i) that would adversely affect the Interests, (ii) that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or the
transactions contemplated hereby, or (iii) would delay the consummation of any
of the transactions contemplated hereby. The Contributors are not subject to any
judgment, decree, injunction, rule or order of any court relating to the
Contribtuors' participation in the transactions contemplated by this Agreement.
3.4 Interests. The Interests will be free and clear of all liens and
encumbrances on the Closing Date and the Contributors have good, merchantable
title thereto and the right to convey same in accordance with the terms of this
Agreement. Upon delivery of the Assignment and Assumption Agreements to the
Acquiror at Closing, good valid and merchantable title to the Interests, free
and clear of all liens and encumbrances, will pass to the Acquiror.
3.5 Bankruptcy with Respect to Contributors. No Act of Bankruptcy has
occurred with respect to the Contributors.
3.6 Brokerage Commission. The Contributors have not engaged the
services of, nor is it or will it or Acquiror become liable to, any real estate
agent, broker, finder or any other person or entity for any brokerage or
finder's fee, commission or other amount with respect to the transactions
described herein on account of any action by the Contributors.
3.7 The Partnership.
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers
necessary to carry on its business as now conducted, to own,
lease and operate its properties.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that, with
notice or lapse of time or both, would constitute a
default) under, result in the termination of, accelerate
the performance required by, or result in a right of
termination or acceleration, or the creation of any lien,
security interest, charge, or encumbrance upon any of the
properties or assets of the Partnership, under any of the
terms, conditions, or provisions of, their articles of
incorporation or bylaws, or any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, or
other instrument or obligation to which the Partnership is
a party, or by which the Partnership may be bound, or to
which the Partnership or its properties or assets may be
subject; or
(ii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or any of the Partnership's properties or
assets.
(c) Except for the Contributors, no party has any interest in the
Partnership or the right or option to acquire any interest in
the Partnership or the property or any portion thereof. The
Partnership has no subsidiaries and does not directly or
indirectly own any securities of or interest in any other
entity, including, without limitation, any partnership or
joint venture.
3.8 Liabilities, Debts and Obligations. Except for the Continuing
Liabilities, the Partnership has no liability, debt or obligation.
3.9 Tax Matters with respect to Partnership.
(a) The Partnership has filed all income tax information returns on IRS Form
1065 (including K-1s for each partner) and applicable state and local
income tax forms required to be filed with the United States Government
and with all states and political subdivisions thereof where any such
returns are required to be filed and where the failure to file such
return or report would subject the Partnership or its partners to any
material liability or penalty. All taxes (other than sale taxes, rental
taxes or the equivalent and real property taxes) imposed by the United
States, or by any foreign country, or by any state, municipality,
subdivision, or instrumentality of the United States or of any foreign
country or by any other taxing authority, which are due and payable by
the Partnership have been paid in full or adequately provided for by
reserves shown in their records and books of account and in the
Partnership's financial information. The Partnership has not obtained or
received any extension of time (beyond the Closing Date) for the
assessment of deficiencies for any years or waived or extended the
statute of limitations for the determination or collection of any tax.
To the Contributors' knowledge no unassessed tax deficiency is proposed
or threatened against the Partnership.
(b) All taxes, rental taxes or the equivalent, and all interest and
penalties due thereon, required to be paid or collected by the
Partnership in connection with the operation of the Property as of the
Closing Date will have been collected and/or paid to the appropriate
governmental authorities, as required or such amounts shall be pro-rated
as of the Closing Date. The Partnership shall file, all necessary
returns and petitions required to be filed through the Closing Date. The
Partnership shall prepare and file all federal and state income tax
returns for the tax period ending on the Closing Date, which shall
reflect the termination for tax purposes of the Partnership. If
requested by the Acquiror, the Contributors shall cause the Partnership
to make an election under Section 754 of the Code for the period ending
on the Closing Date.
3.10 Contracts and Agreements. There is no loan agreement, guarantee,
note, bond, indenture and other debt instrument, lease and other contract to
which the Partnership is a party or by which its assets are bound other than
Permitted Title Encumbrances, the Leases, and the Operating Agreements.
3.11 No Special Taxes. The Contributors have no actual knowledge of,
nor have they received any written notice of, any special taxes or assessments
relating to the Partnership or Property or any part thereof or any planned
public improvements that may result in a special tax or assessment against the
Property.
3.12 Compliance with Existing Laws. The Partnership possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributors' actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Partnership has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributors have no actual knowledge of any change in
the circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributors have
no actual knowledge, nor have they received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.13 Operating Agreements. The Partnership has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Partnership shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Partnership enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributors have obtained the Acquiror's prior
written consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.14 Warranties and Guaranties. The Partnership shall not before
Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.15 Insurance. All of the Partnership's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Partnership on or before the due date therefor. The Partnership
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Partnership's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Partnership shall name the Acquiror as an additional insured
on each of the Partnership's Insurance Policies.
3.16 Condemnation Proceedings; Roadways. The Partnership has received
no written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributors have no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.17 Litigation with respect to Partnership. Except as set forth on
Exhibit I there is no action, suit or proceeding pending or known to be
threatened against or affecting the Partnership or its property in any court,
before any arbitrator or before or by any governmental agency which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement or any other material agreement or instrument to which the Partnership
are a party or by which they are bound and that is or is to be used in
connection with, or is contemplated by, this Agreement, (b) could materially and
adversely affect the business, financial position or results of operations of
the Partnership, (c) could materially and adversely affect the ability of the
Partnership perform its obligations hereunder, or under any document to be
delivered pursuant hereto, (d) could create a lien on the Property, any part
thereof or any interest therein, or (e) could otherwise materially adversely
affect the Property, any part thereof or any interest therein or the use,
operation, condition or occupancy thereof.
3.18 Labor Disputes and Agreements. The Partnership currently has no
labor disputes pending or, threatened as to the operation or maintenance of the
Property or any part thereof. The Partnership is not a party to any union or
other collective bargaining agreement with employees employed in connection with
the ownership, operation or maintenance of the Property. The Acquiror will not
be obligated to give or pay any amount to any employee of the Partnership, and
the Acquiror shall not have any liability under any pension or profit sharing
plan that the Partnership may have established with respect to the Property or
their or its employees.
3.19 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.20 Organizational Documents. The Partnership's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.21 Operation of Property. The Contributors covenant that between the
date hereof and the date of Closing they will make good faith efforts to cause
the Partnership to (a) operate the Property only in the usual, regular and
ordinary manner consistent with the Partnership's prior practice, (b) maintain
their books of account and records in the usual, regular and ordinary manner, in
accordance with sound accounting principles applied on a basis consistent with
the basis used in keeping its books in prior years, and (c) use all reasonable
efforts to preserve intact their present business organization, keep available
the services of their present officers and employees and preserve their
relationships with suppliers and others having business dealings with them. The
Contributor shall make good faith efforts to encourage the Partnership to
continue to make good efforts to take guest room reservations and to book
functions and meetings and otherwise to promote the business of the Property in
generally the same manner as the Partnership did prior to the execution of this
Agreement. Except as otherwise permitted hereby, from the date hereof until
Closing, the Contributors shall use its good faith efforts to ensure that the
Partnership shall not take any action or fail to take action the result of which
(i) would have a material adverse effect on the Property or the Acquiror's
ability to continue the operation thereof after the date of Closing in
substantially the same manner as presently conducted, (ii) reduce or cause to be
reduced any room rents or any other charges over which Contributors have
operational control, or (iii) would cause any of the representations and
warranties contained in this Article III to be untrue as of Closing.
3.22 Intentionally Omitted.
3.23 Bankruptcy with respect to Partnership. No Act of Bankruptcy has
occurred with respect to the Partnership.
3.24 Hazardous Substances. Except for matters in Partnership's or
Acquiror's audits, Contributors have no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributors
have no actual knowledge of any failure to comply with any applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributors shall have no liability
to Acquiror for any Hazardous Substances of which Contributors have no actual
knowledge.
3.25 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.26 License. The license from Choice Hotels, Inc. (the "Licensor")
with respect to the Hotel (the "License") is, and at Closing will be, valid and
in full force and effect, and Contributors will make good faith efforts not to
be in default with respect thereto (with or without the giving of any required
notice and/or lapse of time).
3.27 Independent Audit. Contributors shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with Regulation S-X of the Securities and Exchange Commission (the
"Commission") and to enable them to prepare a registration statement, report or
disclosure statement for filing with the Commission. Contributors shall also
provide to Acquiror's representatives a signed representative letter and a hold
harmless letter which would be sufficient to enable an independent public
accountant to render an opinion on the financial statements related to the
Property.
3.28 Bulk Sale Compliance. Contributors shall indemnify Acquiror
against any claim, loss or liability arising under the bulk sales law in
connection with the transaction contemplated herein.
3.29 Liquor License. The liquor license for the restaurant located
within the Hotel (the "Liquor License") is in full force and effect and validly
licensed to the person(s) required to be licensed under Pennsylvania law.
3.30 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.31 Noncompetition. If Contributors develop or acquire other lodging
facilities, not owned at the time of the execution of this Agreement, within 15
miles of any facility owned or to be owned by the Acquiror, the Contributors
shall give the Acquiror the option to purchase the facility for a period of two
years following the opening or acquisition of such facility.
3.32 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributors, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributors and Contributors will have obtained consents all necessary
consents of any third party.
3.33 Securities Law Matters. Contributors further represent and warrant
that they have (i) received, reviewed, been given the opportunity to ask
questions of representatives of the Operating Partnership and the REIT
regarding, and understand the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributors and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.34 Tax Matters with Respect to Contributors. The Contributors
represent and warrant that they (and each of its partners) have obtained from
its own counsel advice regarding the tax consequences of (i) the transfer of the
Partnership Interest to the Acquiror and the receipt of Partnership Units as
consideration therefor, (ii) the Contributors' admission as partners of the
Acquiror, and (iii) any other transaction contemplated by this Agreement. The
Contributors further represent and warrant that they have not relied on the
Acquiror or the Acquiror's representatives or counsel for such advice.
3.35 Noncontravention. The execution and delivery of, and the
performance by the Contributors of their obligations under this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributors' Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributors, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributors (or any predecessor to or
representative of the Contributors) have agreed to contribute or have granted an
option or right of first refusal to acquire the Property or any part thereof.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the
Contributors. Acquiror acknowledges and agrees that, except for the
representations and warranties expressly set forth herein, Acquiror is acquiring
the Property "AS-IS, WHERE-IS" with no representations or warranties by or from
Contributors or any of its affiliates, express or implied, or any nature
whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributors to enter into this Agreement and to sell the
Interests, the Acquiror hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Acquiror
acknowledges and agrees that the Contributors are entitled to rely and have
relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributors to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributors with
the following covenants:
5.1 Contributors' Deliveries. The Contributors shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributors
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributors; Certificate. All of the Contributors' representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributors shall have performed all of its material covenants
and other obligations under this Agreement and the Contributors shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.2.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributors shall not have diminished the quality or quantity of maintenance
and upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributors shall not have diminished the Inventory.
The Contributors shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributors shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998.
6.2 Contributors' Deliveries. At Closing, the Contributors shall
deliver to Acquiror all of the following instruments, each of which shall have
been duly executed and, where applicable, acknowledged on behalf of the
Contributors and shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Assignment and Assumption Agreements.
(c) Certificate(s)/Registration of Title for any vehicle owned
by the Contributors and used in connection with the
Property.
(d) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title
Policy with affirmative coverage over mechanics' and
materialmen's liens.
(e) The FIRPTA Certificates.
(f) True, correct and complete copies of all warranties, if
any, of manufacturers, suppliers and installers possessed
by the Contributors and relating to the Improvements and
the Personal Property, or any part thereof.
(g) Certified copies of the Contributors' and the
Partnership's Organizational Documents.
(h) Appropriate resolutions of the partners of the
Contributors, together with all other necessary approvals
and consents of the Contributors, authorizing (A) the
execution on behalf of the Contributors of this Agreement
and the documents to be executed and delivered by the
Contributors prior to, at or otherwise in connection with
Closing, and (B) the performance by the Contributors of
its obligations hereunder and under such documents.
(i) Valid, final and unconditional certificate(s) of occupancy
for the Real Property and Improvements, issued by the
appropriate governmental authority.
(j) The written consent of the Licensor to the transfer of the
license, if applicable, and if so required.
(k) Such proof as the Acquiror may reasonably require with
respect to Contributors' compliance with the bulk sales
laws or similar statutes.
(l) A written instrument executed by the Contributors,
conveying and transferring to the Acquiror all of the
Contributors' right, title and interest in any telephone
numbers and facsimile numbers relating to the Property,
and, if the Contributors maintains a post office box,
conveying to the Acquiror all of its interest in and to
such post office box and the number associated therewith,
so as to assure a continuity in operation and
communication.
(m) All current real estate and personal property tax bills in
the Contributors' possession or under its control.
(n) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available
guest information.
(o) An updated schedule of employees, showing salaries and
duties with a statement of the length of service of each
such employee, brought current to a date not more than 48
hours prior to the Closing.
(p) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to
enable the Acquiror to honor the Contributors' commitments
in that regard.
(q) A list of the Contributors' outstanding accounts
receivable as of midnight on the date prior to the
Closing, specifying the name of each account and the
amount due the Contributors.
(r) Intentionally Omitted
(s) All keys for the Property.
(t) All books, records, operating reports, appraisal reports,
files and other materials in the Contributors' possession
or control which are necessary in the Acquirors discretion
to maintain continuity of operation of the Property.
(u) To the extent permitted under applicable law, documents of
transfer necessary to transfer to the Acquiror the
Contributors' employment rating for workmens' compensation
and state unemployment tax purposes.
(v) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and
suppliers in effect with respect to the Improvements.
(w) Complete set of "as-built" drawings for the Improvements.
(x) Such agreements, affidavits or other documents as may be
required by the Title Company in order to issue
affirmative mechanics lien coverage in the Owner's Title
Policy for the Property.
(y) a completed version of the Questionnaire from the
Contributors and each Transferee.
(z) Any other document or instrument reasonably requested by
the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributors the following:
(a) The Consideration described in Section 2.3.
(b) The Assignment and Assumption Agreements.
(c) The certificates described in Section 2.5 evidencing the
Transferees ownership of the Partnership Units and the
admission of the Transferees as limited partners in the
Acquiror.
(d) Any other document or instrument reasonably requested by
the Contributors or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall be paid by the Acquiror. The Acquiror shall pay
reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.3(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributors and the Acquiror. The Contributors shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income
and responsible for all expenses for the period of time from, after and
including the Closing Date. All adjustments shall be shown on the settlement
statements (with such supporting documentation as the parties hereto may require
being attached as exhibits to the settlement statements) and shall increase or
decrease (as the case may be) the amount payable by the Acquiror pursuant to
Section 2.3(d). Without limiting the generality of the foregoing, the following
items of income and expense shall be allocated as of the Closing Date:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other
reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements.
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the
Property who the Acquiror elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributors, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributors prior to the Closing Date for dates after
the Closing Date, all of which Acquiror shall honor.
The Tray Ledger shall be retained by the Contributors. The Contributors
shall be required to pay all sales taxes and similar impositions currently up to
the Closing Date.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the Closing Date for Contributors, but if Acquiror
collects same, such amounts will be promptly remitted to Contributors in the
form received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributors or the Acquiror with respect to the
Property after the date of Closing shall be promptly allocated in the manner
described herein and the parties shall promptly pay or reimburse any amount due.
The Contributors shall pay at Closing all special assessments and taxes
applicable to the Property.
The certificates evidencing the Contributors' ownership of the
Partnership Units will be dated as of the Closing Date, and the Contributors
will be entitled to any dividends accruing thereon on and after the Closing
Date.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributors shall give
written notice thereof to the Acquiror promptly after the Contributors learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributors. If any such
loss or damage to more than twenty five percent (25%) of the value of the
improvements occurs prior to Closing, the Acquiror shall have the right to
terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to
terminate this Agreement, all insurance proceeds and rights to proceeds arising
out of such loss or damage shall be paid or assigned, as applicable, to the
Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributors or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributors. The Contributors hereby
indemnifies and holds the Acquiror harmless from and against any and all claims,
costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees), subject to Section 9.11 that may at any time be
incurred by the Acquiror, whether before or after Closing, as a result of any
breach by the Contributors of any of its representations, warranties, covenants
or obligations set forth herein or in any other document delivered by the
Contributors pursuant hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributors fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement and all other rights and obligations of the Contributors and the
Acquiror hereunder shall terminate immediately, or (b) to waive its right to
terminate and, instead, to proceed to Closing.
8.4 Termination by Contributors. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to purchase the Property), and the Acquiror fails to cure any
such default within ten business days after notice thereof from the
Contributors, then the Contributors' sole remedy for such default shall be to
terminate this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributors and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributors: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia. PA 19106
Phone:(215) 238-1045
Fax:(215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Phone:(717) 770-2405
Fax:(717) 774-7383
If to the Acquiror:
Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Phone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Phone: (804) 788-8604
Fax: (804) 788-8218
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributors and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributors and the Acquiror each
covenant and agree to sign, execute and deliver, or cause to be signed, executed
and delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributors and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributors and its representatives, including
any professionals representing Contributors, shall keep the existence and terms
of this Agreement strictly confidential, except to the extent disclosure is
compelled by law, and then only to the extent of such compulsion.
[SIGNATURES ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Contributors and the Acquiror have
caused this Agreement to be executed in their names by their respective
duly-authorized representatives.
CONTRIBUTORS:
Shree Associates, a Pennsylvania limited partnership
By: /s/ Hasu P. Shah
--------------------------
Hasu P. Shah
JSK Associates, a Pennsylvania limited partnership
By: /s/ Jay Shah
----------------------------------
Jay Shah, General Partner
Shanti Associates, a Pennsylvania limited partnership
By: /s/ K.D. Patel
---------------------------
K.D. Patel, General Partner
Shreeji Associates, a Pennsylvania limited partnership
By: /s/ Rajendra Gandhi
--------------------------------
Rajendra Gandhi, General Partner
Kunj Associates, a Pennsylvania limited partnership
By: /s/ Kiran Patel
----------------------------
Kiran Patel, General Partner
Devi Associates, a Pennsylvania limited partnership
By: /s/ Bharat C. Mehta
--------------------------------
Bharat C. Mehta, General Partner
Shreenathji Enterprises, Ltd., a Pennsylvania corporation
By: /s/ Hasu P. Shah
------------------------------
Hasu P. Shah, President
/s/ Neil Shah
---------------------------
Neil Shah
/s/ David Desfor
--------------------------
David Desfor
--------------------------
Madhusudan Patni
--------------------------
Manhar Gandhi
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia
partnership
By: Hersha Hospitality Trust, a Maryland
Business Trust, its sole general partner
By: /s/ Hasu P. Shah
-----------------------
Hasu P. Shah, President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
2144 ASSOCIATES,
a Pennsylvania limited partnership,
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 4
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUIRE PRICE AND CONTINGENT ACQUIRE PRICE........................... 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 6
2.6 Determination of Number of LP Units........................................................... 6
2.7 Contributor's Transfer of LP Units to Contributor's Partner................................... 6
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Intentionally Omitted.......................................................................... 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 8
3.3 Noncontravention............................................................................... 8
3.4 No Special Taxes............................................................................... 9
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties...................................................................... 9
3.8 Insurance...................................................................................... 9
3.9 Condemnation Proceedings; Roadways............................................................ 10
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 10
3.13 Organizational Documents...................................................................... 11
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 11
3.16 Bankruptcy.................................................................................... 11
3.17 Intentionally Omitted......................................................................... 11
3.18 Hazardous Substances.......................................................................... 11
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
3.22 Bulk Sale Compliance.......................................................................... 12
3.23 Liquor License................................................................................ 12
3.24 Sufficiency of Certain Items.................................................................. 12
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 13
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 14
4.4 Bankruptcy.................................................................................... 14
4.5 No Brokers.................................................................................... 14
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 15
5.6 Utilities..................................................................................... 15
5.7 Intentionally Omitted......................................................................... 15
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING ........................................................................ 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 18
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 20
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 21
9.1 Completeness; Modification.................................................................... 21
9.2 Assignments................................................................................... 21
9.3 Successors and Assigns........................................................................ 21
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 22
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 23
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributor's Partnership Agreement
Exhibit G - Contributor's Certificate of Limited Partnership
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998,
between 2144 ASSOCIATES, a Pennsylvania limited partnership (the "Contributor"),
and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the
"Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Property pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $270,000, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Contributor's Organizational Documents" shall mean the
current partnership agreement and certificate of limited partnership of the
Contributor, true and correct copies of which are attached hereto as Exhibits F
and G.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666,
Fax: 717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Clarion Suites" and all variations thereof, the Authorizations, escrow
accounts, insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger determined under Section
6.5, excluding (a) any of the aforesaid rights the Acquiror elects not to
acquire, (b) the Contributor's cash on hand, in bank accounts and invested with
financial institutions and (c) accounts receivable except for the above
described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean those certain parcels of real estate lying
and being in Philadelphia, Philadelphia, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributor therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases or real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Mangement, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Inventory, the
Reservation System, the Tangible Personal Property and the Intangible Personal
Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666,
Fax: 717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Property for the Consideration and in
accordance with the other terms and conditions set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Property for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd. as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated among the various components of the Property in
the manner indicated on Exhibit J attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Transfer of LP Units to Contributor's Partners. On
the Closing Date, Contributor shall distribute all of the LP Units to its
partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the
amount specified on Exhibit K. On the date hereof, Contributor shall deliver or
cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the
form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by
the Contributor and each of the Transferees. On the Closing Date, Acquiror shall
issue certificates reflecting each of the Transferees' ownership of the LP Units
distributed by Contributor. The certificates evidencing the LP Units will bear
appropriate legends indicating (i) that the LP Units have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and (ii) that
the Acquiror's Partnership Agreement restricts the transfer of LP Units. The
Acquiror shall assume no responsibility for any allocation of the consideration,
including LP Units, to the Transferees or any of Contributor's partners.
Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify
Acquiror and its affiliates for all costs, claims, damages and expenses,
including reasonable attorney's fees, incurred by Acquiror in connection with
such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement
shall be executed by or on behalf of each of the Transferees and the Transferees
shall become limited partners of Acquiror and agree to be bound by the
Partnership Agreement.
2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributor acknowledges that the issuance of the common
shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the common shares issuable upon redemption
registered in accordance with the applicable provisions of the Hersha
Hospitality Partnership Agreement attached hereto as Exhibit M and incorporated
herein.
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<PAGE>
2.10 Intentionally Omitted.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Property, the Contributor hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributor is a limited partnership
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations hereunder and under any
document or instrument required to be executed and delivered on behalf of the
Contributor hereunder.
3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in accordance with its terms.
There is no other person or entity who has an ownership interest in the Property
or whose consent is required in connection with the Contributor's performance of
its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding
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<PAGE>
upon the Contributor, or result in the creation of any lien or other encumbrance
on any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Property or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Organizational Documents. The Contributor's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Choice Hotels, Inc. (the "Licensor")
with respect to the Hotel (the "License") is, and at Closing will be, valid and
in full force and effect, and Contributor will make good faith efforts not to be
in default with respect thereto (with or without the giving of any required
notice and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Liquor License. The liquor license for the restaurant located
within the Hotel (the "Liquor License") is in full force and effect and validly
licensed to the person(s) required to be licensed under Pennsylvania law.
3.24 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Property to the Acquiror and the receipt
of cash and LP Units as consideration therefor, (ii) the Transferees' admission
as partners of the Acquiror, and (iii) any other transaction contemplated by
this Agreement. The Contributor further represents and warrants that it (and
each of its partners) has not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for two (2) years, and no investigation, audit, inspection,
review or the like conducted by or on behalf of the Acquiror shall be deemed to
terminate the effect of any such representations, warranties and covenants, it
being understood that the Acquiror has the right to rely thereon and that each
such representation, warranty and covenant constitutes a material inducement to
the Acquiror to execute this Agreement and to close the transaction contemplated
hereby and to pay the Consideration to the Contributor. Acquiror acknowledges
and agrees that, except for the representations and warranties expressly set
forth herein, Acquiror is acquiring the Property "AS-IS, WHERE-IS" with no
representations or warranties by or from Contributor or any of its affiliates,
express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Property, the Acquiror hereby makes the following
representations, warranties and covenants with respect to the Property, upon
each of which the Acquiror acknowledges and agrees that the Contributor is
entitled to rely and has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Property shall be delivered to the Acquiror at Closing, subject only to
Permitted Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror all of the following instruments in the Contributor's possession and
control, each of which shall have been duly executed and acknowledged, if
applicable, as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) [intentionally omitted].
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
(f) Certificate(s)/Registration of Title for any vehicle
owned by the Contributor and used in connection with the
Property.
(g) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title
Policy with affirmative coverage over mechanics' and
materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all warranties, if
any, of manufacturers, suppliers and installers
possessed by the Contributor and relating to the
Improvements and the Personal Property, or any part
thereof.
(j) Certified copies of the Contributor's Organizational
Documents.
(k) Appropriate resolutions of the partners of the
Contributor, together with all other necessary approvals
and consents of the Contributor, authorizing (A) the
execution on behalf of the Contributor of this Agreement
and the documents to be executed and delivered by the
Contributor prior to, at or otherwise in connection with
Closing, and (B) the performance by the Contributor of
its obligations hereunder and under such documents.
(l) Valid, final and unconditional certificate(s) of
occupancy for the Real Property and Improvements, issued
by the appropriate governmental authority.
(m) The written consent of the Licensor to the transfer of
the license, if applicable, and if so required.
(n) If the Acquiror is assuming the Contributor's
obligations under any or all of the Operating
Agreements, the originals of such agreements, duly
assigned to the Acquiror and with such assignment
acknowledged and approved by the other parties to such
Operating Agreements.
(o) Such proof as the Acquiror may reasonably require with
respect to Contributor's compliance with the bulk sales
laws or similar statutes.
(p) A written instrument executed by the Contributor,
conveying and transferring to the Acquiror all of the
Contributor's right, title and interest in any telephone
numbers and facsimile numbers relating to the Property,
and, if the Contributor maintains a post office box,
conveying to the Acquiror all of its interest in and to
such post office box and the number associated
therewith, so as to assure a continuity in operation and
communication.
(q) All current real estate and personal property tax bills
in the Contributor's possession or under its control.
(r) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available
guest information.
(s) An updated schedule of employees, showing salaries and
duties with a statement of the length of service of each
such employee, brought current to a date not more than
48 hours prior to the Closing.
(t) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to
enable the Acquiror to honor the Contributor's
commitments in that regard.
(u) A list of the Contributor's outstanding accounts
receivable as of midnight on the date prior to the
Closing, specifying the name of each account and the
amount due the Contributor.
(v) Written notice executed by Contributor notifying all
interested parties, including all tenants under any
leases of the Property, that the Property has been
conveyed to the Acquiror and directing that all
payments, inquiries and the like be forwarded to the
Acquiror at the address to be provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal
reports, files and other materials in the Contributor's
possession or control which are necessary in the
Acquirors discretion to maintain continuity of operation
of the Property.
(y) To the extent permitted under applicable law, documents
of transfer necessary to transfer to the Acquiror the
Contributor's employment rating for workmens'
compensation and state unemployment tax purposes.
(z) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and
suppliers in effect with respect to the Improvements.
(aa) Complete set of "as-built" drawings for the
Improvements.
(bb) Such agreements, affidavits or other documents as may be
required by the Title Company in order to issue
affirmative mechanics lien coverage in the Owner's Title
Policy for the Property.
(cc) a completed version of the Questionnaire from the
Contributor and each Transferee.
(dd) Any other document or instrument reasonably requested by
the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section
2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7 evidencing the
Transferees ownership of the LP Units and the admission
of the Transferrees as limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested by
the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and
expenses. All filing fees for the Deed and the real estate transfer, recording
or other similar taxes due with respect to the transfer of title and all charges
for title insurance premiums shall also be paid by the Acquiror. The Acquiror
shall pay reasonable fees for the preparation of the documents to be delivered
by the Contributor hereunder. Acquiror shall assume and pay for the releases of
the any deeds of trust, mortgages and other financing encumbering the Property
and for any costs associated with any corrective instruments, and the Acquiror
shall receive a credit against the Consideration for such costs pursuant to
Section 2.4(a) hereof. The Acquiror shall pay all other costs, including all
franchise license transfer fees, in carrying out the transactions contemplated
hereunder.
6.5 Income and Expense Allocations. All income, except any
Intangible Personal Property, and expenses with respect to the Property, and
applicable to the period of time before and after Closing, determined in
accordance with sound accounting principles consistently applied, shall be
allocated between the Contributor and the Acquiror. The Contributor shall be
entitled to all income, and responsible for all expenses for the period of time
up to but not including 12:01 a.m. on the date of Closing (the "Effective
Date"), and the Acquiror shall be entitled to all income and responsible for all
expenses for the period of time from, after and including the date of Closing.
All adjustments shall be shown on the settlement statements (with such
supporting documentation as the parties hereto may require being attached as
exhibits to the settlement statements) and shall increase or decrease (as the
case may be) the amount payable by the Acquiror pursuant to Section 2.4(d).
Without limiting the generality of the foregoing, the following items of income
and expense shall be allocated as of the date of Closing:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributor prior to the Effective Date for dates after the date of Closing,
all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of two (2) years following Closing and
shall not merge into the Deed or any other document or instrument executed and
delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this Agreement
to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTOR:
2144 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
its general partner
By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
President
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia limited
partnership
By: Hersha Hospitality Trust, a Maryland business trust, its
sole general partner
By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
JSK Associates, Shanti Associates, Shreeji Associates,
Kunj Associates, Neil Shah, Madhusudan Patni and
Shreenathji Enterprises, Ltd.
as Contributors,
and
Hersha Hospitality Limited Partnership,
a Virginia limited partnership,
as Acquiror
<PAGE>
TABLE OF CONTENTS
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<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction...........................................................................6
ARTICLE II
PURCHASE AND SALE; DEPOSIT;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION.............................7
2.1 Contribution and Acquisition....................................................................7
2.2 Study Period....................................................................................7
2.3 Payment of Consideration........................................................................8
2.4 Determination of Number of Partnership Units....................................................8
2.5 Contributors' Distribution of Partnership Units.................................................9
2.6 Intentionally Omitted...........................................................................9
2.7 Intentionally Omitted
2.8 Redemption......................................................................................9
2.9 Registration of Common Shares...................................................................9
2.10 Payment of Contingent Consideration.............................................................9
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS...........................10
3.1 Organization and Power.........................................................................10
3.2 Authorization, No Violations and Notices ......................................................10
3.3 Litigation with respect to Contributors .......................................................11
3.4 Interest.......................................................................................11
3.5 Bankruptcy with respect to Contributors........................................................11
3.6 Brokerage Commission...........................................................................11
3.7 The Partnership................................................................................12
3.8 Liabilities, Debts and Obligations.............................................................12
3.9 Tax Matters with respect to Partnership........................................................13
3.10 Contracts and Agreements.......................................................................13
3.11 No Special Taxes...............................................................................13
3.12 Compliance with Existing Laws..................................................................13
3.13 Operating Agreements...........................................................................14
3.14 Warranties and Guaranties......................................................................14
3.15 Insurance......................................................................................14
3.16 Condemnation Proceedings; Roadways.............................................................14
3.17 Litigation with respect to Partnership.........................................................14
3.18 Labor Disputes and Agreements..................................................................15
3.19 Financial Information..........................................................................15
3.20 Organizational Documents.......................................................................15
3.21 Operation of Property..........................................................................15
3.22 Intentionally Omitted..........................................................................16
3.23 Bankruptcy with respect to Partnership.........................................................16
3.24 Hazardous Substances...........................................................................16
3.25 Room Furnishings...............................................................................16
3.26 License........................................................................................17
3.27 Independent Audit..............................................................................17
3.28 Bulk Sale Compliance...........................................................................17
3.29 Intentionally Omitted..........................................................................17
3.30 Sufficiency of Certain Items...................................................................17
3.31 Noncompetition.................................................................................17
3.32 Leases.........................................................................................17
3.33 Securities Law Matters.........................................................................18
3.34 Tax Matters with respect to Contributors.......................................................18
3.35 Noncontravention...............................................................................18
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............................19
4.1 Organization and Power.........................................................................19
4.2 Noncontravention...............................................................................19
4.3 Litigation.....................................................................................19
4.4 Bankruptcy.....................................................................................19
4.5 No Brokers.....................................................................................19
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.....................................20
5.1 Contributors' Deliveries.......................................................................20
5.2 Representations, Warranties and Covenants; Obligations of Contributors; Certificate............20
5.3 Title Insurance................................................................................20
5.4 Intentionally Omitted..........................................................................20
5.5 Condition of Improvements......................................................................20
5.6 Utilities......................................................................................20
5.7 Intentionally Omitted..........................................................................20
5.8 License........................................................................................20
5.9 Intentionally Omitted..........................................................................20
ARTICLE VI
CLOSING...........................................................21
6.1 Closing........................................................................................21
6.2 Contributors' Deliveries.......................................................................21
6.3 Acquiror's Deliveries..........................................................................23
6.4 Closing Costs..................................................................................23
6.5 Income and Expense Allocations.................................................................23
ARTICLE VII
CONDEMNATION; RISK OF LOSS..........................................25
7.1 Condemnation...................................................................................25
7.2 Risk of Loss...................................................................................25
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS..............................................25
8.1 Liability of Acquiror..........................................................................25
8.2 Indemnification by Contributors................................................................25
8.3 Termination by Acquiror........................................................................25
8.4 Termination by Contributors....................................................................26
ARTICLE IX
MISCELLANEOUS PROVISIONS...........................................26
9.1 Completeness; Modification.....................................................................26
9.2 Assignments....................................................................................26
9.3 Successors and Assigns.........................................................................26
9.4 Days...........................................................................................26
9.5 Governing Law..................................................................................26
9.6 Counterparts...................................................................................26
9.7 Severability...................................................................................26
9.8 Costs..........................................................................................27
9.9 Notices........................................................................................27
9.10 Incorporation by Reference.....................................................................28
9.11 Survival.......................................................................................28
9.12 Further Assurances.............................................................................28
9.13 No Partnership.................................................................................28
9.14 Time of Essence................................................................................28
9.15 Confidentiality................................................................................29
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributors' Partnership Agreement
Exhibit G - Contributors' Certificate of Limited Partnership
Exhibit H - Contributors' Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
Exhibit O - Shreenathji Enterprises, Ltd. Articles of Incorporation
Exhibit P - Shreenathji Enterprises, Ltd. Bylaws
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998,
between JSK Associates, a Pennsylvania limited partnership ("JSK"), Shanti
Associates, a Pennsylvania limited partnership ("Shanti"), Shreeji Associates, a
Pennsylvania limited partnership ("Shreeji"), Kunj Associates, a Pennsylvania
limited partnership ("Kunj"), Neil Shah ("Shah"), Madhusudan Patni ("Patni") and
Shreenathji Enterprises, Ltd., a Pennsylvania corporation ("SEL") (collectively,
the "Contributors"), and Hersha Hospitality Limited Partnership, a Virginia
limited partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"JSK Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby JSK assigns and the Acquiror
assumes the JSK Interest.
"Shanti Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shanti assigns and the
Acquiror assumes the Shanti Interest.
"Shreeji Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shreeji assigns and the
Acquiror assumes the Shreeji Interest.
"Kunj Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Kunj assigns and the
Acquiror assumes the Kunj Interest.
"Shah Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shah assigns and the
Acquiror assumes the Shah Interest.
"Patni Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Patni assigns and the
Acquiror assumes the Patni Interest.
"SEL Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby SEL assigns and the Acquiror
assumes the SEL Interest.
"Assignment and Assumption Agreements" shall mean the JSK
Assignment and Assumption Agreement, the Shanti Assignment and Assumption
Agreement, the Shreeji Assignment and Assumption Agreement, the Kunj Assignment
and Assumption Agreement, the Shah Assignment and Assumption Agreement, the
Patni Assignment and Assumption Agreement and the SEL Assignment and Assumption
Agreement.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Closing" shall mean the Closing of the contribution and
acquisition of the Interests pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $5,000,000 payable to the
Contributors at Closing in the manner described in Section 2.3.
"Continuing Liabilities" shall include liabilities arising
under operating agreements, equipment leases, loan agreements, or proration
credits at Closing, but shall exclude any liabilities arising from any other
arrangement, agreement or pending litigation.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributors or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666,
Fax: (717) 234-8198.
"FIRPTA Certificates" shall mean the affidavit of each of the
Contributors under Section 1445 of the Internal Revenue Code certifying that
such Contributor is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person (as those terms are defined in the
Internal Revenue Code and the Income Tax Regulations), in form and substance
satisfactory to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"JSK Interest" shall mean all right, title and interest of JSK
in the Partnership, consisting of a 20% limited partnership interest in the
Partnership.
"Shanti Interest" shall mean all right, title and interest of
Shanti in the Partnership, consisting of a 34% limited partnership interest in
the Partnership.
"Shreeji Interest" shall mean all right, title and interest of
Shreeji in the Partnership, consisting of a 9% limited partnership interest in
the Partnership.
"Kunj Interest" shall mean all right, title and interest of
Kunj in the Partnership, consisting of a 13% limited partnership interest in the
Partnership.
"Shah Interest" shall mean all right, title and interest of
Shah in the Partnership, consisting of a 20% limited partnership interest in the
Partnership.
"Patni Interest" shall mean all right, title and interest of
Patni in the Partnership, consisting of a 3% limited partnership interest in the
Partnership.
"SEL Interest" shall mean all right, title and interest of SEL
in the Partnership, consisting of a 1% general partnership interest in the
Partnership.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributors and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Hampton Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger as hereinafter defined,
excluding (a) any of the aforesaid rights the Acquiror elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial
institutions and (c) accounts receivable except for the above described share of
the Tray Ledger.
"Interests" shall mean the JSK Interest, the Shanti Interest,
the Shreeji Interest, the Kunj Interest, the Shah Interest, the Patni Interest
and the SEL Interest.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in Carlisle, Cumberland County, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributors therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Management L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Organizational Documents" shall mean the current partnership
agreement and certificate of limited partnership of each of the limited
partnership Contributors, true and correct copies of which are attached hereto
as Exhibits F and G and Articles of Incorporation and Bylaws of SEL, true and
correct copies of which are attached hereto as Exhibits O and P.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Partnership" shall mean 944 Associates, a Pennsylvania
limited partnership that owns as its sole assets land and hotel improvements
situate in Carlisle, Cumberland County, Pennsylvania.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.2.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributors' Reservation
Terminal and Reservation System equipment and software, if any.
"JSK's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of JSK, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shanti's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shanti, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shreeji's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shreeji, true
and correct copies of which are attached hereto as Exhibits F and G.
"Kunj's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Kunj, true and
correct copies of which are attached hereto as Exhibits F and G.
"SEL's Organizational Documents" shall mean the current
Articles of Incorporation and Bylaws of SEL, true and correct copies of which
are attached hereto as Exhibits O and P.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributors;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666,
Fax: (717) 234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Effective Date, exclusive
of food, beverage, telephone and similar charges which shall be retained by the
Contributors), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
CONTRIBUTION AND ACQUISITION; STUDY PERIOD; PAYMENT OF CONSIDERATION
AND CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. Each of the Contributors agrees to
contribute, assign and transfer its Interest to the Acquiror and the Acquiror
agrees to accept each Contributor's Interest in exchange for the Consideration
and the Contingent Consideration and in accordance with the other terms and
conditions set forth herein.
2.2 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributors that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the purchase of the
Interests for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributors prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributors of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributors, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, and the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributors shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributors'
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributors against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributors of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributors shall notify the Acquiror whether the
Contributors are willing to cure such defects. Contributors may cure, but shall
not be obligated to cure such defects. If such defects consist of deeds of
trust, mechanics' liens, tax liens or other liens or charges in a fixed sum or
capable of computation as a fixed sum, the Contributors, at its option, shall
either pay and discharge (in which event, the Escrow Agent is authorized to pay
and discharge at Closing) such defects at Closing, or provide bonds or
indemnities in favor of the Title Company in order to remove such items from the
Title Policy at Closing. If the Contributors are unwilling or unable to cure any
other such defects by Closing, the Acquiror shall elect (1) to waive such
defects and proceed to Closing without any abatement in the Consideration or (2)
to terminate this Agreement. The Contributors shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributors of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.3 Payment of the Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the
Consideration in an amount equal to the Contributor's closing costs assumed and
paid for by the Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the
Consideration in an amount equal to the outstanding balance (principal,
interest, fees and the like), as of the date of Closing, of the existing
mortgage loan encumbering the Property as such balance is evidenced by a letter
from the lender, which loan the Acquiror shall take subject to or, if requested,
assume.
(c) The Acquiror shall receive a credit against the
Consideration in an amount equal to the outstanding balance (principal,
interest, fees and the like), as of the date of Closing, of the Contributor's
loan to Shreenathji Enterprises, Ltd., as such balance is evidenced by a letter
from the lender, which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration,
as adjusted by the prorations pursuant to Section 6.5 hereof, in the form of
units of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.4. Determination of Number of Partnership Units. For purposes of
determining the number of Partnership Units to be delivered by the Acquiror at
the Closing, each Partnership Unit shall be deemed to have a value equal to
$6.00. No fractional Partnership Units will be issued at Closing; in lieu of any
such fraction, the value shall be rounded up to a whole share value.
2.5 Contributors' Distribution of Partnership Units . On the Closing
Date, the Partnership Units shall be distributed among the Contributors , as set
forth on Exhibit K attached hereto , in the amount specified on Exhibit K. On
the date hereof, Contributors shall deliver or cause to be delivered to Acquiror
an Investor Questionnaire and Agreement in the form attached hereto as Exhibit F
(a "Questionnaire"), completed and executed by each of the Contributors . On the
Closing Date, Acquiror shall issue certificates reflecting each of the
Contributors ownership of the Partnership Units. The certificates evidencing the
Partnership Units will bear appropriate legends indicating (i) that the
Partnership Units have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement
restricts the transfer of Partnership Units. The Acquiror shall assume no
responsibility for any allocation of the consideration, including Partnership
Units, to any of the Contributors' partners. Contributors agree to hold Acquiror
and its affiliates harmless and to indemnify Acquiror and its affiliates for all
costs, claims, damages and expenses, including reasonable attorney's fees,
incurred by Acquiror in connection with such allocations. Upon receipt of
Partnership Units, the Acquiror's Partnership Agreement shall be executed by or
on behalf of each of the Contributors and the Contributors shall become limited
partners of Acquiror and agree to be bound by the Partnership Agreement.
2.6 Intentionally Omitted.
2.7 Intentionally Omitted.
2.8 Redemption. The Partnership Units may be redeemed upon delivery of
a notice ("Redemption Notice") from the Contributors , for common shares
("Common Shares") of beneficial interest in Hersha Hospitality Trust (the
"REIT") or for cash, in accordance with the Hersha Hospitality Limited
Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the Common
Shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the Common Shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M and incorporated herein.
2.10 Consideration Contingency.
The Contributors shall value the Hotel on December 31, 2000. The value
of the Hotel shall be computed by applying a 12% capitalization rate to the
audited trailing 12 months net operating income, adjusted for a 4% of revenue
management fee and a 4% of revenue furniture, fixture and equipment reserve.
<PAGE>
If the then current value of the Hotel exceeds the consideration paid
by Acquiror hereunder, the Acquiror will issue additional Partnership Units at
the Offering Price equal to the difference between the then current value and
the consideration paid hereunder and all distributions paid on those units since
Closing Date.
If the then current value of the Hotel is less than the Consideration
paid by the Acquiror hereunder, the Contributors will return to the Acquirer
Partnership Units at the Offering Price equal to the difference between the then
current value of the Hotel and the Consideration paid hereunder and all
distributions paid on those units since the Closing Date.
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to purchase the
Interests, the Contributors hereby make the following representations,
warranties and covenants on a joint and several basis , upon each of which the
Contributors acknowledge and agree that the Acquiror is entitled to rely and has
relied:
3.1 Organization and Power. The Contributors are limited partnerships
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or individuals,
and have all requisite powers and all governmental licenses, authorizations,
consents and approvals necessary to carry on its business as now conducted, to
own, lease and operate its properties, to execute and deliver this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Contributors hereunder, to perform their obligations under this Agreement
and any such other documents or instruments and to consummate the transactions
contemplated hereby.
3.2 Authorization, No Violations and Notices.
(a) The execution, delivery and performance of this Agreement by
the Contributors, and the consummation of the transactions
contemplated hereby have been duly authorized, adopted and
approved by the partners of the Contributors for those
Contributors that are partnerships to the extent required by
its organizational documents and applicable law. No other
proceedings are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly
executed by JSK, Shanti, Shreeji, Kunj, Shah, Patni, and SEL
and is a valid and binding obligation enforceable against them
in accordance with its terms.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that,
which, with or lapse of time or both, would constitute a
default) under, result in the termination of, accelerate
the performance required by, or result in a right of
termination or acceleration, or the creation of any
lien, security interest, charge, or encumbrance upon any
of the properties or assets of the Partnership, under
any of the terms, conditions, or provisions of, its
Partnership, or any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement, or other
instrument, or obligation to which the Partnership is a
party, or by which the Partnership may be bound, or to
which the Partnership or its properties or assets may be
subject; or
(iii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or its property or assets that would not be
violated by the execution, delivery or performance of
this Agreement or the transactions contemplated hereby
by the Contributors or compliance by the Contributors
with any of the provisions hereof.
3.3 Litigation with respect to Contributors. There is no action, suit,
claim or proceeding pending or, to the Contributors knowledge, threatened
against or affecting the Contributors or their assets in any court, before any
arbitrator or before or by any governmental body or other regulatory authority
(i) that would adversely affect the Interests, (ii) that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or the
transactions contemplated hereby, or (iii) would delay the consummation of any
of the transactions contemplated hereby. The Contributors are not subject to any
judgment, decree, injunction, rule or order of any court relating to the
Contribtuors' participation in the transactions contemplated by this Agreement.
3.4 Interests. The Interests will be free and clear of all liens and
encumbrances on the Closing Date and the Contributors have good, merchantable
title thereto and the right to convey same in accordance with the terms of this
Agreement. Upon delivery of the Assignment and Assumption Agreements to the
Acquiror at Closing, good valid and merchantable title to the Interests, free
and clear of all liens and encumbrances, will pass to the Acquiror.
3.5 Bankruptcy with Respect to Contributors. No Act of Bankruptcy has
occurred with respect to the Contributors.
3.6 Brokerage Commission. The Contributors have not engaged the
services of, nor is it or will it or Acquiror become liable to, any real estate
agent, broker, finder or any other person or entity for any brokerage or
finder's fee, commission or other amount with respect to the transactions
described herein on account of any action by the Contributors.
3.7 The Partnership.
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers
necessary to carry on its business as now conducted, to own,
lease and operate its properties.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that,
with notice or lapse of time or both, would constitute a
default) under, result in the termination of, accelerate
the performance required by, or result in a right of
termination or acceleration, or the creation of any
lien, security interest, charge, or encumbrance upon any
of the properties or assets of the Partnership, under
any of the terms, conditions, or provisions of, their
articles of incorporation or bylaws, or any note, bond,
mortgage, indenture, deed of trust, license, lease,
agreement, or other instrument or obligation to which
the Partnership is a party, or by which the Partnership
may be bound, or to which the Partnership or its
properties or assets may be subject; or
(ii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or any of the Partnership's properties or
assets.
(c) Except for the Contributors, no party has any interest in the
Partnership or the right or option to acquire any interest in
the Partnership or the property or any portion thereof. The
Partnership has no subsidiaries and does not directly or
indirectly own any securities of or interest in any other
entity, including, without limitation, any partnership or
joint venture.
3.8 Liabilities, Debts and Obligations. Except for the Continuing
Liabilities, the Partnership has no liability, debt or obligation.
<PAGE>
3.9 Tax Matters with respect to Partnership.
(a) The Partnership has filed all income tax information returns on IRS
Form 1065 (including K-1s for each partner) and applicable state and
local income tax forms required to be filed with the United States
Government and with all states and political subdivisions thereof where
any such returns are required to be filed and where the failure to file
such return or report would subject the Partnership or its partners to
any material liability or penalty. All taxes (other than sale taxes,
rental taxes or the equivalent and real property taxes) imposed by the
United States, or by any foreign country, or by any state,
municipality, subdivision, or instrumentality of the United States or
of any foreign country or by any other taxing authority, which are due
and payable by the Partnership have been paid in full or adequately
provided for by reserves shown in their records and books of account
and in the Partnership's financial information. The Partnership has not
obtained or received any extension of time (beyond the Closing Date)
for the assessment of deficiencies for any years or waived or extended
the statute of limitations for the determination or collection of any
tax. To the Contributors' knowledge no unassessed tax deficiency is
proposed or threatened against the Partnership.
(b) All taxes, rental taxes or the equivalent, and all interest and
penalties due thereon, required to be paid or collected by the
Partnership in connection with the operation of the Property as of the
Closing Date will have been collected and/or paid to the appropriate
governmental authorities, as required or such amounts shall be
pro-rated as of the Closing Date. The Partnership shall file, all
necessary returns and petitions required to be filed through the
Closing Date. The Partnership shall prepare and file all federal and
state income tax returns for the tax period ending on the Closing Date,
which shall reflect the termination for tax purposes of the
Partnership. If requested by the Acquiror, the Contributors shall cause
the Partnership to make an election under Section 754 of the Code for
the period ending on the Closing Date.
3.10 Contracts and Agreements. There is no loan agreement, guarantee,
note, bond, indenture and other debt instrument, lease and other contract to
which the Partnership is a party or by which its assets are bound other than
Permitted Title Encumbrances, the Leases, and the Operating Agreements.
3.11 No Special Taxes. The Contributors have no actual knowledge of,
nor have they received any written notice of, any special taxes or assessments
relating to the Partnership or Property or any part thereof or any planned
public improvements that may result in a special tax or assessment against the
Property.
3.12 Compliance with Existing Laws. The Partnership possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributors' actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Partnership has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributors have no actual knowledge of any change in
the circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributors have
no actual knowledge, nor have they received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.13 Operating Agreements. The Partnership has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Partnership shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Partnership enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributors have obtained the Acquiror's prior
written consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.14 Warranties and Guaranties. The Partnership shall not before
Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.15 Insurance. All of the Partnership's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Partnership on or before the due date therefor. The Partnership
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Partnership's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Partnership shall name the Acquiror as an additional insured
on each of the Partnership's Insurance Policies.
3.16 Condemnation Proceedings; Roadways. The Partnership has received
no written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributors have no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.17 Litigation with respect to Partnership. Except as set forth on
Exhibit I there is no action, suit or proceeding pending or known to be
threatened against or affecting the Partnership or its property in any court,
before any arbitrator or before or by any governmental agency which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement or any other material agreement or instrument to which the Partnership
are a party or by which they are bound and that is or is to be used in
connection with, or is contemplated by, this Agreement, (b) could materially and
adversely affect the business, financial position or results of operations of
the Partnership, (c) could materially and adversely affect the ability of the
Partnership perform its obligations hereunder, or under any document to be
delivered pursuant hereto, (d) could create a lien on the Property, any part
thereof or any interest therein, or (e) could otherwise materially adversely
affect the Property, any part thereof or any interest therein or the use,
operation, condition or occupancy thereof.
3.18 Labor Disputes and Agreements. The Partnership currently has no
labor disputes pending or, threatened as to the operation or maintenance of the
Property or any part thereof. The Partnership is not a party to any union or
other collective bargaining agreement with employees employed in connection with
the ownership, operation or maintenance of the Property. The Acquiror will not
be obligated to give or pay any amount to any employee of the Partnership, and
the Acquiror shall not have any liability under any pension or profit sharing
plan that the Partnership may have established with respect to the Property or
their or its employees.
3.19 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.20 Organizational Documents. The Partnership's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.21 Operation of Property. The Contributors covenant that between the
date hereof and the date of Closing they will make good faith efforts to cause
the Partnership to (a) operate the Property only in the usual, regular and
ordinary manner consistent with the Partnership's prior practice, (b) maintain
their books of account and records in the usual, regular and ordinary manner, in
accordance with sound accounting principles applied on a basis consistent with
the basis used in keeping its books in prior years, and (c) use all reasonable
efforts to preserve intact their present business organization, keep available
the services of their present officers and employees and preserve their
relationships with suppliers and others having business dealings with them. The
Contributor shall make good faith efforts to encourage the Partnership to
continue to make good efforts to take guest room reservations and to book
functions and meetings and otherwise to promote the business of the Property in
generally the same manner as the Partnership did prior to the execution of this
Agreement. Except as otherwise permitted hereby, from the date hereof until
Closing, the Contributors shall use its good faith efforts to ensure that the
Partnership shall not take any action or fail to take action the result of which
(i) would have a material adverse effect on the Property or the Acquiror's
ability to continue the operation thereof after the date of Closing in
substantially the same manner as presently conducted, (ii) reduce or cause to be
reduced any room rents or any other charges over which Contributors have
operational control, or (iii) would cause any of the representations and
warranties contained in this Article III to be untrue as of Closing.
3.22 Intentionally Omitted.
3.23 Bankruptcy with respect to Partnership. No Act of Bankruptcy has
occurred with respect to the Partnership.
3.24 Hazardous Substances. Except for matters in Partnership's or
Acquiror's audits, Contributors have no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributors
have no actual knowledge of any failure to comply with any applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributors shall have no liability
to Acquiror for any Hazardous Substances of which Contributors have no actual
knowledge.
3.25 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.26 License. The license from Hampton Inn, Inc. (the "Licensor") with
respect to the Hotel (the "License") is, and at Closing will be, valid and in
full force and effect, and Contributors will make good faith efforts not to be
in default with respect thereto (with or without the giving of any required
notice and/or lapse of time).
3.27 Independent Audit. Contributors shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with Regulation S-X of the Securities and Exchange Commission (the
"Commission") and to enable them to prepare a registration statement, report or
disclosure statement for filing with the Commission. Contributors shall also
provide to Acquiror's representatives a signed representative letter and a hold
harmless letter which would be sufficient to enable an independent public
accountant to render an opinion on the financial statements related to the
Property.
3.28 Bulk Sale Compliance. Contributors shall indemnify Acquiror
against any claim, loss or liability arising under the bulk sales law in
connection with the transaction contemplated herein.
3.29 Intentionally Omitted
3.30 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.31 Noncompetition. If Contributors develop or acquire other lodging
facilities, not owned at the time of the execution of this Agreement, within 15
miles of any facility owned or to be owned by the Acquiror, the Contributors
shall give the Acquiror the option to purchase the facility for a period of two
years following the opening or acquisition of such facility.
3.32 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributors, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributors and Contributors will have obtained consents all necessary
consents of any third party.
3.33 Securities Law Matters. Contributors further represent and warrant
that they have (i) received, reviewed, been given the opportunity to ask
questions of representatives of the Operating Partnership and the REIT
regarding, and understand the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributors and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.34 Tax Matters with Respect to Contributors. The Contributors
represent and warrant that they (and each of its partners) have obtained from
its own counsel advice regarding the tax consequences of (i) the transfer of the
Partnership Interest to the Acquiror and the receipt of Partnership Units as
consideration therefor, (ii) the Contributors' admission as partners of the
Acquiror, and (iii) any other transaction contemplated by this Agreement. The
Contributors further represent and warrant that they have not relied on the
Acquiror or the Acquiror's representatives or counsel for such advice.
3.35 Noncontravention. The execution and delivery of, and the
performance by the Contributors of their obligations under this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributors' Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributors, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributors (or any predecessor to or
representative of the Contributors) have agreed to contribute or have granted an
option or right of first refusal to acquire the Property or any part thereof.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the
Contributors. Acquiror acknowledges and agrees that, except for the
representations and warranties expressly set forth herein, Acquiror is acquiring
the Property "AS-IS, WHERE-IS" with no representations or warranties by or from
Contributors or any of its affiliates, express or implied, or any nature
whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributors to enter into this Agreement and to sell the
Interests, the Acquiror hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Acquiror
acknowledges and agrees that the Contributors are entitled to rely and have
relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributors to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributors with
the following covenants:
5.1 Contributors' Deliveries. The Contributors shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributors
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributors; Certificate. All of the Contributors' representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributors shall have performed all of its material covenants
and other obligations under this Agreement and the Contributors shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.2.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributors shall not have diminished the quality or quantity of maintenance
and upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributors shall not have diminished the Inventory.
The Contributors shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributors shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998.
6.2 Contributors' Deliveries. At Closing, the Contributors shall
deliver to Acquiror all of the following instruments, each of which shall have
been duly executed and, where applicable, acknowledged on behalf of the
Contributors and shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Assignment and Assumption Agreements.
(c) Certificate(s)/Registration of Title for any vehicle
owned by the Contributors and used in connection with the
Property.
(d) Such agreements, affidavits or other documents as may
be required by the Title Company to issue the Owner's Title
Policy with affirmative coverage over mechanics' and
materialmen's liens.
(e) The FIRPTA Certificates.
(f) True, correct and complete copies of all warranties,
if any, of manufacturers, suppliers and installers possessed
by the Contributors and relating to the Improvements and the
Personal Property, or any part thereof.
(g) Certified copies of the Contributors' and the
Partnership's Organizational Documents.
(h) Appropriate resolutions of the partners of the
Contributors, together with all other necessary approvals and
consents of the Contributors, authorizing (A) the execution
on behalf of the Contributors of this Agreement and the
documents to be executed and delivered by the Contributors
prior to, at or otherwise in connection with Closing, and (B)
the performance by the Contributors of its obligations
hereunder and under such documents.
(i) Valid, final and unconditional certificate(s) of
occupancy for the Real Property and Improvements, issued by
the appropriate governmental authority.
(j) The written consent of the Licensor to the transfer
of the license, if applicable, and if so required.
(k) Such proof as the Acquiror may reasonably require
with respect to Contributors' compliance with the bulk sales
laws or similar statutes.
(l) A written instrument executed by the Contributors,
conveying and transferring to the Acquiror all of the
Contributors' right, title and interest in any telephone
numbers and facsimile numbers relating to the Property, and,
if the Contributors maintains a post office box, conveying to
the Acquiror all of its interest in and to such post office
box and the number associated therewith, so as to assure a
continuity in operation and communication.
(m) All current real estate and personal property tax
bills in the Contributors' possession or under its control.
(n) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest
information.
(o) An updated schedule of employees, showing salaries
and duties with a statement of the length of service of each
such employee, brought current to a date not more than 48
hours prior to the Closing.
(p) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to enable
the Acquiror to honor the Contributors' commitments in that
regard.
(q) A list of the Contributors' outstanding accounts
receivable as of midnight on the date prior to the Closing,
specifying the name of each account and the amount due the
Contributors.
(r) Intentionally Omitted
(s) All keys for the Property.
(t) All books, records, operating reports, appraisal
reports, files and other materials in the Contributors'
possession or control which are necessary in the Acquirors
discretion to maintain continuity of operation of the
Property.
(u) To the extent permitted under applicable law,
documents of transfer necessary to transfer to the Acquiror
the Contributors' employment rating for workmens'
compensation and state unemployment tax purposes.
(v) An assignment of all warranties and guarantees from
all contractors and subcontractors, manufacturers, and
suppliers in effect with respect to the Improvements.
(w) Complete set of "as-built" drawings for the
Improvements.
(x) Such agreements, affidavits or other documents as may
be required by the Title Company in order to issue
affirmative mechanics lien coverage in the Owner's Title
Policy for the Property.
(y) a completed version of the Questionnaire from the
Contributors and each Transferee.
(z) Any other document or instrument reasonably requested
by the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributors the following:
(a) The Consideration described in Section 2.3.
(b) The Assignment and Assumption Agreements.
(c) The certificates described in Section 2.5 evidencing
the Transferees ownership of the Partnership Units and the
admission of the Transferees as limited partners in the
Acquiror.
(d) Any other document or instrument reasonably requested
by the Contributors or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall be paid by the Acquiror. The Acquiror shall pay
reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.3(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributors and the Acquiror. The Contributors shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income
and responsible for all expenses for the period of time from, after and
including the Closing Date. All adjustments shall be shown on the settlement
statements (with such supporting documentation as the parties hereto may require
being attached as exhibits to the settlement statements) and shall increase or
decrease (as the case may be) the amount payable by the Acquiror pursuant to
Section 2.3(d). Without limiting the generality of the foregoing, the following
items of income and expense shall be allocated as of the Closing Date:
(a) Current and prepaid rents, including, without
limitation, prepaid room receipts, function receipts and
other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements.
(d) Utility charges (including but not limited to charges
for water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property
who the Acquiror elects to employ.
(f) Value of fuel stored on the Property at the price
paid for such fuel by the Contributors, including any taxes.
(g) All prepaid reservations and contracts for rooms
confirmed by Contributors prior to the Closing Date for dates
after the Closing Date, all of which Acquiror shall honor.
The Tray Ledger shall be retained by the Contributors. The Contributors
shall be required to pay all sales taxes and similar impositions currently up to
the Closing Date.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the Closing Date for Contributors, but if Acquiror
collects same, such amounts will be promptly remitted to Contributors in the
form received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributors or the Acquiror with respect to the
Property after the date of Closing shall be promptly allocated in the manner
described herein and the parties shall promptly pay or reimburse any amount due.
The Contributors shall pay at Closing all special assessments and taxes
applicable to the Property.
The certificates evidencing the Contributors' ownership of the
Partnership Units will be dated as of the Closing Date, and the Contributors
will be entitled to any dividends accruing thereon on and after the Closing
Date.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributors shall give
written notice thereof to the Acquiror promptly after the Contributors learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributors. If any such
loss or damage to more than twenty five percent (25%) of the value of the
improvements occurs prior to Closing, the Acquiror shall have the right to
terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to
terminate this Agreement, all insurance proceeds and rights to proceeds arising
out of such loss or damage shall be paid or assigned, as applicable, to the
Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributors or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributors. The Contributors hereby
indemnifies and holds the Acquiror harmless from and against any and all claims,
costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees), subject to Section 9.11 that may at any time be
incurred by the Acquiror, whether before or after Closing, as a result of any
breach by the Contributors of any of its representations, warranties, covenants
or obligations set forth herein or in any other document delivered by the
Contributors pursuant hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributors fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement and all other rights and obligations of the Contributors and the
Acquiror hereunder shall terminate immediately, or (b) to waive its right to
terminate and, instead, to proceed to Closing.
8.4 Termination by Contributors. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to purchase the Property), and the Acquiror fails to cure any
such default within ten business days after notice thereof from the
Contributors, then the Contributors' sole remedy for such default shall be to
terminate this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributors and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributors: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia. PA 19106
Phone:(215) 238-1045
Fax:(215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Phone:(717) 770-2405
Fax:(717) 774-7383
<PAGE>
If to the Acquiror:
Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Phone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Phone: (804) 788-8604
Fax: (804) 788-8218
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributors and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributors and the Acquiror each
covenant and agree to sign, execute and deliver, or cause to be signed, executed
and delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributors and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
<PAGE>
9.15 Confidentiality. Contributors and its representatives, including
any professionals representing Contributors, shall keep the existence and terms
of this Agreement strictly confidential, except to the extent disclosure is
compelled by law, and then only to the extent of such compulsion.
IN WITNESS WHEREOF, the Contributors and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTORS:
JSK Associates, a Pennsylvania limited partnership
By: /s/ Jay Shah
----------------------------------
Jay Shah, General Partner
Shanti Associates, a Pennsylvania limited partnership
By: /s/ K.D. Patel
-----------------------------------
K.D. Patel, General Partner
Shreeji Associates, a Pennsylvania limited partnership
By: /s/ Rajendra Gandhi
-----------------------------------
Rajendra Gandhi, General Partner
Kunj Associates, a Pennsylvania limited partnership
By: /s/ Kiran Patel
-----------------------------------
Kiran Patel, General Partner
Shreenathji Enterprises, Ltd., a Pennsylvania corporation
By: /s/ Hasu P. Shah
-----------------------------------
Hasu P. Shah, President
/s/ Neil Shah
--------------------------
Neil Shah
/s/ Madhusudan Patni
--------------------------
Madhusudan Patni
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia partnership
By: Hersha Hospitality Trust, a Maryland Business Trust, its
sole general partner
By: /s/ Hasu P. Shah
-----------------------
Hasu P. Shah, President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
Shree Associates, Devi Associates, Shreeji Associates,
Madhusudan Patni and Shreenathji Enterprises, Ltd.
as Contributors,
and
Hersha Hospitality Limited Partnership,
a Virginia limited partnership,
as Acquiror
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions............................................................ 1
1.2 Rules of Construction.................................................. 6
ARTICLE II
PURCHASE AND SALE; DEPOSIT;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION............ 6
2.1 Contribution and Acquisition........................................... 6
2.2 Study Period........................................................... 6
2.3 Payment of Consideration............................................... 8
2.4 Determination of Number of Partnership Units........................... 8
2.5 Contributors' Distribution of Partnership Units........................ 8
2.6 Intentionally Omitted.................................................. 9
2.7 Intentionally Omitted
2.8 Redemption............................................................. 9
2.9 Registration of Common Shares.......................................... 9
2.10 Payment of Contingent Consideration.................................... 9
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS............. 9
3.1 Organization and Power.................................................10
3.2 Authorization, No Violations and Notices ..............................10
3.3 Litigation with respect to Contributors ...............................11
3.4 Interest...............................................................11
3.5 Bankruptcy with respect to Contributors................................11
3.6 Brokerage Commission...................................................11
3.7 The Partnership........................................................11
3.8 Liabilities, Debts and Obligations.....................................12
3.9 Tax Matters with respect to Partnership................................12
3.10 Contracts and Agreements...............................................13
3.11 No Special Taxes.......................................................13
3.12 Compliance with Existing Laws..........................................13
3.13 Operating Agreements...................................................13
3.14 Warranties and Guaranties..............................................13
3.15 Insurance..............................................................14
3.16 Condemnation Proceedings; Roadways.....................................14
3.17 Litigation with respect to Partnership.................................14
3.18 Labor Disputes and Agreements..........................................14
3.19 Financial Information..................................................14
3.20 Organizational Documents...............................................15
3.21 Operation of Property..................................................15
3.22 Intentionally Omitted..................................................15
3.23 Bankruptcy with respect to Partnership.................................15
3.24 Hazardous Substances...................................................15
3.25 Room Furnishings.......................................................16
3.26 License................................................................16
3.27 Independent Audit......................................................16
3.28 Bulk Sale Compliance...................................................16
3.29 Liquor License.........................................................16
3.30 Sufficiency of Certain Items...........................................17
3.31 Noncompetition.........................................................17
3.32 Leases.................................................................17
3.33 Securities Law Matters.................................................17
3.34 Tax Matters with respect to Contributors...............................17
3.35 Noncontravention.......................................................17
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS................18
4.1 Organization and Power.................................................18
4.2 Noncontravention.......................................................18
4.3 Litigation.............................................................18
4.4 Bankruptcy.............................................................19
4.5 No Brokers.............................................................19
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS................19
5.1 Contributors' Deliveries...............................................19
5.2 Representations, Warranties and Covenants; Obligations of Contributors;
Certificate............................................................19
5.3 Title Insurance........................................................19
5.4 Intentionally Omitted..................................................19
5.5 Condition of Improvements..............................................19
5.6 Utilities..............................................................20
5.7 Intentionally Omitted..................................................20
5.8 License................................................................20
5.9 Intentionally Omitted..................................................20
ARTICLE VI
CLOSING.................................20
6.1 Closing................................................................20
6.2 Contributors' Deliveries...............................................20
6.3 Acquiror's Deliveries..................................................22
6.4 Closing Costs..........................................................22
6.5 Income and Expense Allocations.........................................23
ARTICLE VII
CONDEMNATION; RISK OF LOSS........................24
7.1 Condemnation...........................................................24
7.2 Risk of Loss...........................................................24
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS........................25
8.1 Liability of Acquiror..................................................25
8.2 Indemnification by Contributors........................................25
8.3 Termination by Acquiror................................................25
8.4 Termination by Contributors............................................25
ARTICLE IX
MISCELLANEOUS PROVISIONS........................25
9.1 Completeness; Modification.............................................25
9.2 Assignments............................................................25
9.3 Successors and Assigns.................................................26
9.4 Days...................................................................26
9.5 Governing Law..........................................................26
9.6 Counterparts...........................................................26
9.7 Severability...........................................................26
9.8 Costs..................................................................26
9.9 Notices................................................................26
9.10 Incorporation by Reference.............................................27
9.11 Survival...............................................................27
9.12 Further Assurances.....................................................28
9.13 No Partnership.........................................................28
9.14 Time of Essence........................................................28
9.15 Confidentiality........................................................29
<PAGE>
LIST OF EXHIBITS
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributors' Partnership Agreement
Exhibit G - Contributors' Certificate of Limited Partnership
Exhibit H - Contributors' Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
Exhibit O - Shreenathji Enterprises, Ltd. Articles of
Incorporation
Exhibit P - Shreenathji Enterprises, Ltd. Bylaws
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998,
between Shree Associates, a Pennsylvania limited partnership ("Shree"), Devi
Associates, a Pennsylvania limited partnership ("Devi"), Shreeji Associates, a
Pennsylvania limited partnership ("Shreeji"), Madhusudan Patni ("Patni") and
Shreenathji Enterprises, Ltd., a Pennsylvania corporation ("SEL") (collectively,
the "Contributors"), and Hersha Hospitality Limited Partnership, a Virginia
limited partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Shree Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shree assigns and the
Acquiror assumes the Shree Interest.
"Devi Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Devi assigns and the
Acquiror assumes the Devi Interest.
"Shreeji Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shreeji assigns and the
Acquiror assumes the Shreeji Interest.
"Patni Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Patni assigns and the
Acquiror assumes the Patni Interest.
"SEL Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby SEL assigns and the Acquiror
assumes the SEL Interest.
"Assignment and Assumption Agreements" shall mean the Shree
Assignment and Assumption Agreement, the Devi Assignment and Assumption
Agreement, the Shreeji Assignment and Assumption Agreement, the Patni Assignment
and Assumption Agreement, the Gandhi Assignment and Assumption Agreement and the
SEL Assignment and Assumption Agreement.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Closing" shall mean the Closing of the contribution and
acquisition of the Interests pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $3,300,000 payable to the
Contributors at Closing in the manner described in Section 2.3.
"Continuing Liabilities" shall include liabilities arising
under operating agreements, equipment leases, loan agreements, or proration
credits at Closing, but shall exclude any liabilities arising from any other
arrangement, agreement or pending litigation.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributors or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717)
234-8198.
"FIRPTA Certificates" shall mean the affidavit of each of the
Contributors under Section 1445 of the Internal Revenue Code certifying that
such Contributor is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person (as those terms are defined in the
Internal Revenue Code and the Income Tax Regulations), in form and substance
satisfactory to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other
buildings,improvements, fixtures and other items of real estate located on the
Land.
"Shree Interest" shall mean all right, title and interest of
Shree in the Partnership, consisting of a 24.16% limited partnership interest in
the Partnership.
"Devi Interest" shall mean all right, title and interest of
Devi in the Partnership, consisting of a 24.16% limited partnership interest in
the Partnership.
"Shreeji Interest" shall mean all right, title and interest of
Shreeji in the Partnership, consisting of a 29.68% limited partnership interest
in the Partnership.
"Patni Interest" shall mean all right, title and interest of
Patni in the Partnership, consisting of a 21% limited partnership interest in
the Partnership.
"SEL Interest" shall mean all right, title and interest of SEL
in the Partnership, consisting of a 1% general partnership interest in the
Partnership.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributors and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger as hereinafter defined,
excluding (a) any of the aforesaid rights the Acquiror elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial
institutions and (c) accounts receivable except for the above described share of
the Tray Ledger.
"Interests" shall mean the Shree Interest, the Devi Interest,
the Shreeji Interest, the Patni Interest and the SEL Interest.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in Milesburg, Centre County, Pennsylvania, as more particularly described
on Exhibit A attached hereto, together with all easements, rights, privileges,
remainders, reversions and appurtenances thereunto belonging or in any way
appertaining, and all of the estate, right, title, interest, claim or demand
whatsoever of the Contributors therein, in the streets and ways adjacent thereto
and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Management L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Organizational Documents" shall mean the current partnership
agreement and certificate of limited partnership of each of the limited
partnership Contributors, true and correct copies of which are attached hereto
as Exhibits F and G and Articles of Incorporation and Bylaws of SEL, true and
correct copies of which are attached hereto as Exhibits O and P.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Partnership" shall mean MEPS Associates, a Pennsylvania
limited partnership that owns as its sole assets hotel improvements situate in
Milesburg, Centre County, Pennsylvania.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.2.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributors' Reservation
Terminal and Reservation System equipment and software, if any.
"Shree's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shree, true and
correct copies of which are attached hereto as Exhibits F and G.
"Devi's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Devi, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shreeji's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shreeji, true
and correct copies of which are attached hereto as Exhibits F and G.
"SEL's Organizational Documents" shall mean the current
Articles of Incorporation and Bylaws of SEL, true and correct copies of which
are attached hereto as Exhibits O and P.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributors;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717)
234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Effective Date, exclusive
of food, beverage, telephone and similar charges which shall be retained by the
Contributors), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
CONTRIBUTION AND ACQUISITION; STUDY PERIOD; PAYMENT OF CONSIDERATION
AND CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. Each of the Contributors agrees to
contribute, assign and transfer its Interest to the Acquiror and the Acquiror
agrees to accept each Contributor's Interest in exchange for the Consideration
and the Contingent Consideration and in accordance with the other terms and
conditions set forth herein.
2.2 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributors that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the purchase of the
Interests for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributors prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributors of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributors, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, and the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributors shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributors'
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributors against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributors of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributors shall notify the Acquiror whether the
Contributors are willing to cure such defects. Contributors may cure, but shall
not be obligated to cure such defects. If such defects consist of deeds of
trust, mechanics' liens, tax liens or other liens or charges in a fixed sum or
capable of computation as a fixed sum, the Contributors, at its option, shall
either pay and discharge (in which event, the Escrow Agent is authorized to pay
and discharge at Closing) such defects at Closing, or provide bonds or
indemnities in favor of the Title Company in order to remove such items from the
Title Policy at Closing. If the Contributors are unwilling or unable to cure any
other such defects by Closing, the Acquiror shall elect (1) to waive such
defects and proceed to Closing without any abatement in the Consideration or (2)
to terminate this Agreement. The Contributors shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributors of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
<PAGE>
2.3 Payment of the Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd., as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.4. Determination of Number of Partnership Units. For purposes of
determining the number of Partnership Units to be delivered by the Acquiror at
the Closing, each Partnership Unit shall be deemed to have a value equal to
$6.00. No fractional Partnership Units will be issued at Closing; in lieu of any
such fraction, the value shall be rounded up to a whole share value.
2.5 Contributors' Distribution of Partnership Units . On the Closing
Date, the Partnership Units shall be distributed among the Contributors , as set
forth on Exhibit K attached hereto , in the amount specified on Exhibit K. On
the date hereof, Contributors shall deliver or cause to be delivered to Acquiror
an Investor Questionnaire and Agreement in the form attached hereto as Exhibit F
(a "Questionnaire"), completed and executed by each of the Contributors . On the
Closing Date, Acquiror shall issue certificates reflecting each of the
Contributors ownership of the Partnership Units. The certificates evidencing the
Partnership Units will bear appropriate legends indicating (i) that the
Partnership Units have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement
restricts the transfer of Partnership Units. The Acquiror shall assume no
responsibility for any allocation of the consideration, including Partnership
Units, to any of the Contributors' partners. Contributors agree to hold Acquiror
and its affiliates harmless and to indemnify Acquiror and its affiliates for all
costs, claims, damages and expenses, including reasonable attorney's fees,
incurred by Acquiror in connection with such allocations. Upon receipt of
Partnership Units, the Acquiror's Partnership Agreement shall be executed by or
on behalf of each of the Contributors and the Contributors shall become limited
partners of Acquiror and agree to be bound by the Partnership Agreement.
2.6 Intentionally Omitted.
2.7 Intentionally Omitted.
2.8 Redemption. The Partnership Units may be redeemed upon delivery of
a notice ("Redemption Notice") from the Contributors , for common shares
("Common Shares") of beneficial interest in Hersha Hospitality Trust (the
"REIT") or for cash, in accordance with the Hersha Hospitality Limited
Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the Common
Shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the Common Shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M and incorporated herein.
2.10 Consideration Contingency.
The Contributors shall value the Hotel on December 31, 1999. The value
of the Hotel shall be computed by applying a 12% capitalization rate to the
audited trailing 12 months net operating income, adjusted for a 4% of revenue
management fee and a 6% of revenue furniture, fixture and equipment reserve.
If the then current value of the Hotel exceeds the consideration paid
by Acquiror hereunder, the Acquiror will issue additional Partnership Units at
the Offering Price equal to the difference between the then current value and
the consideration paid hereunder and all distributions paid on those units since
Closing Date.
If the then current value of the Hotel is less than the Consideration
paid by the Acquiror hereunder, the Contributors will return to the Acquirer
Partnership Units at the Offering Price equal to the difference between the then
current value of the Hotel and the Consideration paid hereunder and all
distributions paid on those units since the Closing Date.
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to purchase the
Interests, the Contributors hereby make the following representations,
warranties and covenants on a joint and several basis , upon each of which the
Contributors acknowledge and agree that the Acquiror is entitled to rely and has
relied:
3.1 Organization and Power. The Contributors are limited partnerships
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or individuals,
and have all requisite powers and all governmental licenses, authorizations,
consents and approvals necessary to carry on its business as now conducted, to
own, lease and operate its properties, to execute and deliver this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Contributors hereunder, to perform their obligations under this Agreement
and any such other documents or instruments and to consummate the transactions
contemplated hereby.
3.2 Authorization, No Violations and Notices.
(a) The execution, delivery and performance of this Agreement by
the Contributors, and the consummation of the transactions
contemplated hereby have been duly authorized, adopted and
approved by the partners of the Contributors for those
Contributors that are partnerships to the extent required by
its organizational documents and applicable law. No other
proceedings are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly
executed by Shree, Devi, Shreeji, Patni, and SEL and is a
valid and binding obligation enforceable against them in
accordance with its terms.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that,
which, with or lapse of time or both, would
constitute a default) under, result in the
termination of, accelerate the performance required
by, or result in a right of termination or
acceleration, or the creation of any lien, security
interest, charge, or encumbrance upon any of the
properties or assets of the Partnership, under any of
the terms, conditions, or provisions of, its
Partnership, or any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement, or other
instrument, or obligation to which the Partnership is
a party, or by which the Partnership may be bound, or
to which the Partnership or its properties or assets
may be subject; or
(iii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule, or regulation
applicable to the Partnership or its property or
assets that would not be violated by the execution,
delivery or performance of this Agreement or the
transactions contemplated hereby by the Contributors
or compliance by the Contributors with any of the
provisions hereof.
3.3 Litigation with respect to Contributors. There is no action, suit,
claim or proceeding pending or, to the Contributors knowledge, threatened
against or affecting the Contributors or their assets in any court, before any
arbitrator or before or by any governmental body or other regulatory authority
(i) that would adversely affect the Interests, (ii) that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or the
transactions contemplated hereby, or (iii) would delay the consummation of any
of the transactions contemplated hereby. The Contributors are not subject to any
judgment, decree, injunction, rule or order of any court relating to the
Contribtuors' participation in the transactions contemplated by this Agreement.
3.4 Interests. The Interests will be free and clear of all liens and
encumbrances on the Closing Date and the Contributors have good, merchantable
title thereto and the right to convey same in accordance with the terms of this
Agreement. Upon delivery of the Assignment and Assumption Agreements to the
Acquiror at Closing, good valid and merchantable title to the Interests, free
and clear of all liens and encumbrances, will pass to the Acquiror.
3.5 Bankruptcy with Respect to Contributors. No Act of Bankruptcy has
occurred with respect to the Contributors.
3.6 Brokerage Commission. The Contributors have not engaged the
services of, nor is it or will it or Acquiror become liable to, any real estate
agent, broker, finder or any other person or entity for any brokerage or
finder's fee, commission or other amount with respect to the transactions
described herein on account of any action by the Contributors.
3.7 The Partnership.
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers
necessary to carry on its business as now conducted, to own,
lease and operate its properties.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that,
with notice or lapse of time or both, would
constitute a default) under, result in the
termination of, accelerate the performance required
by, or result in a right of termination or
acceleration, or the creation of any lien, security
interest, charge, or encumbrance upon any of the
properties or assets of the Partnership, under any of
the terms, conditions, or provisions of, their
articles of incorporation or bylaws, or any note,
bond, mortgage, indenture, deed of trust, license,
lease, agreement, or other instrument or obligation
to which the Partnership is a party, or by which the
Partnership may be bound, or to which the Partnership
or its properties or assets may be subject; or
(ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule, or regulation
applicable to the Partnership or any of the
Partnership's properties or assets.
(c) Except for the Contributors, no party has any interest in the
Partnership or the right or option to acquire any interest in
the Partnership or the property or any portion thereof. The
Partnership has no subsidiaries and does not directly or
indirectly own any securities of or interest in any other
entity, including, without limitation, any partnership or
joint venture.
3.8 Liabilities, Debts and Obligations. Except for the Continuing
Liabilities, the Partnership has no liability, debt or obligation.
3.9 Tax Matters with respect to Partnership.
(a) The Partnership has filed all income tax information returns on IRS
Form 1065 (including K-1s for each partner) and applicable state and
local income tax forms required to be filed with the United States
Government and with all states and political subdivisions thereof where
any such returns are required to be filed and where the failure to file
such return or report would subject the Partnership or its partners to
any material liability or penalty. All taxes (other than sale taxes,
rental taxes or the equivalent and real property taxes) imposed by the
United States, or by any foreign country, or by any state,
municipality, subdivision, or instrumentality of the United States or
of any foreign country or by any other taxing authority, which are due
and payable by the Partnership have been paid in full or adequately
provided for by reserves shown in their records and books of account
and in the Partnership's financial information. The Partnership has
not obtained or received any extension of time (beyond the Closing
Date) for the assessment of deficiencies for any years or waived or
extended the statute of limitations for the determination or collection
of any tax. To the Contributors' knowledge no unassessed tax
deficiency is proposed or threatened against the Partnership.
(b) All taxes, rental taxes or the equivalent, and all interest and
penalties due thereon, required to be paid or collected by the
Partnership in connection with the operation of the Property as of the
Closing Date will have been collected and/or paid to the appropriate
governmental authorities, as required or such amounts shall be
pro-rated as of the Closing Date. The Partnership shall file, all
necessary returns and petitions required to be filed through the
Closing Date. The Partnership shall prepare and file all federal and
state income tax returns for the tax period ending on the Closing
Date, which shall reflect the termination for tax purposes of the
Partnership. If requested by the Acquiror, the Contributors shall
cause the Partnership to make an election under Section 754 of the Code
for the period ending on the Closing Date.
3.10 Contracts and Agreements. There is no loan agreement, guarantee,
note, bond, indenture and other debt instrument, lease and other contract to
which the Partnership is a party or by which its assets are bound other than
Permitted Title Encumbrances, the Leases, and the Operating Agreements.
3.11 No Special Taxes. The Contributors have no actual knowledge of,
nor have they received any written notice of, any special taxes or assessments
relating to the Partnership or Property or any part thereof or any planned
public improvements that may result in a special tax or assessment against the
Property.
3.12 Compliance with Existing Laws. The Partnership possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributors' actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Partnership has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributors have no actual knowledge of any change in
the circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributors have
no actual knowledge, nor have they received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.13 Operating Agreements. The Partnership has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Partnership shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Partnership enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributors have obtained the Acquiror's prior
written consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.14 Warranties and Guaranties. The Partnership shall not before
Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.15 Insurance. All of the Partnership's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Partnership on or before the due date therefor. The Partnership
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Partnership's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Partnership shall name the Acquiror as an additional insured
on each of the Partnership's Insurance Policies.
3.16 Condemnation Proceedings; Roadways. The Partnership has received
no written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributors have no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.17 Litigation with respect to Partnership. Except as set forth on
Exhibit I there is no action, suit or proceeding pending or known to be
threatened against or affecting the Partnership or its property in any court,
before any arbitrator or before or by any governmental agency which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement or any other material agreement or instrument to which the Partnership
are a party or by which they are bound and that is or is to be used in
connection with, or is contemplated by, this Agreement, (b) could materially and
adversely affect the business, financial position or results of operations of
the Partnership, (c) could materially and adversely affect the ability of the
Partnership perform its obligations hereunder, or under any document to be
delivered pursuant hereto, (d) could create a lien on the Property, any part
thereof or any interest therein, or (e) could otherwise materially adversely
affect the Property, any part thereof or any interest therein or the use,
operation, condition or occupancy thereof.
3.18 Labor Disputes and Agreements. The Partnership currently has no
labor disputes pending or, threatened as to the operation or maintenance of the
Property or any part thereof. The Partnership is not a party to any union or
other collective bargaining agreement with employees employed in connection with
the ownership, operation or maintenance of the Property. The Acquiror will not
be obligated to give or pay any amount to any employee of the Partnership, and
the Acquiror shall not have any liability under any pension or profit sharing
plan that the Partnership may have established with respect to the Property or
their or its employees.
3.19 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.20 Organizational Documents. The Partnership's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.21 Operation of Property. The Contributors covenant that between the
date hereof and the date of Closing they will make good faith efforts to cause
the Partnership to (a) operate the Property only in the usual, regular and
ordinary manner consistent with the Partnership's prior practice, (b) maintain
their books of account and records in the usual, regular and ordinary manner, in
accordance with sound accounting principles applied on a basis consistent with
the basis used in keeping its books in prior years, and (c) use all reasonable
efforts to preserve intact their present business organization, keep available
the services of their present officers and employees and preserve their
relationships with suppliers and others having business dealings with them. The
Contributor shall make good faith efforts to encourage the Partnership to
continue to make good efforts to take guest room reservations and to book
functions and meetings and otherwise to promote the business of the Property in
generally the same manner as the Partnership did prior to the execution of this
Agreement. Except as otherwise permitted hereby, from the date hereof until
Closing, the Contributors shall use its good faith efforts to ensure that the
Partnership shall not take any action or fail to take action the result of which
(i) would have a material adverse effect on the Property or the Acquiror's
ability to continue the operation thereof after the date of Closing in
substantially the same manner as presently conducted, (ii) reduce or cause to be
reduced any room rents or any other charges over which Contributors have
operational control, or (iii) would cause any of the representations and
warranties contained in this Article III to be untrue as of Closing.
3.22 Intentionally Omitted.
3.23 Bankruptcy with respect to Partnership. No Act of Bankruptcy has
occurred with respect to the Partnership.
3.24 Hazardous Substances. Except for matters in Partnership's or
Acquiror's audits, Contributors have no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributors
have no actual knowledge of any failure to comply with any applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributors shall have no liability
to Acquiror for any Hazardous Substances of which Contributors have no actual
knowledge.
3.25 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.26 License. The license from Holiday Hospitality, Inc. (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributors will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.27 Independent Audit. Contributors shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with Regulation S-X of the Securities and Exchange Commission (the
"Commission") and to enable them to prepare a registration statement, report or
disclosure statement for filing with the Commission. Contributors shall also
provide to Acquiror's representatives a signed representative letter and a hold
harmless letter which would be sufficient to enable an independent public
accountant to render an opinion on the financial statements related to the
Property.
3.28 Bulk Sale Compliance. Contributors shall indemnify Acquiror
against any claim, loss or liability arising under the bulk sales law in
connection with the transaction contemplated herein.
3.29 Liquor License. The liquor license for the restaurant located
within the Hotel (the "Liquor License") is in full force and effect and validly
licensed to the person(s) required to be licensed under Pennsylvania law.
<PAGE>
3.30 Sufficiency of Certain Items. The Property contains not less
than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.31 Noncompetition. If Contributors develop or acquire other lodging
facilities, not owned at the time of the execution of this Agreement, within 15
miles of any facility owned or to be owned by the Acquiror, the Contributors
shall give the Acquiror the option to purchase the facility for a period of two
years following the opening or acquisition of such facility.
3.32 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributors, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributors and Contributors will have obtained consents all necessary
consents of any third party.
3.33 Securities Law Matters. Contributors further represent and warrant
that they have (i) received, reviewed, been given the opportunity to ask
questions of representatives of the Operating Partnership and the REIT
regarding, and understand the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributors and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.34 Tax Matters with Respect to Contributors. The Contributors
represent and warrant that they (and each of its partners) have obtained from
its own counsel advice regarding the tax consequences of (i) the transfer of the
Partnership Interest to the Acquiror and the receipt of Partnership Units as
consideration therefor, (ii) the Contributors' admission as partners of the
Acquiror, and (iii) any other transaction contemplated by this Agreement. The
Contributors further represent and warrant that they have not relied on the
Acquiror or the Acquiror's representatives or counsel for such advice.
3.35 Noncontravention. The execution and delivery of, and the
performance by the Contributors of their obligations under this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributors' Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributors, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributors (or any predecessor to or
representative of the Contributors) have agreed to contribute or have granted an
option or right of first refusal to acquire the Property or any part thereof.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the
Contributors. Acquiror acknowledges and agrees that, except for the
representations and warranties expressly set forth herein, Acquiror is acquiring
the Interests "AS-IS, WHERE-IS" with no representations or warranties by or from
Contributors or any of its affiliates, express or implied, or any nature
whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributors to enter into this Agreement and to sell the
Interests, the Acquiror hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Acquiror
acknowledges and agrees that the Contributors are entitled to rely and have
relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributors to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributors with
the following covenants:
5.1 Contributors' Deliveries. The Contributors shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributors
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributors; Certificate. All of the Contributors' representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributors shall have performed all of its material covenants
and other obligations under this Agreement and the Contributors shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.2.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributors shall not have diminished the quality or quantity of maintenance
and upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributors shall not have diminished the Inventory.
The Contributors shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributors shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998.
6.2 Contributors' Deliveries. At Closing, the Contributors shall
deliver to Acquiror all of the following instruments, each of which shall have
been duly executed and, where applicable, acknowledged on behalf of the
Contributors and shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Assignment and Assumption Agreements.
(c) Certificate(s)/Registration of Title for any
vehicle owned by the Contributors and used in connection with the Property.
(d) Such agreements, affidavits or other
documents as may be required by the Title Company to issue the Owner's Title
Policy with affirmative coverage over mechanics' and materialmen's liens.
(e) The FIRPTA Certificates.
(f) True, correct and complete copies of all
warranties, if any, of manufacturers, suppliers and installers possessed by
the Contributors and relating to the Improvements and the Personal Property,
or any part thereof.
(g) Certified copies of the Contributors' and
the Partnership's Organizational Documents.
(h) Appropriate resolutions of the partners of
the Contributors, together with all other necessary approvals and consents of
the Contributors, authorizing (A) the execution on behalf of the Contributors
of this Agreement and the documents to be executed and delivered by the
Contributors prior to, at or otherwise in connection with Closing, and (B)
the performance by the Contributors of its obligations hereunder and under
such documents.
(i) Valid, final and unconditional
certificate(s) of occupancy for the Real Property and Improvements, issued by
the appropriate governmental authority.
(j) The written consent of the Licensor to the
transfer of the license, if applicable, and if so required.
(k) Such proof as the Acquiror may reasonably
require with respect to Contributors' compliance with the bulk sales laws or
similar statutes.
(l) A written instrument executed by the
Contributors, conveying and transferring to the Acquiror all of the
Contributors' right, title and interest in any telephone numbers and
facsimile numbers relating to the Property, and, if the Contributors maintains
a post office box, conveying to the Acquiror all of its interest in and to such
post office box and the number associated therewith, so as to assure a
continuity in operation and communication.
(m) All current real estate and personal
property tax bills in the Contributors' possession or under its control.
(n) A complete set of all guest registration
cards, guest transcripts, guest histories, and all other available guest
information.
(o) An updated schedule of employees, showing
salaries and duties with a statement of the length of service of each such
employee, brought current to a date not more than 48 hours prior to the
Closing.
(p) A complete list of all advance room
reservations, functions and the like, in reasonable detail so as to enable the
Acquiror to honor the Contributors' commitments in that regard.
(q) A list of the Contributors' outstanding
accounts receivable as of midnight on the date prior to the Closing, specifying
the name of each account and the amount due the Contributors.
(r) Intentionally Omitted
(s) All keys for the Property.
(t) All books, records, operating reports, appraisal
reports, files and other materials in the Contributors' possession or control
which are necessary in the Acquirors discretion to maintain continuity of
operation of the Property.
(u) To the extent permitted under applicable law,
documents of transfer necessary to transfer to the Acquiror the Contributors'
employment rating for workmens' compensation and state unemployment tax
purposes.
(v) An assignment of all warranties and
guarantees from all contractors and subcontractors, manufacturers, and suppliers
in effect with respect to the Improvements.
(w) Complete set of "as-built" drawings for the
Improvements.
(x) Such agreements, affidavits or other
documents as may be required by the Title Company in order to issue affirmative
mechanics lien coverage in the Owner's Title Policy for the Property.
(y) a completed version of the Questionnaire
from the Contributors and each Transferee.
(z) Any other document or instrument reasonably
requested by the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributors the following:
(a) The Consideration described in Section 2.3.
(b) The Assignment and Assumption Agreements.
(c) The certificates described in Section 2.5 evidencing the
Transferees ownership of the Partnership Units and the admission of the
Transferees as limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested
by the Contributors or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
Any filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall be paid by the Acquiror. The Acquiror shall pay
reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.3(a) hereof.. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributors and the Acquiror. The Contributors shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income
and responsible for all expenses for the period of time from, after and
including the Closing Date. All adjustments shall be shown on the settlement
statements (with such supporting documentation as the parties hereto may require
being attached as exhibits to the settlement statements) and shall increase or
decrease (as the case may be) the amount payable by the Acquiror pursuant to
Section 2.3(d). Without limiting the generality of the foregoing, the following
items of income and expense shall be allocated as of the Closing Date:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements.
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributors, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributors prior to the Closing Date for dates after the Closing Date, all
of which Acquiror shall honor.
The Tray Ledger shall be retained by the Contributors. The Contributors
shall be required to pay all sales taxes and similar impositions currently up to
the Closing Date.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the Closing Date for Contributors, but if Acquiror
collects same, such amounts will be promptly remitted to Contributors in the
form received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributors or the Acquiror with respect to the
Property after the date of Closing shall be promptly allocated in the manner
described herein and the parties shall promptly pay or reimburse any amount due.
The Contributors shall pay at Closing all special assessments and taxes
applicable to the Property.
The certificates evidencing the Contributors' ownership of the
Partnership Units will be dated as of the Closing Date, and the Contributors
will be entitled to any dividends accruing thereon on and after the Closing
Date.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributors shall give
written notice thereof to the Acquiror promptly after the Contributors learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributors. If any such
loss or damage to more than twenty five percent (25%) of the value of the
improvements occurs prior to Closing, the Acquiror shall have the right to
terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to
terminate this Agreement, all insurance proceeds and rights to proceeds arising
out of such loss or damage shall be paid or assigned, as applicable, to the
Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributors or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributors. The Contributors hereby
indemnifies and holds the Acquiror harmless from and against any and all claims,
costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees), subject to Section 9.11 that may at any time be
incurred by the Acquiror, whether before or after Closing, as a result of any
breach by the Contributors of any of its representations, warranties, covenants
or obligations set forth herein or in any other document delivered by the
Contributors pursuant hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributors fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement and all other rights and obligations of the Contributors and the
Acquiror hereunder shall terminate immediately, or (b) to waive its right to
terminate and, instead, to proceed to Closing.
8.4 Termination by Contributors. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to purchase the Property), and the Acquiror fails to cure any
such default within ten business days after notice thereof from the
Contributors, then the Contributors' sole remedy for such default shall be to
terminate this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
<PAGE>
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributors and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributors: Jay H. Shah, Esquire
- ----------------------- Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia. PA 19106
Phone:(215) 238-1045
Fax:(215) 238-0157
With a copy to: Kiran P. Patel
- --------------- Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Phone:(717) 770-2405
Fax:(717) 774-7383
If to the Acquiror:
Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Phone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Cameron Cosby, Esquire
- --------------- Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Phone: (804) 788-8604
Fax: (804) 788-8218
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributors and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributors and the Acquiror each
covenant and agree to sign, execute and deliver, or cause to be signed, executed
and delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributors and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributors and its representatives, including
any professionals representing Contributors, shall keep the existence and terms
of this Agreement strictly confidential, except to the extent disclosure is
compelled by law, and then only to the extent of such compulsion.
[SIGNATURES ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Contributors and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTORS:
Shree Associates, a Pennsylvania limited partnership
By: /s/ Hasu P. Shah
------------------------------------------------
Hasu P. Shah, General Partner
Devi Associates, a Pennsylvania limited partnership
By: /s/ Bharat C. Mehta
------------------------------------------------
Bharat C. Mehta, General Partner
Shreeji Associates, a Pennsylvania limited partnership
By: /s/ Rajendra Gandhi
------------------------------------------------
Rajendra Gandhi, General Partner
Shreenathji Enterprises, Ltd., a Pennsylvania corporation
By: /s/ Hasu P. Shah
------------------------------------------------
Hasu P. Shah, President
/s/ Madhusudan Patni
--------------------------
Madhusudan Patni
ACQUIROR:
Hersha Hospitality Limited Partnership,
a Virginia partnership
By: Hersha Hospitality Trust, a Maryland Business
Trust, its sole general partner
By: /s/ Hasu P. Shah
------------------------------------------------
Hasu P. Shah, President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
2144 ASSOCIATES,
a Pennsylvania limited partnership,
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 5
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUIRE PRICE AND CONTINGENT ACQUIRE PRICE........................... 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 7
2.6 Determination of Number of LP Units........................................................... 7
2.7 Contributor's Transfer of LP Units to Contributor's Partner................................... 7
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Intentionally Omitted.......................................................................... 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 9
3.3 Noncontravention............................................................................... 9
3.4 No Special Taxes............................................................................... 9
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties..................................................................... 10
3.8 Insurance..................................................................................... 10
3.9 Condemnation Proceedings; Roadways............................................................ 10
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 11
3.13 Organizational Documents...................................................................... 11
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 12
3.16 Bankruptcy.................................................................................... 12
3.17 Intentionally Omitted......................................................................... 12
3.18 Hazardous Substances.......................................................................... 12
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
3.22 Bulk Sale Compliance.......................................................................... 13
3.23 Liquor License................................................................................ 13
3.24 Sufficiency of Certain Items.................................................................. 13
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 14
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 15
4.4 Bankruptcy.................................................................................... 15
4.5 No Brokers.................................................................................... 15
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 16
5.6 Utilities..................................................................................... 16
5.7 Intentionally Omitted......................................................................... 16
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING ........................................................................ 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 19
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 21
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 22
9.1 Completeness; Modification.................................................................... 22
9.2 Assignments................................................................................... 22
9.3 Successors and Assigns........................................................................ 22
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 22
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 24
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributor's Partnership Agreement
Exhibit G - Contributor's Certificate of Limited Partnership
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
</TABLE>
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998,
between 2144 ASSOCIATES, a Pennsylvania limited partnership (the "Contributor"),
and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the
"Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Land pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $570,000, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Contributor's Organizational Documents" shall mean the
current partnership agreement and certificate of limited partnership of the
Contributor, true and correct copies of which are attached hereto as Exhibits F
and G.
"Deed" shall mean that certain deed conveying title to the
Land with special warranty from the Contributor to the Acquiror, subject only to
Permitted Title Exceptions. The description of the Land in the Deed shall be by
courses and distances and, if there is a discrepancy between the description of
the Land attached hereto as Exhibit A and the description of the Land as shown
on the Survey, the description of the Land in the Deed shall be identical to the
description shown on the Survey.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger determined under Section
6.5, excluding (a) any of the aforesaid rights the Acquiror elects not to
acquire, (b) the Contributor's cash on hand, in bank accounts and invested with
financial institutions and (c) accounts receivable except for the above
described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean those certain parcels of real estate lying
and being in Hershey, Dauphin County, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributor therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases or real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Mangement, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Land for the Consideration and the
Contingent Consideration and in accordance with the other terms and conditions
set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Land for the purposes contemplated by the Acquiror, then the Acquiror may elect
to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd. as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated to land in the manner indicated on Exhibit J
attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Transfer of LP Units to Contributor's Partners. On
the Closing Date, Contributor shall distribute all of the LP Units to its
partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the
amount specified on Exhibit K. On the date hereof, Contributor shall deliver or
cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the
form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by
the Contributor and each of the Transferees. On the Closing Date, Acquiror shall
issue certificates reflecting each of the Transferees' ownership of the LP Units
distributed by Contributor. The certificates evidencing the LP Units will bear
appropriate legends indicating (i) that the LP Units have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and (ii) that
the Acquiror's Partnership Agreement restricts the transfer of LP Units. The
Acquiror shall assume no responsibility for any allocation of the consideration,
including LP Units, to the Transferees or any of Contributor's partners.
Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify
Acquiror and its affiliates for all costs, claims, damages and expenses,
including reasonable attorney's fees, incurred by Acquiror in connection with
such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement
shall be executed by or on behalf of each of the Transferees and the Transferees
shall become limited partners of Acquiror and agree to be bound by the
Partnership Agreement.
2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributor acknowledges that the issuance of the common
shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the common shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M, and incorporated herein.
<PAGE>
2.10 Intentionally Omitted.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Land, the Contributor hereby makes the following representations, warranties and
covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributor is a limited partnership
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations hereunder and under any
document or instrument required to be executed and delivered on behalf of the
Contributor hereunder.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in accordance with its terms.
There is no other person or entity who has an ownership interest in the Land or
whose consent is required in connection with the Contributor's performance of
its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributor, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Land or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Organizational Documents. The Contributor's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Holiday Hospitality, Inc. (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributor will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Liquor License. The liquor license for the restaurant located
within the Hotel (the "Liquor License") is in full force and effect and validly
licensed to the person(s) required to be licensed under Pennsylvania law.
3.24 Sufficiency of Certain Items. The Property contains not less
than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Property to the Acquiror and the receipt
of cash and LP Units as consideration therefor, (ii) the Transferees' admission
as partners of the Acquiror, and (iii) any other transaction contemplated by
this Agreement. The Contributor further represents and warrants that it (and
each of its partners) has not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for two (2) years, and no investigation, audit, inspection,
review or the like conducted by or on behalf of the Acquiror shall be deemed to
terminate the effect of any such representations, warranties and covenants, it
being understood that the Acquiror has the right to rely thereon and that each
such representation, warranty and covenant constitutes a material inducement to
the Acquiror to execute this Agreement and to close the transaction contemplated
hereby and to pay the Consideration to the Contributor. Acquiror acknowledges
and agrees that, except for the representations and warranties expressly set
forth herein, Acquiror is acquiring the Land "AS-IS, WHERE-IS" with no
representations or warranties by or from Contributor or any of its affiliates,
express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Land, the Acquiror hereby makes the following representations,
warranties and covenants with respect to the Property, upon each of which the
Acquiror acknowledges and agrees that the Contributor is entitled to rely and
has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Land shall be delivered to the Acquiror at Closing, subject only to Permitted
Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror the following instruments in its possession and control, each of
which shall have been duly executed and acknowledged, if applicable on behalf of
the Contributor:
(a) The certificate required by Section 5.2.
(b) The Deed.
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
(f) Certificate(s)/Registration of Title for any
vehicle owned by the Contributor and used in connection with the Property.
(g) Such agreements, affidavits or other
documents as may be required by the Title Company to issue the Owner's Title
Policy with affirmative coverage over mechanics' and materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all
warranties, if any, of manufacturers, suppliers and installers possessed by
the Contributor and relating to the Improvements and the Personal Property,
or any part thereof.
(j) Certified copies of the Contributor's
Organizational Documents.
(k) Appropriate resolutions of the partners of
the Contributor, together with all other necessary approvals and consents of
the Contributor, authorizing (A) the execution on behalf of the Contributor of
this Agreement and the documents to be executed and delivered by the
Contributor prior to, at or otherwise in connection with Closing, and (B)
the performance by the Contributor of its obligations hereunder and under
such documents.
(l) Valid, final and unconditional
certificate(s) of occupancy for the Real Property and Improvements, issued by
the appropriate governmental authority.
(m) The written consent of the Licensor to the
transfer of the license, if applicable, and if so required.
(n) If the Acquiror is assuming the
Contributor's obligations under any or all of the Operating Agreements, the
originals of such agreements, duly assigned to the Acquiror and with such
assignment acknowledged and approved by the other parties to such Operating
Agreements.
(o) Such proof as the Acquiror may reasonably
require with respect to Contributor's compliance with the bulk sales laws or
similar statutes.
(p) A written instrument executed by the
Contributor, conveying and transferring to the Acquiror all of the
Contributor's right, title and interest in any telephone numbers and
facsimile numbers relating to the Property, and, if the Contributor maintains
a post office box, conveying to the Acquiror all of its interest in and to
such post office box and the number associated therewith, so as to assure a
continuity in operation and communication.
(q) All current real estate and personal
property tax bills in the Contributor's possession or under its control.
(r) A complete set of all guest registration
cards, guest transcripts, guest histories, and all other available guest
information.
(s) An updated schedule of employees, showing
salaries and duties with a statement
of the length of service of each such employee, brought current to a date not
more than 48 hours prior to the Closing.
(t) A complete list of all advance room
reservations, functions and the like, in reasonable detail so as to enable the
Acquiror to honor the Contributor's commitments in that regard.
(u) A list of the Contributor's outstanding
accounts receivable as of midnight on the date prior to the Closing, specifying
the name of each account and the amount due the Contributor.
(v) Written notice executed by Contributor
notifying all interested parties, including all tenants under any leases of the
Property, that the Property has been conveyed to the Acquiror and directing
that all payments, inquiries and the like be forwarded to the Acquiror at the
address to be provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal
reports, files and other
materials in the Contributor's possession or control which are necessary in the
Acquirors discretion to maintain continuity of operation of the Property.
(y) To the extent permitted under applicable law,
documents of transfer necessary
to transfer to the Acquiror the Contributor's employment rating for workmens'
compensation and state unemployment tax purposes.
(z) An assignment of all warranties and
guarantees from all contractors and subcontractors, manufacturers, and suppliers
in effect with respect to the Improvements.
(aa) Complete set of "as-built" drawings for the
Improvements.
(bb) Such agreements, affidavits or other
documents as may be required by the Title Company in order to issue affirmative
mechanics lien coverage in the Owner's Title Policy for the Property.
(cc) a completed version of the Questionnaire from
the Contributor and each Transferee.
(dd) Any other document or instrument reasonably
requested by the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section
2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7
evidencing the Transferees ownership of the LP Units and the admission of the
Transferrees as limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested
by the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall also be paid by the Acquiror. The Acquiror shall
pay reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributor and the Acquiror. The Contributor shall be entitled to all income,
and responsible for all expenses for the period of time up to but not including
12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall
be entitled to all income and responsible for all expenses for the period of
time from, after and including the date of Closing. All adjustments shall be
shown on the settlement statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the settlement
statements) and shall increase or decrease (as the case may be) the amount
payable by the Acquiror pursuant to Section 2.4(d). Without limiting the
generality of the foregoing, the following items of income and expense shall be
allocated as of the date of Closing:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributor prior to the Effective Date for dates after the date of Closing,
all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of two (2) years following Closing and
shall not merge into the Deed or any other document or instrument executed and
delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTOR:
<TABLE>
<CAPTION>
<S> <C>
2144 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
its general partner
By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
President
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia limited partnership
By: Hersha Hospitality Trust, a Maryland business trust, its
sole general partner
By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
President
</TABLE>
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
Hasu P. Shah and Bharat C. Mehta,
individually and collectively,
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 4
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUIRE PRICE AND CONTINGENT ACQUIRE PRICE........................... 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 7
2.6 Determination of Number of LP Units........................................................... 7
2.7 Contributor's Distribution of LP Units........................................................ 7
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Intentionally Omitted.......................................................................... 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 8
3.3 Noncontravention............................................................................... 8
3.4 No Special Taxes............................................................................... 8
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties...................................................................... 9
3.8 Insurance...................................................................................... 9
3.9 Condemnation Proceedings; Roadways............................................................. 9
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 10
3.13 Intentionally Omitted......................................................................... 10
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 11
3.16 Bankruptcy.................................................................................... 11
3.17 Intentionally Omitted......................................................................... 11
3.18 Hazardous Substances.......................................................................... 12
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
3.22 Bulk Sale Compliance.......................................................................... 12
3.23 Intentionally Omitted......................................................................... 12
3.24 Sufficiency of Certain Items.................................................................. 12
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 13
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 14
4.4 Bankruptcy.................................................................................... 15
4.5 No Brokers.................................................................................... 15
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 15
5.6 Utilities..................................................................................... 16
5.7 Intentionally Omitted......................................................................... 16
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING.................................................. 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 19
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 21
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 22
9.1 Completeness; Modification.................................................................... 22
9.2 Assignments................................................................................... 22
9.3 Successors and Assigns........................................................................ 22
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 22
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 24
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Legal Description
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributor's Partnership Agreement
Exhibit G - Contributor's Certificate of Limited Partnership
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998,
between 244 ASSOCIATES, a Pennsylvania limited partnership (the "Contributor"),
and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the
"Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Property pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $1,727,508, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Contributor's Organizational Documents" shall mean the
current partnership agreement and certificate of limited partnership of the
Contributor, true and correct copies of which are attached hereto as Exhibits F
and G.
"Deed" shall mean that certain deed conveying title to the
Real Property with special warranty from the Contributor to the Acquiror,
subject only to Permitted Title Exceptions. The description of the Land in the
Deed shall be by courses and distances and, if there is a discrepancy between
the description of the Land attached hereto as Exhibit A and the description of
the Land as shown on the Survey, the description of the Land in the Deed shall
be identical to the description shown on the Survey.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666,
Fax: 717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Comfort Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Property,
all licenses, permits and approvals with respect to the construction, ownership,
operation, leasing, occupancy or maintenance of the Property, any unpaid award
for taking by condemnation or any damage to the Land by reason of a change of
grade or location of or access to any street or highway, and the share of the
Tray Ledger determined under Section 6.5, excluding (a) any of the aforesaid
rights the Acquiror elects not to acquire, (b) the Contributor's cash on hand,
in bank accounts and invested with financial institutions and (c) accounts
receivable except for the above described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in Denver, Pennsylvania, as more particularly described on Exhibit A
attached hereto, together with all easements, rights, privileges, remainders,
reversions and appurtenances thereunto belonging or in any way appertaining, and
all of the estate, right, title, interest, claim or demand whatsoever of the
Contributor therein, in the streets and ways adjacent thereto and in the beds
thereof, either at law or in equity, in possession or expectancy, now or
hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Mangement, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the
Improvements (including the marketability thereof) subject only to Permitted
Title Exceptions. The Owner's Title Policy shall insure the Acquiror in the
amount of the Consideration and shall be acceptable in form and substance to the
Acquiror. The description of the Land in the Owner's Title Policy shall be by
courses and distances and shall be identical to the description shown on the
Survey.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666,
Fax: 717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Property for the Consideration and the
Contingent Consideration and in accordance with the other terms and conditions
set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Property for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd., as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated among the various components of the Property in
the manner indicated on Exhibit J attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Distribution of LP Units. On the Closing Date,
Contributor shall distribute all of the LP Units, as set forth on Exhibit K
attached hereto (the "Transferees"), in the amount specified on Exhibit K. On
the date hereof, Contributor shall deliver or cause to be delivered to Acquiror
an Investor Questionnaire and Agreement in the form attached hereto as Exhibit F
(a "Questionnaire"), completed and executed by each contributor and each of the
Transferees. On the Closing Date, Acquiror shall issue certificates reflecting
each of the Transferees' ownership of the LP Units distributed by Contributor.
The certificates evidencing the LP Units will bear appropriate legends
indicating that the Acquiror's Partnership Agreement restricts the transfer of
LP Units. The Acquiror shall assume no responsibility for any allocation of the
consideration, including LP Units, to the Transferees or any of contributors.
Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify
Acquiror and its affiliates for all costs, claims, damages and expenses,
including reasonable attorney's fees, incurred by Acquiror in connection with
such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement
shall be executed by or on behalf of each of the Transferees and the Transferees
shall become limited partners of Acquiror and agree to be bound by the
Partnership Agreement.
2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
(a) The Contributor acknowledges that the issuance of the
Common Shares issuable upon redemption of the LP Units shall be registered in
accordance with the applicable provisions of the Hersha Hospitality Limited
Partnership Agreement.
(b) Intentionally Omitted.
2.10 Consideration Contingency.
The Contributors shall value the Hotel on December 31, 1999. The value
of the Hotel shall be computed by applying a 12% capitalization rate to the
audited trailing 12 months net operating income, adjusted for a 4% of revenue
management fee and a 6% of revenue furniture, fixture and equipment reserve.
If the then current value of the Hotel exceeds the consideration paid
by Acquiror hereunder, the Acquiror will issue additional Partnership Units at
the Offering Price equal to the difference between the then current value and
the consideration paid hereunder and all distributions paid on those units since
Closing Date.
If the then current value of the Hotel is less than the Consideration
paid by the Acquiror hereunder, the Contributors will return to the Acquirer
Partnership Units at the Offering Price equal to the difference between the then
current value of the Hotel and the Consideration paid hereunder and all
distributions paid on those units since the Closing Date.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Property, the Contributor hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributors are individuals residing
in the Commonwealth of Pennsylvania and have all requisite powers and all
governmental licenses, authorizations, consents and approvals to carry on their
business as now conducted and to enter into and perform its obligations
hereunder and under any document or instrument required to be executed and
delivered on behalf of the Contributor hereunder.
3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in accordance with its terms.
There is no other person or entity who has an ownership interest in the Property
or whose consent is required in connection with the Contributor's performance of
its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributor, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Property or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
<PAGE>
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Intentionally Omitted.
<PAGE>
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
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<PAGE>
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Choice Hotels International, Inc. (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributor will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Intentionally Omitted.
3.24 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Property to the Acquiror and the receipt
of cash and LP Units as consideration therefor, (ii) the Transferees' admission
as partners of the Acquiror, and (iii) any other transaction contemplated by
this Agreement. The Contributor further represents and warrants that it (and
each of its partners) has not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
<PAGE>
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the Contributor.
Acquiror acknowledges and agrees that, except for the representations and
warranties expressly set forth herein, Acquiror is acquiring the Property
"AS-IS, WHERE-IS" with no representations or warranties by or from Contributor
or any of its affiliates, express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Property, the Acquiror hereby makes the following
representations, warranties and covenants with respect to the Property, upon
each of which the Acquiror acknowledges and agrees that the Contributor is
entitled to rely and has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Property shall be delivered to the Acquiror at Closing, subject only to
Permitted Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror all of the following instruments, each of which shall have been duly
executed and, where applicable, acknowledged on behalf of the Contributor and
shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Deed.
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
(f) Certificate(s)/Registration of Title for any vehicle owned
by the Contributor and used in connection with the Property.
(g) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title Policy with affirmative
coverage over mechanics' and materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all warranties, if
any, of manufacturers, suppliers and installers possessed by the Contributor and
relating to the Improvements and the Personal Property, or any part thereof.
(j) Certified copies of the Contributor's Organizational
Documents.
(k) Appropriate resolutions of the partners of the
Contributor, together with all other necessary approvals and consents of the
Contributor, authorizing (A) the execution on behalf of the Contributor of this
Agreement and the documents to be executed and delivered by the Contributor
prior to, at or otherwise in connection with Closing, and (B) the performance by
the Contributor of its obligations hereunder and under such documents.
(l) Valid, final and unconditional certificate(s) of occupancy
for the Real Property and Improvements, issued by the appropriate governmental
authority.
(m) The written consent of the Licensor to the transfer of the
license, if applicable, and if so required.
(n) If the Acquiror is assuming the Contributor's obligations
under any or all of the Operating Agreements, the originals of such agreements,
duly assigned to the Acquiror and with such assignment acknowledged and approved
by the other parties to such Operating Agreements.
(o) Such proof as the Acquiror may reasonably require with
respect to Contributor's compliance with the bulk sales laws or similar
statutes.
(p) A written instrument executed by the Contributor,
conveying and transferring to the Acquiror all of the Contributor's right, title
and interest in any telephone numbers and facsimile numbers relating to the
Property, and, if the Contributor maintains a post office box, conveying to the
Acquiror all of its interest in and to such post office box and the number
associated therewith, so as to assure a continuity in operation and
communication.
(q) All current real estate and personal property tax bills in
the Contributor's possession or under its control.
(r) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest information.
(s) An updated schedule of employees, showing salaries and
duties with a statement of the length of service of each such employee, brought
current to a date not more than 48 hours prior to the Closing.
(t) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to enable the Acquiror to
honor the Contributor's commitments in that regard.
(u) A list of the Contributor's outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due the Contributor.
(v) Written notice executed by Contributor notifying all
interested parties, including all tenants under any leases of the Property, that
the Property has been conveyed to the Acquiror and directing that all payments,
inquiries and the like be forwarded to the Acquiror at the address to be
provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal reports,
files and other materials in the Contributor's possession or control which are
necessary in the Acquirors discretion to maintain continuity of operation of the
Property.
(y) To the extent permitted under applicable law, documents of
transfer necessary to transfer to the Acquiror the Contributor's employment
rating for workmens' compensation and state unemployment tax purposes.
(z) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and suppliers in effect with
respect to the Improvements.
(aa) Complete set of "as-built" drawings for the Improvements.
(bb) Such agreements, affidavits or other documents as may be
required by the Title Company in order to issue affirmative mechanics lien
coverage in the Owner's Title Policy for the Property.
(cc) a completed version of the Questionnaire from the
Contributor and each Transferee.
(dd) Any other document or instrument reasonably requested by
the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section 2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7 evidencing the
Transferees ownership of the LP Units and the admission of the Transferrees as
limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested by
the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall also be paid by the Acquiror. The Acquiror shall
pay reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributor and the Acquiror. The Contributor shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall
be entitled to all income and responsible for all expenses for the period of
time from, after and including the date of Closing. All adjustments shall be
shown on the settlement statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the settlement
statements) and shall increase or decrease (as the case may be) the amount
payable by the Acquiror pursuant to Section 2.4(d). Without limiting the
generality of the foregoing, the following items of income and expense shall be
allocated as of the date of Closing:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributor prior to the Effective Date for dates after the date of Closing,
all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
<PAGE>
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Virginia.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Acquiror have
caused this Agreement to be executed in their names by their respective
duly-authorized representatives.
CONTRIBUTOR:
/s/ Hasu P. Shah
-------------------
Hasu P. Shah
CONTRIBUTOR:
/s/ Bharat C. Mehta
--------------------
Bharat C. Mehta
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia limited
partnership
By: Hersha Hospitality Trust, a Maryland business trust,
its sole general partner
By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
SHREE ASSOCIATES,
a Pennsylvania limited partnership,
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 5
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUIRE PRICE.......................................... 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 7
2.6 Determination of Number of LP Units........................................................... 7
2.7 Contributor's Transfer of LP Units to Contributor's Partner................................... 7
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Intentionally Omitted.......................................................................... 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 9
3.3 Noncontravention............................................................................... 9
3.4 No Special Taxes............................................................................... 9
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties..................................................................... 10
3.8 Insurance..................................................................................... 10
3.9 Condemnation Proceedings; Roadways............................................................ 10
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 11
3.13 Organizational Documents...................................................................... 11
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 11
3.16 Bankruptcy.................................................................................... 12
3.17 Intentionally Omitted......................................................................... 12
3.18 Hazardous Substances.......................................................................... 12
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
3.22 Bulk Sale Compliance.......................................................................... 13
3.23 Intentionally Omitted......................................................................... 13
3.24 Sufficiency of Certain Items.................................................................. 13
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 14
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 15
4.4 Bankruptcy.................................................................................... 15
4.5 No Brokers.................................................................................... 15
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 16
5.6 Utilities..................................................................................... 16
5.7 Intentionally Omitted......................................................................... 16
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING.................................................. 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 19
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 21
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 22
9.1 Completeness; Modification.................................................................... 22
9.2 Assignments................................................................................... 22
9.3 Successors and Assigns........................................................................ 22
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 22
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 24
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributor's Partnership Agreement
Exhibit G - Contributor's Certificate of Limited Partnership
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998,
between SHREE ASSOCIATES, a Pennsylvania limited partnership (the
"Contributor"), and Hersha Hospitality Limited Partnership, a Virginia limited
partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Land pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $3,000,000, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Contributor's Organizational Documents" shall mean the
current partnership agreement and certificate of limited partnership of the
Contributor, true and correct copies of which are attached hereto as Exhibits F
and G.
"Deed" shall mean that certain deed conveying title to the
Land with special warranty from the Contributor to the Acquiror, subject only to
Permitted Title Exceptions. The description of the Land in the Deed shall be by
courses and distances and, if there is a discrepancy between the description of
the Land attached hereto as Exhibit A and the description of the Land as shown
on the Survey, the description of the Land in the Deed shall be identical to the
description shown on the Survey.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666,
Fax: 717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land, to
the extent owned by Contributor.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger determined under Section
6.5, excluding (a) any of the aforesaid rights the Acquiror elects not to
acquire, (b) the Contributor's cash on hand, in bank accounts and invested with
financial institutions and (c) accounts receivable except for the above
described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in West Hanover, Pennsylvania, as more particularly described on Exhibit A
attached hereto, together with all easements, rights, privileges, remainders,
reversions and appurtenances thereunto belonging or in any way appertaining, and
all of the estate, right, title, interest, claim or demand whatsoever of the
Contributor therein, in the streets and ways adjacent thereto and in the beds
thereof, either at law or in equity, in possession or expectancy, now or
hereafter acquired.
"Leases" shall mean those leases or real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Management, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666,
Fax: 717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Land for the Consideration and in
accordance with the other terms and conditions set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Land for the purposes contemplated by the Acquiror, then the Acquiror may elect
to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to the
Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd., as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated to the Land in the manner indicated on Exhibit
J attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Transfer of LP Units to Contributor's Partners. On
the Closing Date, Contributor shall distribute all of the LP Units to its
partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the
amount specified on Exhibit K. On the date hereof, Contributor shall deliver or
cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the
form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by
the Contributor and each of the Transferees. On the Closing Date, Acquiror shall
issue certificates reflecting each of the Transferees' ownership of the LP Units
distributed by Contributor. The certificates evidencing the LP Units will bear
appropriate legends indicating (i) that the LP Units have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and (ii) that
the Acquiror's Partnership Agreement restricts the transfer of LP Units. The
Acquiror shall assume no responsibility for any allocation of the consideration,
including LP Units, to the Transferees or any of Contributor's partners.
Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify
Acquiror and its affiliates for all costs, claims, damages and expenses,
including reasonable attorney's fees, incurred by Acquiror in connection with
such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement
shall be executed by or on behalf of each of the Transferees and the Transferees
shall become limited partners of Acquiror and agree to be bound by the
Partnership Agreement.
2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributor acknowledges that the issuance of the common
shares issuable upon the redemption of the Partnership Units shall not have been
registered the applicable provisions of the Securities Act as of the Closing
Date. The REIT shall have the common shares issuable upon redemption registered
in accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
<PAGE>
2.10 Intentionally Omitted.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Land, the Contributor hereby makes the following representations, warranties and
covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributor is a limited partnership
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations hereunder and under any
document or instrument required to be executed and delivered on behalf of the
Contributor hereunder.
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3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in accordance with its terms.
There is no other person or entity who has an ownership interest in the Land or
whose consent is required in connection with the Contributor's performance of
its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributor, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Land or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Organizational Documents. The Contributor's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Choice Hotels International (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributor will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Intentionally Omitted.
3.24 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
<PAGE>
3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Land to the Acquiror and the receipt of
cash and LP Units as consideration therefor, (ii) the Transferees' admission as
partners of the Acquiror, and (iii) any other transaction contemplated by this
Agreement. The Contributor further represents and warrants that it (and each of
its partners) has not relied on the Acquiror or the Acquiror's representatives
or counsel for such advice.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the Contributor.
Acquiror acknowledges and agrees that, except for the representations and
warranties expressly set forth herein, Acquiror is acquiring the Land "AS-IS,
WHERE-IS" with no representations or warranties by or from Contributor or any of
its affiliates, express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Land, the Acquiror hereby makes the following representations,
warranties and covenants with respect to the Property, upon each of which the
Acquiror acknowledges and agrees that the Contributor is entitled to rely and
has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Land shall be delivered to the Acquiror at Closing, subject only to Permitted
Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror all of the following instruments in its possession and control, each
of which shall have been duly executed and acknowledged, if applicable, and
shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Deed.
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
(f) Certificate(s)/Registration of Title for any vehicle owned
by the Contributor and used in connection with the Property.
(g) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title Policy with affirmative
coverage over mechanics' and materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all warranties, if
any, of manufacturers, suppliers and installers possessed by the Contributor and
relating to the Improvements and the Personal Property, or any part thereof.
(j) Certified copies of the Contributor's Organizational
Documents.
(k) Appropriate resolutions of the partners of the
Contributor, together with all other necessary approvals and consents of the
Contributor, authorizing (A) the execution on behalf of the Contributor of this
Agreement and the documents to be executed and delivered by the Contributor
prior to, at or otherwise in connection with Closing, and (B) the performance by
the Contributor of its obligations hereunder and under such documents.
(l) Valid, final and unconditional certificate(s) of occupancy
for the Real Property and Improvements, issued by the appropriate governmental
authority.
(m) The written consent of the Licensor to the transfer of the
license, if applicable, and if so required.
(n) If the Acquiror is assuming the Contributor's obligations
under any or all of the Operating Agreements, the originals of such agreements,
duly assigned to the Acquiror and with such assignment acknowledged and approved
by the other parties to such Operating Agreements.
(o) Such proof as the Acquiror may reasonably require with
respect to Contributor's compliance with the bulk sales laws or similar
statutes.
(p) A written instrument executed by the Contributor,
conveying and transferring to the Acquiror all of the Contributor's right, title
and interest in any telephone numbers and facsimile numbers relating to the
Property, and, if the Contributor maintains a post office box, conveying to the
Acquiror all of its interest in and to such post office box and the number
associated therewith, so as to assure a continuity in operation and
communication.
(q) All current real estate and personal property tax bills in
the Contributor's possession or under its control.
(r) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest information.
(s) An updated schedule of employees, showing salaries and
duties with a statement of the length of service of each such employee, brought
current to a date not more than 48 hours prior to the Closing.
(t) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to enable the Acquiror to
honor the Contributor's commitments in that regard.
(u) A list of the Contributor's outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due the Contributor.
(v) Written notice executed by Contributor notifying all
interested parties, including all tenants under any leases of the Property, that
the Property has been conveyed to the Acquiror and directing that all payments,
inquiries and the like be forwarded to the Acquiror at the address to be
provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal reports,
files and other materials in the Contributor's possession or control which are
necessary in the Acquirors discretion to maintain continuity of operation of the
Property.
(y) To the extent permitted under applicable law, documents of
transfer necessary to transfer to the Acquiror the Contributor's employment
rating for workmens' compensation and state unemployment tax purposes.
(z) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and suppliers in effect with
respect to the Improvements.
(aa) Complete set of "as-built" drawings for the Improvements.
(bb) Such agreements, affidavits or other documents as may be
required by the Title Company in order to issue affirmative mechanics lien
coverage in the Owner's Title Policy for the Property.
(cc) a completed version of the Questionnaire from the
Contributor and each Transferee.
(dd) Any other document or instrument reasonably requested by
the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section 2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7 evidencing the
Transferees ownership of the LP Units and the admission of the Transferrees as
limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested by
the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall also be paid by the Acquiror. The Acquiror shall
pay reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributor and the Acquiror. The Contributor shall be entitled to all income,
and responsible for all expenses for the period of time up to but not including
12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall
be entitled to all income and responsible for all expenses for the period of
time from, after and including the date of Closing. All adjustments shall be
shown on the settlement statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the settlement
statements) and shall increase or decrease (as the case may be) the amount
payable by the Acquiror pursuant to Section 2.4(d). Without limiting the
generality of the foregoing, the following items of income and expense shall be
allocated as of the date of Closing:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributor prior to the Effective Date for dates after the date of Closing,
all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTOR:
Shree Associates, a Pennsylvania limited
partnership
By: /s/ Hasu P. Shah
-----------------------------
Hasu P. Shah, general partner
ACQUIROR:
Hersha Hospitality Limited Partnership, a
Virginia limited partnership
By: Hersha Hospitality Trust, a Maryland
business trust, its sole general partner
By: /s/ Hasu P. Shah
------------------------
Hasu P. Shah
President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
144 ASSOCIATES, 344 ASSOCIATES,
544 ASSOCIATES AND 644 ASSOCIATES,
JOINT TENANTS DOING BUSINESS AS
2544 ASSOCIATES
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 5
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUIRE PRICE AND CONTINGENT ACQUIRE PRICE........................... 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 7
2.6 Determination of Number of LP Units........................................................... 7
2.7 Contributor's Transfer of LP Units to Contributor's Partner................................... 7
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Payment of Contingent Consideration............................................................ 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 9
3.3 Noncontravention............................................................................... 9
3.4 No Special Taxes............................................................................... 9
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties..................................................................... 10
3.8 Insurance..................................................................................... 10
3.9 Condemnation Proceedings; Roadways............................................................ 10
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 11
3.13 Organizational Documents...................................................................... 11
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 11
3.16 Bankruptcy.................................................................................... 12
3.17 Intentionally Omitted......................................................................... 12
3.18 Hazardous Substances.......................................................................... 12
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
3.22 Bulk Sale Compliance.......................................................................... 13
3.23 Intentionally Omitted......................................................................... 13
3.24 Sufficiency of Certain Items.................................................................. 13
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 14
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 15
4.4 Bankruptcy.................................................................................... 15
4.5 No Brokers.................................................................................... 15
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 16
5.6 Utilities..................................................................................... 16
5.7 Intentionally Omitted......................................................................... 16
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING................................................................................. 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 19
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 21
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 22
9.1 Completeness; Modification.................................................................... 22
9.2 Assignments................................................................................... 22
9.3 Successors and Assigns........................................................................ 22
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 22
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 24
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Legal Description
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998,
between 144 Associates, 344 Associates, 544 Associates and 644 Associates, joint
tenants doing business as 2455 Associates (individually and collectively the
"Contributor"), and Hersha Hospitality Limited Partnership, a Virginia limited
partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Property pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $3,380,000, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Deed" shall mean that certain deed conveying title to the
Improvements with special warranty from the Contributor to the Acquiror, subject
only to Permitted Title Exceptions. The description of the Land in the Deed
shall be by courses and distances and, if there is a discrepancy between the
description of the Land attached hereto as Exhibit A and the description of the
Land as shown on the Survey, the description of the Land in the Deed shall be
identical to the description shown on the Survey.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Property,
all licenses, permits and approvals with respect to the construction, ownership,
operation, leasing, occupancy or maintenance of the Property, any unpaid award
for taking by condemnation or any damage to the Land by reason of a change of
grade or location of or access to any street or highway, and the share of the
Tray Ledger determined under Section 6.5, excluding (a) any of the aforesaid
rights the Acquiror elects not to acquire, (b) the Contributor's cash on hand,
in bank accounts and invested with financial institutions and (c) accounts
receivable except for the above described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in New Columbia, Union County, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributor therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Mangement, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the
Improvements (including the marketability thereof) subject only to Permitted
Title Exceptions. The Owner's Title Policy shall insure the Acquiror in the
amount of the Consideration and shall be acceptable in form and substance to the
Acquiror. The description of the Land in the Owner's Title Policy shall be by
courses and distances and shall be identical to the description shown on the
Survey.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Improvements, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
<PAGE>
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Property for the Consideration and the
Contingent Consideration and in accordance with the other terms and conditions
set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Property for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to the
Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd. as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated among the various components of the Property in
the manner indicated on Exhibit J attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Transfer of LP Units to Contributor's Partners. On
the Closing Date, Contributor shall distribute all of the LP Units to its
partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the
amount specified on Exhibit K. On the date hereof, Contributor shall deliver or
cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the
form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by
the Contributor and each of the Transferees. On the Closing Date, Acquiror shall
issue certificates reflecting each of the Transferees' ownership of the LP Units
distributed by Contributor. The certificates evidencing the LP Units will bear
appropriate legends indicating (i) that the LP Units have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and (ii) that
the Acquiror's Partnership Agreement restricts the transfer of LP Units. The
Acquiror shall assume no responsibility for any allocation of the consideration,
including LP Units, to the Transferees or any of Contributor's partners.
Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify
Acquiror and its affiliates for all costs, claims, damages and expenses,
including reasonable attorney's fees, incurred by Acquiror in connection with
such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement
shall be executed by or on behalf of each of the Transferees and the Transferees
shall become limited partners of Acquiror and agree to be bound by the
Partnership Agreement.
2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the common
shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the commons shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M, and incorporated herein.
<PAGE>
2.10 Payment of Contingent Consideration.
The Contributors shall value the Hotel on December 31, 2000. The value
of the Hotel shall be computed by applying a 12% capitalization rate to the
audited trailing 12 months net operating income, adjusted for a 4% of revenue
management fee and a 4% of revenue furniture, fixture and equipment reserve.
If the then current value of the Hotel exceeds the consideration paid
by Acquiror hereunder, the Acquiror will issue additional Partnership Units at
the Offering Price equal to the difference between the then current value and
the consideration paid hereunder and all distributions paid on those units since
Closing Date.
If the then current value of the Hotel is less than the Consideration
paid by the Acquiror hereunder, the Contributors will return to the Acquiror
Partnership Units at the Offering Price equal to the difference between the then
current value of the Hotel and the Consideration paid hereunder and all
distributions paid on those units since the Closing Date.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Property, the Contributor hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributor is a limited partnership
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations hereunder and under any
document or instrument required to be executed and delivered on behalf of the
Contributor hereunder.
<PAGE>
3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in accordance with its terms.
There is no other person or entity who has an ownership interest in the Property
or whose consent is required in connection with the Contributor's performance of
its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributor, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Property or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Organizational Documents. The Contributor's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Holiday Hospitality, Inc. (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributor will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Intentionally Omitted.
3.24 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
<PAGE>
3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Property to the Acquiror and the receipt
of cash and LP Units as consideration therefor, (ii) the Transferees' admission
as partners of the Acquiror, and (iii) any other transaction contemplated by
this Agreement. The Contributor further represents and warrants that it (and
each of its partners) has not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the Contributor.
Acquiror acknowledges and agrees that, except for the representations and
warranties expressly set forth herein, Acquiror is acquiring the Property
"AS-IS, WHERE-IS" with no representations or warranties by or from Contributor
or any of its affiliates, express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Property, the Acquiror hereby makes the following
representations, warranties and covenants with respect to the Property, upon
each of which the Acquiror acknowledges and agrees that the Contributor is
entitled to rely and has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Property shall be delivered to the Acquiror at Closing, subject only to
Permitted Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror all of the following instruments, each of which shall have been duly
executed and, where applicable, acknowledged on behalf of the Contributor and
shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Deed.
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
(f) Certificate(s)/Registration of Title for any vehicle
owned by the Contributor and used in connection with the Property.
(g) Such agreements, affidavits or other documents as may
be required by the Title Company to issue the Owner's Title Policy with
affirmative coverage over mechanics' and materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all warranties,
if any, of manufacturers, suppliers and installers possessed by the Contributor
and relating to the Improvements and the Personal Property, or any part thereof.
(j) Certified copies of the Contributor's Organizational
Documents.
(k) Appropriate resolutions of the partners of the
Contributor, together with all other necessary approvals and consents of the
Contributor, authorizing (A) the execution on behalf of the Contributor of this
Agreement and the documents to be executed and delivered by the Contributor
prior to, at or otherwise in connection with Closing, and (B) the performance by
the Contributor of its obligations hereunder and under such documents.
(l) Valid, final and unconditional certificate(s) of
occupancy for the Real Property and Improvements, issued by the appropriate
governmental authority.
(m) The written consent of the Licensor to the transfer
of the license, if applicable, and if so required.
(n) If the Acquiror is assuming the Contributor's
obligations under any or all of the Operating Agreements, the originals of such
agreements, duly assigned to the Acquiror and with such assignment acknowledged
and approved by the other parties to such Operating Agreements.
(o) Such proof as the Acquiror may reasonably require
with respect to Contributor's compliance with the bulk sales laws or similar
statutes.
(p) A written instrument executed by the Contributor,
conveying and transferring to the Acquiror all of the Contributor's right, title
and interest in any telephone numbers and facsimile numbers relating to the
Property, and, if the Contributor maintains a post office box, conveying to the
Acquiror all of its interest in and to such post office box and the number
associated therewith, so as to assure a continuity in operation and
communication.
(q) All current real estate and personal property tax
bills in the Contributor's possession or under its control.
(r) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest information.
(s) An updated schedule of employees, showing salaries
and duties with a statement of the length of service of each such employee,
brought current to a date not more than 48 hours prior to the Closing.
(t) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to enable the Acquiror to
honor the Contributor's commitments in that regard.
(u) A list of the Contributor's outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due the Contributor.
(v) Written notice executed by Contributor notifying all
interested parties, including all tenants under any leases of the Property, that
the Property has been conveyed to the Acquiror and directing that all payments,
inquiries and the like be forwarded to the Acquiror at the address to be
provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal
reports, files and other materials in the Contributor's possession or control
which are necessary in the Acquirors discretion to maintain continuity of
operation of the Property.
(y) To the extent permitted under applicable law,
documents of transfer necessary to transfer to the Acquiror the Contributor's
employment rating for workmens' compensation and state unemployment tax
purposes.
(z) An assignment of all warranties and guarantees from
all contractors and subcontractors, manufacturers, and suppliers in effect with
respect to the Improvements.
(aa) Complete set of "as-built" drawings for the
Improvements.
(bb) Such agreements, affidavits or other documents as
may be required by the Title Company in order to issue affirmative mechanics
lien coverage in the Owner's Title Policy for the Property.
(cc) a completed version of the Questionnaire from the
Contributor and each Transferee.
(dd) Any other document or instrument reasonably
requested by the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section
2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7 evidencing
the Transferees ownership of the LP Units and the admission of the Transferrees
as limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested
by the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall also be paid by the Acquiror. The Acquiror shall
pay reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributor and the Acquiror. The Contributor shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall
be entitled to all income and responsible for all expenses for the period of
time from, after and including the date of Closing. All adjustments shall be
shown on the settlement statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the settlement
statements) and shall increase or decrease (as the case may be) the amount
payable by the Acquiror pursuant to Section 2.4(d). Without limiting the
generality of the foregoing, the following items of income and expense shall be
allocated as of the date of Closing:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributor prior to the Effective Date for dates after the date of Closing,
all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTORS:
144 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
its sole general partner
By: /s/ Hasu P. Shah
------------------------
Hasu P. Shah, President
344 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
its sole general partner
By: /s/ Hasu P. Shah
--------------------------
Hasu P. Shah, President
544 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
its sole general partner
By: /s/ Hasu P. Shah
---------------------
Hasu P. Shah, President
644 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
its sole general partner
By: /s/ Hasu P. Shah
----------------------
Hasu P. Shah, President
<PAGE>
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia limited
partnership
By: Hersha Hospitality Trust, a Maryland business
trust, its sole general partner
By: /s/ Hasu P. Shah
----------------------
Hasu P. Shah
President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
2144 ASSOCIATES,
a Pennsylvania limited partnership,
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 5
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUIRE PRICE AND CONTINGENT ACQUIRE PRICE................................... 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 7
2.6 Determination of Number of LP Units........................................................... 7
2.7 Contributor's Transfer of LP Units to Contributor's Partner................................... 7
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Intentionally Omitted.......................................................................... 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 9
3.3 Noncontravention............................................................................... 9
3.4 No Special Taxes............................................................................... 9
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties..................................................................... 10
3.8 Insurance..................................................................................... 10
3.9 Condemnation Proceedings; Roadways............................................................ 10
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 11
3.13 Organizational Documents...................................................................... 11
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 12
3.16 Bankruptcy.................................................................................... 12
3.17 Intentionally Omitted......................................................................... 12
3.18 Hazardous Substances.......................................................................... 12
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
3.22 Bulk Sale Compliance.......................................................................... 13
3.23 Intentionally Omitted......................................................................... 13
3.24 Sufficiency of Certain Items.................................................................. 13
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 14
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 15
4.4 Bankruptcy.................................................................................... 15
4.5 No Brokers.................................................................................... 15
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 16
5.6 Utilities..................................................................................... 16
5.7 Intentionally Omitted......................................................................... 16
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING........................................................ 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 19
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 21
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 22
9.1 Completeness; Modification.................................................................... 22
9.2 Assignments................................................................................... 22
9.3 Successors and Assigns........................................................................ 22
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 23
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 24
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Legal Description
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributor's Partnership Agreement
Exhibit G - Contributor's Certificate of Limited Partnership
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
</TABLE>
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998,
between 2144 ASSOCIATES, a Pennsylvania limited partnership (the "Contributor"),
and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the
"Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Land pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $220,000, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Contributor's Organizational Documents" shall mean the
current partnership agreement and certificate of limited partnership of the
Contributor, true and correct copies of which are attached hereto as Exhibits F
and G.
"Deed" shall mean that certain deed conveying title to the
Land with special warranty from the Contributor to the Acquiror, subject only to
Permitted Title Exceptions. The description of the Land in the Deed shall be by
courses and distances and, if there is a discrepancy between the description of
the Land attached hereto as Exhibit A and the description of the Land as shown
on the Survey, the description of the Land in the Deed shall be identical to the
description shown on the Survey.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Comfort Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Property,
all licenses, permits and approvals with respect to the construction, ownership,
operation, leasing, occupancy or maintenance of the Property, any unpaid award
for taking by condemnation or any damage to the Land by reason of a change of
grade or location of or access to any street or highway, and the share of the
Tray Ledger determined under Section 6.5, excluding (a) any of the aforesaid
rights the Acquiror elects not to acquire, (b) the Contributor's cash on hand,
in bank accounts and invested with financial institutions and (c) accounts
receivable except for the above described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean those certain parcels of real estate lying
and being in Selinsgrove, Cumberland County, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributor therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Mangement, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the
Improvements (including the marketability thereof) subject only to Permitted
Title Exceptions. The Owner's Title Policy shall insure the Acquiror in the
amount of the Consideration and shall be acceptable in form and substance to the
Acquiror. The description of the Land in the Owner's Title Policy shall be by
courses and distances and shall be identical to the description shown on the
Survey.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Improvements, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Land for the Consideration and in
accordance with the other terms and conditions set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Land for the purposes contemplated by the Acquiror, then the Acquiror may elect
to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd. as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated among the various components of the Property in
the manner indicated on Exhibit J attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Transfer of LP Units to Contributor's Partners. On
the Closing Date, Contributor shall distribute all of the LP Units to its
partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the
amount specified on Exhibit K. On the date hereof, Contributor shall deliver or
cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the
form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by
the Contributor and each of the Transferees. On the Closing Date, Acquiror shall
issue certificates reflecting each of the Transferees' ownership of the LP Units
distributed by Contributor. The certificates evidencing the LP Units will bear
appropriate legends indicating that the Acquiror's Partnership Agreement
restricts the transfer of LP Units. The Acquiror shall assume no responsibility
for any allocation of the consideration, including LP Units, to the Transferees
or any of Contributor's partners. Contributor agrees to hold Acquiror and its
affiliates harmless and to indemnify Acquiror and its affiliates for all costs,
claims, damages and expenses, including reasonable attorney's fees, incurred by
Acquiror in connection with such allocations. Upon receipt of LP Units, the
Acquiror's Partnership Agreement shall be executed by or on behalf of each of
the Transferees and the Transferees shall become limited partners of Acquiror
and agree to be bound by the Partnership Agreement.
2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
(a) The Contributor acknowledges that the issuance of the
Common Shares issuable upon redemption of the LP Units shall be registered in
accordance with the applicable provisions of the Hersha Hospitality Limited
Partnership Agreement attached hereto as Exhibit M, and incorporated herein.
<PAGE>
(b) Intentionally Omitted.
2.10 Intentionally Omitted.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Land, the Contributor hereby makes the following representations, warranties and
covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributor is a limited partnership
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and
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has all requisite powers and all governmental licenses, authorizations, consents
and approvals to carry on its business as now conducted and to enter into and
perform its obligations hereunder and under any document or instrument required
to be executed and delivered on behalf of the Contributor hereunder.
3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in accordance with its terms.
There is no other person or entity who has an ownership interest in the Land or
whose consent is required in connection with the Contributor's performance of
its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributor, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Property or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Organizational Documents. The Contributor's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Hampton Inns, Inc. (the "Licensor") with
respect to the Hotel (the "License") is, and at Closing will be, valid and in
full force and effect, and Contributor will make good faith efforts not to be in
default with respect thereto (with or without the giving of any required notice
and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Intentionally Omitted.
3.24 Sufficiency of Certain Items. The Property contains not less
than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
<PAGE>
3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Property to the Acquiror and the receipt
of cash and LP Units as consideration therefor, (ii) the Transferees' admission
as partners of the Acquiror, and (iii) any other transaction contemplated by
this Agreement. The Contributor further represents and warrants that it (and
each of its partners) has not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the Contributor.
Acquiror acknowledges and agrees that, except for the representations and
warranties expressly set forth herein, Acquiror is acquiring the Land "AS-IS,
WHERE-IS" with no representations or warranties by or from Contributor or any of
its affiliates, express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Land, the Acquiror hereby makes the following representations,
warranties and covenants with respect to the Property, upon each of which the
Acquiror acknowledges and agrees that the Contributor is entitled to rely and
has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Land shall be delivered to the Acquiror at Closing, subject only to Permitted
Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror the following instruments in the Contributor's possession and
control, which shall have been duly executed and acknowledged, if applicable,
and shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Deed.
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
(f) Certificate(s)/Registration of Title for any
vehicle owned by the Contributor and used in connection with the Property.
(g) Such agreements, affidavits or other
documents as may be required by the Title Company to issue the Owner's Title
Policy with affirmative coverage over mechanics' and materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all
warranties, if any, of manufacturers, suppliers and installers possessed by
the Contributor and relating to the Improvements and the Personal Property,
or any part thereof.
(j) Certified copies of the Contributor's
Organizational Documents.
(k) Appropriate resolutions of the partners of
the Contributor, together with all other necessary approvals and consents of
the Contributor, authorizing (A) the execution on behalf of the Contributor of
this Agreement and the documents to be executed and delivered by the
Contributor prior to, at or otherwise in connection with Closing, and (B)
the performance by the Contributor of its obligations hereunder and under
such documents.
(l) Valid, final and unconditional
certificate(s) of occupancy for the Real Property and Improvements, issued by
the appropriate governmental authority.
(m) The written consent of the Licensor to the
transfer of the license, if applicable, and if so required.
(n) If the Acquiror is assuming the
Contributor's obligations under any or all of the Operating Agreements, the
originals of such agreements, duly assigned to the Acquiror and with such
assignment acknowledged and approved by the other parties to such Operating
Agreements.
(o) Such proof as the Acquiror may reasonably
require with respect to Contributor's compliance with the bulk sales laws or
similar statutes.
(p) A written instrument executed by the
Contributor, conveying and transferring to the Acquiror all of the
Contributor's right, title and interest in any telephone numbers and
facsimile numbers relating to the Property, and, if the Contributor maintains
a post office box, conveying to the Acquiror all of its interest in and to
such post office box and the number associated therewith, so as to assure a
continuity in operation and communication.
(q) All current real estate and personal
property tax bills in the Contributor's possession or under its control.
(r) A complete set of all guest registration
cards, guest transcripts, guest histories, and all other available guest
information.
(s) An updated schedule of employees, showing
salaries and duties with a statement of the length of service of each such
employee, brought current to a date not more than 48 hours prior to the
Closing.
(t) A complete list of all advance room
reservations, functions and the like, in reasonable detail so as to enable the
Acquiror to honor the Contributor's commitments in that regard.
(u) A list of the Contributor's outstanding
accounts receivable as of midnight on the date prior to the Closing, specifying
the name of each account and the amount due the Contributor.
(v) Written notice executed by Contributor
notifying all interested parties, including all tenants under any leases of the
Property, that the Property has been conveyed to the Acquiror and directing
that all payments, inquiries and the like be forwarded to the Acquiror at the
address to be provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal
reports, files and other
materials in the Contributor's possession or control which are necessary in the
Acquirors discretion to maintain continuity of operation of the Property.
(y) To the extent permitted under applicable law,
documents of transfer necessary
to transfer to the Acquiror the Contributor's employment rating for workmens'
compensation and state unemployment tax purposes.
(z) An assignment of all warranties and
guarantees from all contractors and subcontractors, manufacturers, and suppliers
in effect with respect to the Improvements.
(aa) Complete set of "as-built" drawings for the
Improvements.
(bb) Such agreements, affidavits or other
documents as may be required by the Title Company in order to issue affirmative
mechanics lien coverage in the Owner's Title Policy for the Property.
(cc) a completed version of the Questionnaire from
the Contributor and each Transferee.
(dd) Any other document or instrument reasonably
requested by the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section
2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7 evidencing the
Transferees ownership of the LP Units and the admission of the Transferrees as
limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested
by the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall also be paid by the Acquiror. The Acquiror shall
pay reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributor and the Acquiror. The Contributor shall be entitled to all income,
and responsible for all expenses for the period of time up to but not including
12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall
be entitled to all income and responsible for all expenses for the period of
time from, after and including the date of Closing. All adjustments shall be
shown on the settlement statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the settlement
statements) and shall increase or decrease (as the case may be) the amount
payable by the Acquiror pursuant to Section 2.4(d). Without limiting the
generality of the foregoing, the following items of income and expense shall be
allocated as of the date of Closing:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
<PAGE>
(d) Utility charges (including but not limited to charges for
water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid for
such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms confirmed
by Contributor prior to the Effective Date for dates after the date of Closing,
all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTOR:
<TABLE>
<CAPTION>
<S> <C>
2144 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania corporation,
its general partner
By: /s/ Hasu P. Shal
----------------
Hasu P. Shah
President
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia limited partnership
By: Hersha Hospitality Trust, a Maryland business trust, its
sole general partner
By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
President
</TABLE>
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
JSK Associates, Shanti Associates, Shreeji Associates,
Kunj Associates, Neil Shah, David Desfor
Madhusudan Patni, Manhar Gandhi and
Shreenathji Enterprises, Ltd.
as Contributors,
and
Hersha Hospitality Limited Partnership,
a Virginia limited partnership,
as Acquiror
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction...........................................................................7
ARTICLE II
PURCHASE AND SALE; DEPOSIT;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION.............................7
2.1 Contribution and Acquisition....................................................................7
2.2 Study Period....................................................................................7
2.3 Payment of Consideration........................................................................8
2.4 Determination of Number of Partnership Units....................................................9
2.5 Contributors' Distribution of Partnership Units.................................................9
2.6 Intentionally Omitted...........................................................................9
2.7 Intentionally Omitted...........................................................................9
2.8 Redemption......................................................................................9
2.9 Registration of Common Shares..................................................................10
2.10 Intentionally Omitted..........................................................................10
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS...........................10
3.1 Organization and Power.........................................................................10
3.2 Authorization, No Violations and Notices ......................................................11
3.3 Litigation with respect to Contributors .......................................................11
3.4 Interest.......................................................................................12
3.5 Bankruptcy with respect to Contributors........................................................12
3.6 Brokerage Commission...........................................................................12
3.7 The Partnership................................................................................12
3.8 Liabilities, Debts and Obligations.............................................................13
3.9 Tax Matters with respect to Partnership........................................................13
3.10 Contracts and Agreements.......................................................................13
3.11 No Special Taxes...............................................................................14
3.12 Compliance with Existing Laws..................................................................14
3.13 Operating Agreements...........................................................................14
3.14 Warranties and Guaranties......................................................................14
3.15 Insurance......................................................................................14
3.16 Condemnation Proceedings; Roadways.............................................................15
3.17 Litigation with respect to Partnership.........................................................15
3.18 Labor Disputes and Agreements..................................................................15
3.19 Financial Information..........................................................................15
3.20 Organizational Documents.......................................................................16
3.21 Operation of Property..........................................................................16
3.22 Intentionally Omitted..........................................................................16
3.23 Bankruptcy with respect to Partnership.........................................................16
3.24 Hazardous Substances...........................................................................16
3.25 Room Furnishings...............................................................................17
3.26 License........................................................................................17
3.27 Independent Audit..............................................................................17
3.28 Bulk Sale Compliance...........................................................................17
3.29 Intentionally Omitted..........................................................................17
3.30 Sufficiency of Certain Items...................................................................17
3.31 Noncompetition.................................................................................18
3.32 Leases.........................................................................................18
3.33 Securities Law Matters.........................................................................18
3.34 Tax Matters with respect to Contributors.......................................................18
3.35 Noncontravention...............................................................................18
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............................19
4.1 Organization and Power.........................................................................19
4.2 Noncontravention...............................................................................19
4.3 Litigation.....................................................................................19
4.4 Bankruptcy.....................................................................................19
4.5 No Brokers.....................................................................................20
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.....................................20
5.1 Contributors' Deliveries.......................................................................20
5.2 Representations, Warranties and Covenants; Obligations of Contributors; Certificate............20
5.3 Title Insurance................................................................................20
5.4 Intentionally Omitted..........................................................................20
5.5 Condition of Improvements......................................................................20
5.6 Utilities......................................................................................20
5.7 Intentionally Omitted..........................................................................21
5.8 License........................................................................................21
5.9 Intentionally Omitted..........................................................................21
ARTICLE VI
CLOSING...........................................................21
6.1 Closing........................................................................................21
6.2 Contributors' Deliveries.......................................................................21
6.3 Acquiror's Deliveries..........................................................................23
6.4 Closing Costs..................................................................................23
6.5 Income and Expense Allocations.................................................................23
ARTICLE VII
CONDEMNATION; RISK OF LOSS..........................................25
7.1 Condemnation...................................................................................25
7.2 Risk of Loss...................................................................................25
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS..............................................25
8.1 Liability of Acquiror..........................................................................25
8.2 Indemnification by Contributors................................................................25
8.3 Termination by Acquiror........................................................................26
8.4 Termination by Contributors....................................................................26
ARTICLE IX
MISCELLANEOUS PROVISIONS...........................................26
9.1 Completeness; Modification.....................................................................26
9.2 Assignments....................................................................................26
9.3 Successors and Assigns.........................................................................26
9.4 Days...........................................................................................26
9.5 Governing Law..................................................................................26
9.6 Counterparts...................................................................................27
9.7 Severability...................................................................................27
9.8 Costs..........................................................................................27
9.9 Notices........................................................................................27
9.10 Incorporation by Reference.....................................................................28
9.11 Survival.......................................................................................28
9.12 Further Assurances.............................................................................28
9.13 No Partnership.................................................................................28
9.14 Time of Essence................................................................................28
9.15 Confidentiality................................................................................29
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributors' Partnership Agreement
Exhibit G - Contributors' Certificate of Limited Partnership
Exhibit H - Contributors' Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
Exhibit O - Shreenathji Enterprises, Ltd. Articles of Incorporation
Exhibit P - Shreenathji Enterprises, Ltd. Bylaws
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998,
between JSK Associates, a Pennsylvania limited partnership ("JSK"), Shanti
Associates, a Pennsylvania limited partnership ("Shanti"), Shreeji Associates, a
Pennsylvania limited partnership ("Shreeji"), Kunj Associates, a Pennsylvania
limited partnership ("Kunj"), Neil Shah ("Shah"), David Desfor ("Desfor"),
Madhusudan Patni ("Patni"), Manhar Gandhi ("Gandhi") and Shreenathji
Enterprises, Ltd., a Pennsylvania corporation ("SEL") (collectively, the
"Contributors"), and Hersha Hospitality Limited Partnership, a Virginia limited
partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"JSK Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby JSK assigns and the Acquiror
assumes the JSK Interest.
"Shanti Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shanti assigns and the
Acquiror assumes the Shanti Interest.
"Shreeji Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shreeji assigns and the
Acquiror assumes the Shreeji Interest.
"Kunj Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Kunj assigns and the
Acquiror assumes the Kunj Interest.
"Shah Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shah assigns and the
Acquiror assumes the Shah Interest.
"Desfor Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Desfor assigns and the
Acquiror assumes the Desfor Interest.
"Patni Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Patni assigns and the
Acquiror assumes the Patni Interest.
"SEL Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby SEL assigns and the Acquiror
assumes the SEL Interest.
"Gandhi Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Gandhi assigns and the
Acquiror assumes the Gandhi Interest.
"Assignment and Assumption Agreements" shall mean the JSK
Assignment and Assumption Agreement, the Shanti Assignment and Assumption
Agreement, the Shreeji Assignment and Assumption Agreement, the Kunj Assignment
and Assumption Agreement, the Shah Assignment and Assumption Agreement, the
Desfor Assignment and Assumption Agreement, the Patni Assignment and Assumption
Agreement, the Gandhi Assignment and Assumption Agreement and the SEL Assignment
and Assumption Agreement.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Closing" shall mean the Closing of the contribution and
acquisition of the Interests pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $4,525,671 payable to the
Contributors at Closing in the manner described in Section 2.3.
"Continuing Liabilities" shall include liabilities arising
under operating agreements, equipment leases, loan agreements, or proration
credits at Closing, but shall exclude any liabilities arising from any other
arrangement, agreement or pending litigation.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributors or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717)
234-8198.
"FIRPTA Certificates" shall mean the affidavit of each of the
Contributors under Section 1445 of the Internal Revenue Code certifying that
such Contributor is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person (as those terms are defined in the
Internal Revenue Code and the Income Tax Regulations), in form and substance
satisfactory to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"JSK Interest" shall mean all right, title and interest of JSK
in the Partnership, consisting of a 20% limited partnership interest in the
Partnership.
"Shanti Interest" shall mean all right, title and interest of
Shanti in the Partnership, consisting of a 15% limited partnership interest in
the Partnership.
"Shreeji Interest" shall mean all right, title and interest of
Shreeji in the Partnership, consisting of a 11% limited partnership interest in
the Partnership.
"Kunj Interest" shall mean all right, title and interest of
Kunj in the Partnership, consisting of a 20% limited partnership interest in the
Partnership.
"Shah Interest" shall mean all right, title and interest of
Shah in the Partnership, consisting of a 20% limited partnership interest in the
Partnership.
"Desfor Interest" shall mean all right, title and interest of
Desfor in the Partnership, consisting of a 3% limited partnership interest in
the Partnership.
"Patni Interest" shall mean all right, title and interest of
Patni in the Partnership, consisting of a 5% limited partnership interest in the
Partnership.
"Gandhi Interest" shall mean all right, title and interest of
Gandhi in the Partnership, consisting of a 5% limited partnership interest in
the Partnership.
"SEL Interest" shall mean all right, title and interest of SEL
in the Partnership, consisting of a 1% general partnership interest in the
Partnership.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributors and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Hampton Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger as hereinafter defined,
excluding (a) any of the aforesaid rights the Acquiror elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial
institutions and (c) accounts receivable except for the above described share of
the Tray Ledger.
"Interests" shall mean the JSK Interest, the Shanti Interest,
the Shreeji Interest, the Kunj Interest, the Shah Interest, the Desfor Interest,
the Patni Interest, the Gandhi Interest and the SEL Interest.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in Selinsgrove, Cumberland County, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributors therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Management L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Organizational Documents" shall mean the current partnership
agreement and certificate of limited partnership of each of the limited
partnership Contributors, true and correct copies of which are attached hereto
as Exhibits F and G and Articles of Incorporation and Bylaws of SEL, true and
correct copies of which are attached hereto as Exhibits O and P.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Partnership" shall mean 844 Associates, a Pennsylvania
limited partnership that owns as its sole assets hotel improvements located on
an approximately ________ acre tract situate in Selinsgrove, Cumberland County,
Pennsylvania.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.2.
"Property" shall mean collectively the Improvements, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributors' Reservation
Terminal and Reservation System equipment and software, if any.
"JSK's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of JSK, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shanti's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shanti, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shreeji's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shreeji, true
and correct copies of which are attached hereto as Exhibits F and G.
"Kunj's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Kunj, true and
correct copies of which are attached hereto as Exhibits F and G.
"SEL's Organizational Documents" shall mean the current
Articles of Incorporation and Bylaws of SEL, true and correct copies of which
are attached hereto as Exhibits O and P.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributors;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717)
234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Effective Date, exclusive
of food, beverage, telephone and similar charges which shall be retained by the
Contributors), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
CONTRIBUTION AND ACQUISITION; STUDY PERIOD; PAYMENT OF CONSIDERATION.
2.1 Contribution and Acquisition. Each of the Contributors agrees to
contribute, assign and transfer its Interest to the Acquiror and the Acquiror
agrees to accept each Contributor's Interest in exchange for the Consideration
and in accordance with the other terms and conditions set forth herein.
2.2 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributors that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the purchase of the
Interests for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributors prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributors of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributors, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, and the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributors shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributors'
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributors against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributors of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributors shall notify the Acquiror whether the
Contributors are willing to cure such defects. Contributors may cure, but shall
not be obligated to cure such defects. If such defects consist of deeds of
trust, mechanics' liens, tax liens or other liens or charges in a fixed sum or
capable of computation as a fixed sum, the Contributors, at its option, shall
either pay and discharge (in which event, the Escrow Agent is authorized to pay
and discharge at Closing) such defects at Closing, or provide bonds or
indemnities in favor of the Title Company in order to remove such items from the
Title Policy at Closing. If the Contributors are unwilling or unable to cure any
other such defects by Closing, the Acquiror shall elect (1) to waive such
defects and proceed to Closing without any abatement in the Consideration or (2)
to terminate this Agreement. The Contributors shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributors of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.3 Payment of the Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd., as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.4. Determination of Number of Partnership Units. For purposes of
determining the number of Partnership Units to be delivered by the Acquiror at
the Closing, each Partnership Unit shall be deemed to have a value equal to
$6.00. No fractional Partnership Units will be issued at Closing; in lieu of any
such fraction, the value shall be rounded up to a whole share value.
2.5 Contributors' Distribution of Partnership Units . On the Closing
Date, the Partnership Units shall be distributed among the Contributors , as set
forth on Exhibit K attached hereto , in the amount specified on Exhibit K. On
the date hereof, Contributors shall deliver or cause to be delivered to Acquiror
an Investor Questionnaire and Agreement in the form attached hereto as Exhibit F
(a "Questionnaire"), completed and executed by each of the Contributors . On the
Closing Date, Acquiror shall issue certificates reflecting each of the
Contributors ownership of the Partnership Units. The certificates evidencing the
Partnership Units will bear appropriate legends indicating (i) that the
Partnership Units have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement
restricts the transfer of Partnership Units. The Acquiror shall assume no
responsibility for any allocation of the consideration, including Partnership
Units, to any of the Contributors' partners. Contributors agree to hold Acquiror
and its affiliates harmless and to indemnify Acquiror and its affiliates for all
costs, claims, damages and expenses, including reasonable attorney's fees,
incurred by Acquiror in connection with such allocations. Upon receipt of
Partnership Units, the Acquiror's Partnership Agreement shall be executed by or
on behalf of each of the Contributors and the Contributors shall become limited
partners of Acquiror and agree to be bound by the Partnership Agreement.
2.6 Intentionally Omitted.
2.7 Intentionally Omitted.
2.8 Redemption. The Partnership Units may be redeemed upon delivery of
a notice ("Redemption Notice") from the Contributors , for common shares
("Common Shares") of beneficial interest in Hersha Hospitality Trust (the
"REIT") or for cash, in accordance with the Hersha Hospitality Limited
Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the Common
Shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the Common Shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M and incorporated herein.
2.10 Intentionally Omitted.
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to purchase the
Property, the Contributors hereby make the following representations, warranties
and covenants on a joint and several basis , upon each of which the Contributors
acknowledge and agree that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributors are limited partnerships
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or individuals,
and have all requisite powers and all governmental licenses, authorizations,
consents and approvals necessary to carry on its business as now conducted, to
own, lease and operate its properties, to execute and deliver this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Contributors hereunder, to perform their obligations under this Agreement
and any such other documents or instruments and to consummate the transactions
contemplated hereby.
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3.2 Authorization, No Violations and Notices.
(a) The execution, delivery and performance of this Agreement by
the Contributors, and the consummation of the transactions
contemplated hereby have been duly authorized, adopted and
approved by the partners of the Contributors for those
Contributors that are partnerships to the extent required by
its organizational documents and applicable law. No other
proceedings are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly
executed by JSK, Shanti, Shreeji, Kunj, Shah, Desfor, Patni,
Gandhi and SEL and is a valid and binding obligation
enforceable against them in accordance with its terms.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that,
which, with or lapse of time or both, would constitute
a default) under, result in the termination of,
accelerate the performance required by, or result in a
right of termination or acceleration, or the creation
of any lien, security interest, charge, or encumbrance
upon any of the properties or assets of the
Partnership, under any of the terms, conditions, or
provisions of, its Partnership, or any note, bond,
mortgage, indenture, deed of trust, license, lease,
agreement, or other instrument, or obligation to which
the Partnership is a party, or by which the Partnership
may be bound, or to which the Partnership or its
properties or assets may be subject; or
(iii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or its property or assets that would not be
violated by the execution, delivery or performance of
this Agreement or the transactions contemplated hereby
by the Contributors or compliance by the Contributors
with any of the provisions hereof.
3.3 Litigation with respect to Contributors. There is no action, suit,
claim or proceeding pending or, to the Contributors knowledge, threatened
against or affecting the Contributors or their assets in any court, before any
arbitrator or before or by any governmental body or other regulatory authority
(i) that would adversely affect the Interests, (ii) that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or the
transactions contemplated hereby, or (iii) would delay the consummation of any
of the transactions contemplated hereby. The Contributors are not subject to any
judgment, decree, injunction, rule or order of any court relating to the
Contribtuors' participation in the transactions contemplated by this Agreement.
3.4 Interests. The Interests will be free and clear of all liens and
encumbrances on the Closing Date and the Contributors have good, merchantable
title thereto and the right to convey same in accordance with the terms of this
Agreement. Upon delivery of the Assignment and Assumption Agreements to the
Acquiror at Closing, good valid and merchantable title to the Interests, free
and clear of all liens and encumbrances, will pass to the Acquiror.
3.5 Bankruptcy with Respect to Contributors. No Act of Bankruptcy has
occurred with respect to the Contributors.
3.6 Brokerage Commission. The Contributors have not engaged the
services of, nor is it or will it or Acquiror become liable to, any real estate
agent, broker, finder or any other person or entity for any brokerage or
finder's fee, commission or other amount with respect to the transactions
described herein on account of any action by the Contributors.
3.7 The Partnership.
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers
necessary to carry on its business as now conducted, to own,
lease and operate its properties.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that,
with notice or lapse of time or both, would constitute
a default) under, result in the termination of,
accelerate the performance required by, or result in a
right of termination or acceleration, or the creation
of any lien, security interest, charge, or encumbrance
upon any of the properties or assets of the
Partnership, under any of the terms, conditions, or
provisions of, their articles of incorporation or
bylaws, or any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement, or other instrument
or obligation to which the Partnership is a party, or
by which the Partnership may be bound, or to which the
Partnership or its properties or assets may be subject;
or
(ii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or any of the Partnership's properties or
assets.
(c) Except for the Contributors, no party has any interest in the
Partnership or the right or option to acquire any interest in
the Partnership or the property or any portion thereof. The
Partnership has no subsidiaries and does not directly or
indirectly own any securities of or interest in any other
entity, including, without limitation, any partnership or
joint venture.
3.8 Liabilities, Debts and Obligations. Except for the Continuing
Liabilities, the Partnership has no liability, debt or obligation.
3.9 Tax Matters with respect to Partnership.
(a) The Partnership has filed all income tax information returns on IRS Form
1065 (including K-1s for each partner) and applicable state and local
income tax forms required to be filed with the United States Government
and with all states and political subdivisions thereof where any such
returns are required to be filed and where the failure to file such
return or report would subject the Partnership or its partners to any
material liability or penalty. All taxes (other than sale taxes, rental
taxes or the equivalent and real property taxes) imposed by the United
States, or by any foreign country, or by any state, municipality,
subdivision, or instrumentality of the United States or of any foreign
country or by any other taxing authority, which are due and payable by
the Partnership have been paid in full or adequately provided for by
reserves shown in their records and books of account and in the
Partnership's financial information. The Partnership has not obtained or
received any extension of time (beyond the Closing Date) for the
assessment of deficiencies for any years or waived or extended the
statute of limitations for the determination or collection of any tax. To
the Contributors' knowledge no unassessed tax deficiency is proposed or
threatened against the Partnership.
(b) All taxes, rental taxes or the equivalent, and all interest and penalties
due thereon, required to be paid or collected by the Partnership in
connection with the operation of the Property as of the Closing Date will
have been collected and/or paid to the appropriate governmental
authorities, as required or such amounts shall be pro-rated as of the
Closing Date. The Partnership shall file, all necessary returns and
petitions required to be filed through the Closing Date. The Partnership
shall prepare and file all federal and state income tax returns for the
tax period ending on the Closing Date, which shall reflect the
termination for tax purposes of the Partnership. If requested by the
Acquiror, the Contributors shall cause the Partnership to make an
election under Section 754 of the Code for the period ending on the
Closing Date.
3.10 Contracts and Agreements. There is no loan agreement, guarantee,
note, bond, indenture and other debt instrument, lease and other contract to
which the Partnership is a party or by which its assets are bound other than
Permitted Title Encumbrances, the Leases, and the Operating Agreements.
3.11 No Special Taxes. The Contributors have no actual knowledge of,
nor have they received any written notice of, any special taxes or assessments
relating to the Partnership or Property or any part thereof or any planned
public improvements that may result in a special tax or assessment against the
Property.
3.12 Compliance with Existing Laws. The Partnership possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributors' actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Partnership has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributors have no actual knowledge of any change in
the circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributors have
no actual knowledge, nor have they received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.13 Operating Agreements. The Partnership has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Partnership shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Partnership enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributors have obtained the Acquiror's prior
written consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.14 Warranties and Guaranties. The Partnership shall not before
Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.15 Insurance. All of the Partnership's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Partnership on or before the due date therefor. The Partnership
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Partnership's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Partnership shall name the Acquiror as an additional insured
on each of the Partnership's Insurance Policies.
3.16 Condemnation Proceedings; Roadways. The Partnership has received
no written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributors have no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.17 Litigation with respect to Partnership. Except as set forth on
Exhibit I there is no action, suit or proceeding pending or known to be
threatened against or affecting the Partnership or its property in any court,
before any arbitrator or before or by any governmental agency which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement or any other material agreement or instrument to which the Partnership
are a party or by which they are bound and that is or is to be used in
connection with, or is contemplated by, this Agreement, (b) could materially and
adversely affect the business, financial position or results of operations of
the Partnership, (c) could materially and adversely affect the ability of the
Partnership perform its obligations hereunder, or under any document to be
delivered pursuant hereto, (d) could create a lien on the Property, any part
thereof or any interest therein, or (e) could otherwise materially adversely
affect the Property, any part thereof or any interest therein or the use,
operation, condition or occupancy thereof.
3.18 Labor Disputes and Agreements. The Partnership currently has no
labor disputes pending or, threatened as to the operation or maintenance of the
Property or any part thereof. The Partnership is not a party to any union or
other collective bargaining agreement with employees employed in connection with
the ownership, operation or maintenance of the Property. The Acquiror will not
be obligated to give or pay any amount to any employee of the Partnership, and
the Acquiror shall not have any liability under any pension or profit sharing
plan that the Partnership may have established with respect to the Property or
their or its employees.
3.19 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.20 Organizational Documents. The Partnership's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.21 Operation of Property. The Contributors covenant that between the
date hereof and the date of Closing they will make good faith efforts to cause
the Partnership to (a) operate the Property only in the usual, regular and
ordinary manner consistent with the Partnership's prior practice, (b) maintain
their books of account and records in the usual, regular and ordinary manner, in
accordance with sound accounting principles applied on a basis consistent with
the basis used in keeping its books in prior years, and (c) use all reasonable
efforts to preserve intact their present business organization, keep available
the services of their present officers and employees and preserve their
relationships with suppliers and others having business dealings with them. The
Contributor shall make good faith efforts to encourage the Partnership to
continue to make good efforts to take guest room reservations and to book
functions and meetings and otherwise to promote the business of the Property in
generally the same manner as the Partnership did prior to the execution of this
Agreement. Except as otherwise permitted hereby, from the date hereof until
Closing, the Contributors shall use its good faith efforts to ensure that the
Partnership shall not take any action or fail to take action the result of which
(i) would have a material adverse effect on the Property or the Acquiror's
ability to continue the operation thereof after the date of Closing in
substantially the same manner as presently conducted, (ii) reduce or cause to be
reduced any room rents or any other charges over which Contributors have
operational control, or (iii) would cause any of the representations and
warranties contained in this Article III to be untrue as of Closing.
3.22 Intentionally Omitted.
3.23 Bankruptcy with respect to Partnership. No Act of Bankruptcy has
occurred with respect to the Partnership.
3.24 Hazardous Substances. Except for matters in Partnership's or
Acquiror's audits, Contributors have no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributors
have no actual knowledge of any failure to comply with any applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributors shall have no liability
to Acquiror for any Hazardous Substances of which Contributors have no actual
knowledge.
3.25 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.26 License. The license from Hampton Inn, Inc. (the "Licensor") with
respect to the Hotel (the "License") is, and at Closing will be, valid and in
full force and effect, and Contributors will make good faith efforts not to be
in default with respect thereto (with or without the giving of any required
notice and/or lapse of time).
3.27 Independent Audit. Contributors shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with Regulation S-X of the Securities and Exchange Commission (the
"Commission") and to enable them to prepare a registration statement, report or
disclosure statement for filing with the Commission. Contributors shall also
provide to Acquiror's representatives a signed representative letter and a hold
harmless letter which would be sufficient to enable an independent public
accountant to render an opinion on the financial statements related to the
Property.
3.28 Bulk Sale Compliance. Contributors shall indemnify Acquiror
against any claim, loss or liability arising under the bulk sales law in
connection with the transaction contemplated herein.
3.29 Intentionally Omitted
3.30 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning
<PAGE>
supplies and other such supplies and materials, as are reasonably adequate for
the current operation of the Hotel.
3.31 Noncompetition. If Contributors develop or acquire other lodging
facilities, not owned at the time of the execution of this Agreement, within 15
miles of any facility owned or to be owned by the Acquiror, the Contributors
shall give the Acquiror the option to purchase the facility for a period of two
years following the opening or acquisition of such facility.
3.32 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributors, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributors and Contributors will have obtained consents all necessary
consents of any third party.
3.33 Securities Law Matters. Contributors further represent and warrant
that they have (i) received, reviewed, been given the opportunity to ask
questions of representatives of the Operating Partnership and the REIT
regarding, and understand the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributors and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.34 Tax Matters with Respect to Contributors. The Contributors
represent and warrant that they (and each of its partners) have obtained from
its own counsel advice regarding the tax consequences of (i) the transfer of the
Partnership Interest to the Acquiror and the receipt of Partnership Units as
consideration therefor, (ii) the Contributors' admission as partners of the
Acquiror, and (iii) any other transaction contemplated by this Agreement. The
Contributors further represent and warrant that they have not relied on the
Acquiror or the Acquiror's representatives or counsel for such advice.
3.35 Noncontravention. The execution and delivery of, and the
performance by the Contributors of their obligations under this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributors' Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributors, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributors (or any predecessor to or
representative of the Contributors) have agreed to contribute or have granted an
option or right of first refusal to acquire the Property or any part thereof.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the
Contributors. Acquiror acknowledges and agrees that, except for the
representations and warranties expressly set forth herein, Acquiror is acquiring
the Property "AS-IS, WHERE-IS" with no representations or warranties by or from
Contributors or any of its affiliates, express or implied, or any nature
whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributors to enter into this Agreement and to sell the
Interests, the Acquiror hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Acquiror
acknowledges and agrees that the Contributors are entitled to rely and have
relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributors to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributors with
the following covenants:
5.1 Contributors' Deliveries. The Contributors shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributors
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributors; Certificate. All of the Contributors' representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributors shall have performed all of its material covenants
and other obligations under this Agreement and the Contributors shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.2.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributors shall not have diminished the quality or quantity of maintenance
and upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributors shall not have diminished the Inventory.
The Contributors shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributors shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998.
6.2 Contributors' Deliveries. At Closing, the Contributors shall
deliver to Acquiror all of the following instruments, each of which shall have
been duly executed and, where applicable, acknowledged on behalf of the
Contributors and shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Assignment and Assumption Agreements.
(c) Certificate(s)/Registration of Title for any vehicle
owned by the Contributors and used in connection with the Property.
(d) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title Policy with affirmative
coverage over mechanics' and materialmen's liens.
(e) The FIRPTA Certificates.
(f) True, correct and complete copies of all warranties, if
any, of manufacturers, suppliers and installers possessed by the Contributors
and relating to the Improvements and the Personal Property, or any part thereof.
(g) Certified copies of the Contributors' and the
Partnership's Organizational Documents.
(h) Appropriate resolutions of the partners of the
Contributors, together with all other necessary approvals and consents of the
Contributors, authorizing (A) the execution on behalf of the Contributors of
this Agreement and the documents to be executed and delivered by the
Contributors prior to, at or otherwise in connection with Closing, and (B) the
performance by the Contributors of its obligations hereunder and under such
documents.
(i) Valid, final and unconditional certificate(s) of
occupancy for the Real Property and Improvements, issued by the appropriate
governmental authority.
(j) The written consent of the Licensor to the transfer of
the license, if applicable, and if so required.
(k) Such proof as the Acquiror may reasonably require with
respect to Contributors' compliance with the bulk sales laws or similar
statutes.
(l) A written instrument executed by the Contributors,
conveying and transferring to the Acquiror all of the Contributors' right, title
and interest in any telephone numbers and facsimile numbers relating to the
Property, and, if the Contributors maintains a post office box, conveying to the
Acquiror all of its interest in and to such post office box and the number
associated therewith, so as to assure a continuity in operation and
communication.
(m) All current real estate and personal property tax bills
in the Contributors' possession or under its control.
(n) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest information.
(o) An updated schedule of employees, showing salaries and
duties with a statement of the length of service of each such employee, brought
current to a date not more than 48 hours prior to the Closing.
(p) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to enable the Acquiror to
honor the Contributors' commitments in that regard.
(q) A list of the Contributors' outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due the Contributors.
(r) Intentionally Omitted
(s) All keys for the Property.
(t) All books, records, operating reports, appraisal
reports, files and other materials in the Contributors' possession or control
which are necessary in the Acquirors discretion to maintain continuity of
operation of the Property.
(u) To the extent permitted under applicable law, documents
of transfer necessary to transfer to the Acquiror the Contributors' employment
rating for workmens' compensation and state unemployment tax purposes.
(v) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and suppliers in effect with
respect to the Improvements.
(w) Complete set of "as-built" drawings for the
Improvements.
(x) Such agreements, affidavits or other documents as may be
required by the Title Company in order to issue affirmative mechanics lien
coverage in the Owner's Title Policy for the Property.
(y) a completed version of the Questionnaire from the
Contributors and each Transferee.
(z) Any other document or instrument reasonably requested by
the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributors the following:
(a) The Consideration described in Section 2.3.
(b) The Assignment and Assumption Agreements.
(c) The certificates described in Section 2.5 evidencing the
Transferees ownership of the Partnership Units and the admission of the
Transferees as limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested by
the Contributors or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall be paid by the Acquiror. The Acquiror shall pay
reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.3(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributors and the Acquiror. The Contributors shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income
and responsible for all expenses for the period of time from, after and
including the Closing Date. All adjustments shall be shown on the settlement
statements (with such supporting documentation as the parties hereto may require
being attached as exhibits to the settlement statements) and shall increase or
decrease (as the case may be) the amount payable by the Acquiror pursuant to
Section 2.3(d). Without limiting the generality of the foregoing, the following
items of income and expense shall be allocated as of the Closing Date:
(a) Current and prepaid rents, including, without
limitation, prepaid room receipts, function receipts and other reservation
receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements.
(d) Utility charges (including but not limited to charges
for water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid
for such fuel by the Contributors, including any taxes.
(g) All prepaid reservations and contracts for rooms
confirmed by Contributors prior to the Closing Date for dates after the Closing
Date, all of which Acquiror shall honor.
The Tray Ledger shall be retained by the Contributors. The Contributors
shall be required to pay all sales taxes and similar impositions currently up to
the Closing Date.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the Closing Date for Contributors, but if Acquiror
collects same, such amounts will be promptly remitted to Contributors in the
form received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributors or the Acquiror with respect to the
Property after the date of Closing shall be promptly allocated in the manner
described herein and the parties shall promptly pay or reimburse any amount due.
The Contributors shall pay at Closing all special assessments and taxes
applicable to the Property.
The certificates evidencing the Contributors' ownership of the
Partnership Units will be dated as of the Closing Date, and the Contributors
will be entitled to any dividends accruing thereon on and after the Closing
Date.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributors shall give
written notice thereof to the Acquiror promptly after the Contributors learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributors. If any such
loss or damage to more than twenty five percent (25%) of the value of the
improvements occurs prior to Closing, the Acquiror shall have the right to
terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to
terminate this Agreement, all insurance proceeds and rights to proceeds arising
out of such loss or damage shall be paid or assigned, as applicable, to the
Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributors or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributors. The Contributors hereby
indemnifies and holds the Acquiror harmless from and against any and all claims,
costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees), subject to Section 9.11 that may at any time be
incurred by the Acquiror, whether before or after Closing, as a result of any
breach by the Contributors of any of its representations, warranties, covenants
or obligations set forth herein or in any other document delivered by the
Contributors pursuant hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributors fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement and all other rights and obligations of the Contributors and the
Acquiror hereunder shall terminate immediately, or (b) to waive its right to
terminate and, instead, to proceed to Closing.
8.4 Termination by Contributors. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to purchase the Property), and the Acquiror fails to cure any
such default within ten business days after notice thereof from the
Contributors, then the Contributors' sole remedy for such default shall be to
terminate this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributors and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributors: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia. PA 19106
Phone:(215) 238-1045
Fax:(215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Phone:(717) 770-2405
Fax:(717) 774-7383
<PAGE>
If to the Acquiror:
Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Phone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Phone: (804) 788-8604
Fax: (804) 788-8218
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributors and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributors and the Acquiror each
covenant and agree to sign, execute and deliver, or cause to be signed, executed
and delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributors and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
<PAGE>
9.15 Confidentiality. Contributors and its representatives, including
any professionals representing Contributors, shall keep the existence and terms
of this Agreement strictly confidential, except to the extent disclosure is
compelled by law, and then only to the extent of such compulsion.
IN WITNESS WHEREOF, the Contributors and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTORS:
JSK Associates, a Pennsylvania limited partnership
By: /s/ Jay Shah
--------------------------
Jay Shah, General Partner
Shanti Associates, a Pennsylvania limited partnership
By: /s/ K. D. Patel
------------------------------
K.D. Patel, General Partner
Shreeji Associates, a Pennsylvania limited partnership
By: /s/ Rajendra Gandhi
-------------------------------
Rajendra Gandhi, General Partner
Kunj Associates, a Pennsylvania limited partnership
By: /s/ Kiran Patel
-------------------------------
Kiran Patel, General Partner
Shreenathji Enterprises, Ltd., a Pennsylvania corporation
By: /s/ Hasu P. Shah
-----------------------------
Hasu P. Shah, President
/s/ Neil Shah
---------------------
Neil Shah
/s/ David Desfor
---------------------
David Desfor
<PAGE>
/s/ Madhusudan Patni
---------------------------
Madhusudan Patni
/s/ Manhar Gandhi
---------------------------
Manhar Gandhi
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia
partnership
By: Hersha Hospitality Trust, a Maryland Business
Trust, its sole general partner
By: /s/ Hasu P. Shah
-------------------------------
Hasu P. Shah, President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
144 ASSOCIATES, 344 ASSOCIATES,
544 ASSOCIATES AND 644 ASSOCIATES,
JOINT TENANTS DOING BUSINESS AS
2544 ASSOCIATES
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 4
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUIRE PRICE AND CONTINGENT ACQUIRE PRICE........................... 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 6
2.6 Determination of Number of LP Units........................................................... 7
2.7 Contributor's Transfer of LP Units to Contributor's Partner................................... 7
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Payment of Contingent Consideration............................................................ 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 9
3.3 Noncontravention............................................................................... 9
3.4 No Special Taxes............................................................................... 9
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties..................................................................... 10
3.8 Insurance..................................................................................... 10
3.9 Condemnation Proceedings; Roadways............................................................ 10
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 11
3.13 Organizational Documents...................................................................... 11
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 12
3.16 Bankruptcy.................................................................................... 12
3.17 Intentionally Omitted......................................................................... 12
3.18 Hazardous Substances.......................................................................... 12
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
3.22 Bulk Sale Compliance.......................................................................... 13
3.23 Intentionally Omitted......................................................................... 13
3.24 Sufficiency of Certain Items.................................................................. 13
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 13
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 14
4.4 Bankruptcy.................................................................................... 15
4.5 No Brokers.................................................................................... 15
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 15
5.6 Utilities..................................................................................... 16
5.7 Intentionally Omitted......................................................................... 16
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING................................................................................. 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 19
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 20
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 21
9.1 Completeness; Modification.................................................................... 22
9.2 Assignments................................................................................... 22
9.3 Successors and Assigns........................................................................ 22
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 22
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 23
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Legal Description
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June 1998,
between 144 Associates, 344 Associates, 544 Associates and 644 Associates, joint
tenants doing business as 2455 Associates (individually and collectively the
"Contributor"), and Hersha Hospitality Limited Partnership, a Virginia limited
partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Property pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $3,450,000, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Deed" shall mean that certain deed conveying title to the
Improvements with special warranty from the Contributor to the Acquiror, subject
only to Permitted Title Exceptions. The description of the Land in the Deed
shall be by courses and distances and, if there is a discrepancy between the
description of the Land attached hereto as Exhibit A and the description of the
Land as shown on the Survey, the description of the Land in the Deed shall be
identical to the description shown on the Survey.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Property,
all licenses, permits and approvals with respect to the construction, ownership,
operation, leasing, occupancy or maintenance of the Property, any unpaid award
for taking by condemnation or any damage to the Land by reason of a change of
grade or location of or access to any street or highway, and the share of the
Tray Ledger determined under Section 6.5, excluding (a) any of the aforesaid
rights the Acquiror elects not to acquire, (b) the Contributor's cash on hand,
in bank accounts and invested with financial institutions and (c) accounts
receivable except for the above described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in West Hanover Township, Pennsylvania, as more particularly described on
Exhibit A attached hereto, together with all easements, rights, privileges,
remainders, reversions and appurtenances thereunto belonging or in any way
appertaining, and all of the estate, right, title, interest, claim or demand
whatsoever of the Contributor therein, in the streets and ways adjacent thereto
and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases or real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Mangement, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the
Improvements (including the marketability thereof) subject only to Permitted
Title Exceptions. The Owner's Title Policy shall insure the Acquiror in the
amount of the Consideration and shall be acceptable in form and substance to the
Acquiror. The description of the Land in the Owner's Title Policy shall be by
courses and distances and shall be identical to the description shown on the
Survey.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Improvements, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Property for the Consideration and the
Contingent Consideration and in accordance with the other terms and conditions
set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Property for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to the
Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd. as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated among the various components of the Property in
the manner indicated on Exhibit J attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Transfer of LP Units to Contributor's Partners. On
the Closing Date, Contributor shall distribute all of the LP Units to its
partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the
amount specified on Exhibit K. On the date hereof, Contributor shall deliver or
cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the
form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by
the Contributor and each of the Transferees. On the Closing Date, Acquiror shall
issue certificates reflecting each of the Transferees' ownership of the LP Units
distributed by Contributor. The certificates evidencing the LP Units will bear
appropriate legends indicating (i) that the LP Units have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and (ii) that
the Acquiror's Partnership Agreement restricts the transfer of LP Units. The
Acquiror shall assume no responsibility for any allocation of the consideration,
including LP Units, to the Transferees or any of Contributor's partners.
Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify
Acquiror and its affiliates for all costs, claims, damages and expenses,
including reasonable attorney's fees, incurred by Acquiror in connection with
such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement
shall be executed by or on behalf of each of the Transferees and the Transferees
shall become limited partners of Acquiror and agree to be bound by the
Partnership Agreement.
2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the common
shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the common shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M, and incorporated herein.
<PAGE>
2.10 Payment of Contingent Consideration.
The Contributors shall value the Hotel on December 31, 2000. The value
of the Hotel shall be computed by applying a 12% capitalization rate to the
audited trailing 12 months net operating income, adjusted for a 4% of revenue
management fee and a 4% of revenue furniture, fixture and equipment reserve.
If the then current value of the Hotel exceeds the consideration paid
by Acquiror hereunder, the Acquiror will issue additional Partnership Units at
the Offering Price equal to the difference between the then current value and
the consideration paid hereunder and all distributions paid on those units since
Closing Date.
If the then current value of the Hotel is less than the Consideration
paid by the Acquiror hereunder, the Contributors will return to the Acquiror
Partnership Units at the Offering Price equal to the difference between the then
current value of the Hotel and the Consideration paid hereunder and all
distributions paid on those units since the Closing Date.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Property, the Contributor hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributor is a limited partnership
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations hereunder and under any
document or instrument required to be executed and delivered on behalf of the
Contributor hereunder.
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<PAGE>
3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in
accordance with its terms. There is no other person or entity who has an
ownership interest in the Property or whose consent is required in connection
with the Contributor's performance of its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributor, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Property or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Organizational Documents. The Contributor's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Choice Hotels International (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributor will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Intentionally Omitted.
3.24 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Property to the Acquiror and the receipt
of cash and LP Units as consideration therefor, (ii) the Transferees' admission
as partners of the Acquiror, and (iii) any other transaction contemplated by
this Agreement. The Contributor further represents and warrants that it (and
each of its partners) has not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the Contributor.
Acquiror acknowledges and agrees that, except for the representations and
warranties expressly set forth herein, Acquiror is acquiring the Property
"AS-IS, WHERE-IS" with no representations or warranties by or from Contributor
or any of its affiliates, express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Property, the Acquiror hereby makes the following
representations, warranties and covenants with respect to the Property, upon
each of which the Acquiror acknowledges and agrees that the Contributor is
entitled to rely and has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Property shall be delivered to the Acquiror at Closing, subject only to
Permitted Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror all of the following instruments, each of which shall have been duly
executed and, where applicable, acknowledged on behalf of the Contributor and
shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Deed.
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
(f) Certificate(s)/Registration of Title for any vehicle
owned by the Contributor and used in connection with the Property.
(g) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title Policy with affirmative
coverage over mechanics' and materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all warranties, if
any, of manufacturers, suppliers and installers possessed by the Contributor and
relating to the Improvements and the Personal Property, or any part thereof.
(j) Certified copies of the Contributor's Organizational
Documents.
(k) Appropriate resolutions of the partners of the
Contributor, together with all other necessary approvals and consents of the
Contributor, authorizing (A) the execution on behalf of the Contributor of this
Agreement and the documents to be executed and delivered by the Contributor
prior to, at or otherwise in connection with Closing, and (B) the performance by
the Contributor of its obligations hereunder and under such documents.
(l) Valid, final and unconditional certificate(s) of
occupancy for the Real Property and Improvements, issued by the appropriate
governmental authority.
(m) The written consent of the Licensor to the transfer of
the license, if applicable, and if so required.
(n) If the Acquiror is assuming the Contributor's
obligations under any or all of the Operating Agreements, the originals of such
agreements, duly assigned to the Acquiror and with such assignment acknowledged
and approved by the other parties to such Operating Agreements.
(o) Such proof as the Acquiror may reasonably require with
respect to Contributor's compliance with the bulk sales laws or similar
statutes.
(p) A written instrument executed by the Contributor,
conveying and transferring to the Acquiror all of the Contributor's right, title
and interest in any telephone numbers and facsimile numbers relating to the
Property, and, if the Contributor maintains a post office box, conveying to the
Acquiror all of its interest in and to such post office box and the number
associated therewith, so as to assure a continuity in operation and
communication.
(q) All current real estate and personal property tax bills
in the Contributor's possession or under its control.
(r) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest information.
(s) An updated schedule of employees, showing salaries and
duties with a statement of the length of service of each such employee, brought
current to a date not more than 48 hours prior to the Closing.
(t) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to enable the Acquiror to
honor the Contributor's commitments in that regard.
(u) A list of the Contributor's outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due the Contributor.
(v) Written notice executed by Contributor notifying all
interested parties, including all tenants under any leases of the Property, that
the Property has been conveyed to the Acquiror and directing that all payments,
inquiries and the like be forwarded to the Acquiror at the address to be
provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal
reports, files and other materials in the Contributor's possession or control
which are necessary in the Acquirors discretion to maintain continuity of
operation of the Property.
(y) To the extent permitted under applicable law, documents
of transfer necessary to transfer to the Acquiror the Contributor's employment
rating for workmens' compensation and state unemployment tax purposes.
(z) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and suppliers in effect with
respect to the Improvements.
(aa) Complete set of "as-built" drawings for the
Improvements.
(bb) Such agreements, affidavits or other documents as may
be required by the Title Company in order to issue affirmative mechanics lien
coverage in the Owner's Title Policy for the Property.
(cc) a completed version of the Questionnaire from the
Contributor and each Transferee.
(dd) Any other document or instrument reasonably requested
by the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section
2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7 evidencing the
Transferees ownership of the LP Units and the admission of the Transferrees as
limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested by
the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall also be paid by the Acquiror. The Acquiror shall
pay reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributor and the Acquiror. The Contributor shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall
be entitled to all income and responsible for all expenses for the period of
time from, after and including the date of Closing. All adjustments shall be
shown on the settlement statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the settlement
statements) and shall increase or decrease (as the case may be) the amount
payable by the Acquiror pursuant to Section 2.4(d). Without limiting the
generality of the foregoing, the following items of income and expense shall be
allocated as of the date of Closing:
(a) Current and prepaid rents, including, without
limitation, prepaid room receipts, function receipts and other reservation
receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
(d) Utility charges (including but not limited to charges
for water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid
for such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms
confirmed by Contributor prior to the Effective Date for dates after the date of
Closing, all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTORS:
144 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania
corporation, its sole general partner
By: /s/ Hasu P. Shah
----------------------------
Hasu P. Shah, President
344 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania
corporation, its sole general partner
By: /s/ Hasu P. Shah
----------------------------
Hasu P. Shah, President
544 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania
corporation, its sole general partner
By: /s/ Hasu P. Shah
---------------------------
Hasu P. Shah, President
644 Associates, a Pennsylvania limited partnership
By: Shreenathji Enterprises, Ltd., a Pennsylvania
corporation, its sole general partner
By: /s/ Hasu P. Shah
---------------------------
Hasu P. Shah, President
<PAGE>
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia limited
partnership
By: Hersha Hospitality Trust, a Maryland business trust, its
sole general partner
By: /s/ Hasu P. Shah
-----------------------
Hasu P. Shah
President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
SHREE ASSOCIATES,
a Pennsylvania limited partnership,
as Contributor,
and
Hersha Hospitality Limited Partnership
a Virginia limited partnership,
as Acquiror.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION..................................... 1
1.1 Definitions................................................................................... 1
1.2 Rules of Construction......................................................................... 4
ARTICLE II
CONTRIBUTION AND ACQUISITION; DEPOSIT;
PAYMENT OF ACQUIRE PRICE AND CONTINGENT ACQUIRE PRICE........................... 5
2.1 Contribution and Acquisition.................................................................. 5
2.2 Intentionally Omitted......................................................................... 5
2.3 Study Period.................................................................................. 5
2.4 Payment of Consideration...................................................................... 6
2.5 Allocation of Consideration................................................................... 7
2.6 Determination of Number of LP Units........................................................... 7
2.7 Contributor's Transfer of LP Units to Contributor's Partner................................... 7
2.8 Redemption.................................................................................... 7
2.9 Registration of Common Shares................................................................. 7
2.10 Payment of Contingent Consideration............................................................ 8
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS........................... 8
3.1 Organization and Power......................................................................... 8
3.2 Authorization and Execution.................................................................... 9
3.3 Noncontravention............................................................................... 9
3.4 No Special Taxes............................................................................... 9
3.5 Compliance with Existing Laws.................................................................. 9
3.6 Operating Agreements........................................................................... 9
3.7 Warranties and Guaranties..................................................................... 10
3.8 Insurance..................................................................................... 10
3.9 Condemnation Proceedings; Roadways............................................................ 10
3.10 Litigation.................................................................................... 10
3.11 Labor Disputes and Agreements................................................................. 10
3.12 Financial Information......................................................................... 11
3.13 Organizational Documents...................................................................... 11
3.14 Operation of Property......................................................................... 11
3.15 Personal Property............................................................................. 11
3.16 Bankruptcy.................................................................................... 12
3.17 Intentionally Omitted......................................................................... 12
3.18 Hazardous Substances.......................................................................... 12
3.19 Room Furnishings.............................................................................. 12
3.20 License....................................................................................... 12
3.21 Independent Audit............................................................................. 12
3.22 Bulk Sale Compliance.......................................................................... 13
3.23 Liquor License................................................................................ 13
3.24 Sufficiency of Certain Items.................................................................. 13
3.25 Noncompetition................................................................................ 13
3.26 Leases........................................................................................ 13
3.27 Securities Law Matters........................................................................ 13
3.28 Tax Matters................................................................................... 13
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS............................ 14
4.1 Organization and Power........................................................................ 14
4.2 Noncontravention.............................................................................. 14
4.3 Litigation.................................................................................... 14
4.4 Bankruptcy.................................................................................... 15
4.5 No Brokers.................................................................................... 15
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.................................... 15
5.1 Contributor's Deliveries...................................................................... 15
5.2 Representations, Warranties and Covenants; Obligations of Contributor; Certificate............ 15
5.3 Title Insurance............................................................................... 15
5.4 Intentionally Omitted......................................................................... 15
5.5 Condition of Improvements..................................................................... 15
5.6 Utilities..................................................................................... 16
5.7 Intentionally Omitted......................................................................... 16
5.8 License....................................................................................... 16
5.9 Intentionally Omitted......................................................................... 16
ARTICLE VI
CLOSING.................................................. 16
6.1 Closing....................................................................................... 16
6.2 Contributor's Deliveries...................................................................... 16
6.3 Acquiror's Deliveries......................................................................... 18
6.4 Closing Costs................................................................................. 19
6.5 Income and Expense Allocations................................................................ 19
ARTICLE VII
CONDEMNATION; RISK OF LOSS......................................... 20
7.1 Condemnation.................................................................................. 20
7.2 Risk of Loss.................................................................................. 20
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS............................................. 21
8.1 Liability of Acquiror......................................................................... 21
8.2 Indemnification by Contributor................................................................ 21
8.3 Termination by Acquiror....................................................................... 21
8.4 Termination by Contributor.................................................................... 21
ARTICLE IX
MISCELLANEOUS PROVISIONS.......................................... 21
9.1 Completeness; Modification.................................................................... 21
9.2 Assignments................................................................................... 22
9.3 Successors and Assigns........................................................................ 22
9.4 Days.......................................................................................... 22
9.5 Governing Law................................................................................. 22
9.6 Counterparts.................................................................................. 22
9.7 Severability.................................................................................. 22
9.8 Costs......................................................................................... 22
9.9 Notices....................................................................................... 22
9.10 Incorporation by Reference.................................................................... 23
9.11 Survival...................................................................................... 23
9.12 Further Assurances............................................................................ 24
9.13 No Partnership................................................................................ 24
9.14 Time of Essence............................................................................... 24
9.15 Confidentiality............................................................................... 24
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Legal Description
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributor's Partnership Agreement
Exhibit G - Contributor's Certificate of Limited Partnership
Exhibit H - Contributor's Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998,
between SHREE ASSOCIATES, a Pennsylvania limited partnership (the
"Contributor"), and Hersha Hospitality Limited Partnership, a Virginia limited
partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby the Contributor (a) assigns and the
Acquiror assumes the Leases, (b) assigns and the Acquiror assumes the Operating
Agreements that have not been canceled at Acquiror's request and (c) assigns all
of the Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of
sale conveying title to the Inventory to the Acquiror's property manager, lessee
or designee.
"Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying title to the Tangible Personal Property, Intangible
Personal Property and the Reservation System from the Contributor to the
Acquiror.
"Closing" shall mean the Closing of the contribution and
acquisition of the Property pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $150,000, payable to the
Contributor at Closing in the manner described in Section 2.4.
"Contributor's Organizational Documents" shall mean the
current partnership agreement and certificate of limited partnership of the
Contributor, true and correct copies of which are attached hereto as Exhibits F
and G.
"Deed" shall mean that certain deed conveying title to the
Improvements with special warranty from the Contributor to the Acquiror, subject
only to Permitted Title Exceptions. The description of the Land in the Deed
shall be by courses and distances and, if there is a discrepancy between the
description of the Land attached hereto as Exhibit A and the description of the
Land as shown on the Survey, the description of the Land in the Deed shall be
identical to the description shown on the Survey.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributor or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"FIRPTA Certificate" shall mean the affidavit of the
Contributor under Section 1445 of the Internal Revenue Code certifying that the
Contributor is not a foreign corporation, foreign partnership, foreign trust,
foreign estate or foreign person (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations), in form and substance satisfactory
to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributor and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Property,
all licenses, permits and approvals with respect to the construction, ownership,
operation, leasing, occupancy or maintenance of the Property, any unpaid award
for taking by condemnation or any damage to the Land by reason of a change of
grade or location of or access to any street or highway, and the share of the
Tray Ledger determined under Section 6.5, excluding (a) any of the aforesaid
rights the Acquiror elects not to acquire, (b) the Contributor's cash on hand,
in bank accounts and invested with financial institutions and (c) accounts
receivable except for the above described share of the Tray Ledger.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in Harrisburg, Dauphin County, Pennsylvania, as more particularly
described on Exhibit A attached hereto, together with all easements, rights,
privileges, remainders, reversions and appurtenances thereunto belonging or in
any way appertaining, and all of the estate, right, title, interest, claim or
demand whatsoever of the Contributor therein, in the streets and ways adjacent
thereto and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Mangement, L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the
Improvements (including the marketability thereof) subject only to Permitted
Title Exceptions. The Owner's Title Policy shall insure the Acquiror in the
amount of the Consideration and shall be acceptable in form and substance to the
Acquiror. The description of the Land in the Owner's Title Policy shall be by
courses and distances and shall be identical to the description shown on the
Survey.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.3.
"Property" shall mean collectively the Improvements, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributor's Reservation
Terminal and Reservation System equipment and software, if any.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributor;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean the Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania 17110, Telephone: 717/234-2666, Fax:
717/234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of
food, beverage, telephone and similar charges which shall be retained by the
Contributor), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
ACQUISITION AND CONTRIBUTION;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. The Contributor agrees to contribute
and the Acquiror agrees to acquire the Property for the Consideration and the
Contingent Consideration and in accordance with the other terms and conditions
set forth herein.
2.2 Intentionally Omitted
2.3 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributor that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the acquisition of the
Property for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributor prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributor of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributor, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, the
Acquiror shall be released from any further liability or obligation under this
Agreement.
(b) During the Study Period, the Contributor shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributor against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributor of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributor shall notify the Acquiror whether the
Contributor is willing to cure such defects. Contributor may cure, but shall not
be obligated to cure such defects. If such defects consist of deeds of trust,
mechanics' liens, tax liens or other liens or charges in a fixed sum or capable
of computation as a fixed sum, the Contributor, at its option, shall either pay
and discharge (in which event, the Escrow Agent is authorized to pay and
discharge at Closing) such defects at Closing, or provide bonds or indemnities
in favor of the Title Company in order to remove such items from the Title
Policy at Closing. If the Contributor is unwilling or unable to cure any other
such defects by Closing, the Acquiror shall elect (1) to waive such defects and
proceed to Closing without any abatement in the Consideration or (2) to
terminate this Agreement. The Contributor shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributor of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.4 Payment of Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
Property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprise, Ltd., as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.5 Allocation of Consideration. The parties agree that the
Consideration shall be allocated among the various components of the Property in
the manner indicated on Exhibit J attached hereto.
2.6 Determination of Number of LP Units. For purposes of determining
the number of LP Units to be delivered by the Acquiror at the Closing, each LP
Unit shall be deemed to have a value equal to Six Dollars ($6.00). The
Contributor shall be entitled to receive at the Closing for distribution to the
Transferees pursuant to Section 2.7 hereof the number of LP Units calculated by
dividing the Consideration by the Unit Price.
2.7 Contributor's Transfer of LP Units to Contributor's Partners. On
the Closing Date, Contributor shall distribute all of the LP Units to its
partners, as set forth on Exhibit K attached hereto (the "Transferees"), in the
amount specified on Exhibit K. On the date hereof, Contributor shall deliver or
cause to be delivered to Acquiror an Investor Questionnaire and Agreement in the
form attached hereto as Exhibit F (a "Questionnaire"), completed and executed by
the Contributor and each of the Transferees. On the Closing Date, Acquiror shall
issue certificates reflecting each of the Transferees' ownership of the LP Units
distributed by Contributor. The certificates evidencing the LP Units will bear
appropriate legends indicating (i) that the LP Units have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and (ii) that
the Acquiror's Partnership Agreement restricts the transfer of LP Units. The
Acquiror shall assume no responsibility for any allocation of the consideration,
including LP Units, to the Transferees or any of Contributor's partners.
Contributor agrees to hold Acquiror and its affiliates harmless and to indemnify
Acquiror and its affiliates for all costs, claims, damages and expenses,
including reasonable attorney's fees, incurred by Acquiror in connection with
such allocations. Upon receipt of LP Units, the Acquiror's Partnership Agreement
shall be executed by or on behalf of each of the Transferees and the Transferees
shall become limited partners of Acquiror and agree to be bound by the
Partnership Agreement.
2.8 Redemption. The LP Units may be redeemed upon delivery of a notice
("Redemption Notice") from the Transferees, for common shares ("Common Shares")
of beneficial interest in Hersha Hospitality Trust (the "REIT") or for cash, in
accordance with the Hersha Hospitality Limited Partnership Agreement attached
hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The contributor acknowledges that the issuance of the common
shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the common shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M, and incorporated herein.
<PAGE>
2.10 Payment of Contingent Consideration.
The Contributors shall value the Hotel on December 31, 1999. The value
of the Hotel shall be computed by applying a 12% capitalization rate to the
audited trailing 12 months net operating income, adjusted for a 4% of revenue
management fee and a 4% of revenue furniture, fixture and equipment reserve.
If the then current value of the Hotel exceeds the consideration paid
by Acquiror hereunder, the Acquiror will issue additional Partnership Units at
the Offering Price equal to the difference between the then current value and
the consideration paid hereunder and all distributions paid on those units since
Closing Date.
If the then current value of the Hotel is less than the Consideration
paid by the Acquiror hereunder, the Contributors will return to the Acquiror
Partnership Units at the Offering Price equal to the difference between the then
current value of the Hotel and the Consideration paid hereunder and all
distributions paid on those units since the Closing Date.
ARTICLE III
CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Property, the Contributor hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied:
3.1 Organization and Power. The Contributor is a limited partnership
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations hereunder and under any
document or instrument required to be executed and delivered on behalf of the
Contributor hereunder.
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<PAGE>
3.2 Authorization and Execution. This Agreement has been duly
authorized by all necessary action on the part of the Contributor, has been duly
executed and delivered by the Contributor, constitutes the valid and binding
agreement of the Contributor and is enforceable in accordance with its terms.
There is no other person or entity who has an ownership interest in the Property
or whose consent is required in connection with the Contributor's performance of
its obligations hereunder.
3.3 Noncontravention. The execution and delivery of, and the
performance by the Contributor of its obligations under, this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributor's Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributor, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributor (or any predecessor to or representative
of the Contributor) has agreed to contribute or has granted an option or right
of first refusal to acquire the Property or any part thereof.
3.4 No Special Taxes. The Contributor has no actual knowledge of, nor
has it received any written notice of, any special taxes or assessments relating
to the Property or any part thereof or any planned public improvements that may
result in a special tax or assessment against the Property.
3.5 Compliance with Existing Laws. The Contributor possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributor's actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Contributor has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributor has no actual knowledge of any change in the
circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no actual knowledge, nor has it received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.6 Operating Agreements. The Contributor has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Contributor shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Contributor enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributor has obtained the Acquiror's prior written
consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.7 Warranties and Guaranties. The Contributor shall not before or
after Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.8 Insurance. All of the Contributor's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Contributor on or before the due date therefor. The Contributor
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Contributor's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Contributor shall name the Acquiror as an additional insured
on each of the Contributor's Insurance Policies. The Contributor shall transfer
all such policies to the Acquiror as of the date of closing.
3.9 Condemnation Proceedings; Roadways. The Contributor has received no
written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributor has no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10 Litigation. Except as set forth on Exhibit I there is no action,
suit or proceeding pending or known to be threatened against or affecting the
Contributor in any court, before any arbitrator or before or by any governmental
agency which (a) in any manner raises any question affecting the validity or
enforceability of this Agreement or any other material agreement or instrument
to which the Contributor is a party or by which it is bound and that is or is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the Contributor, (c) could materially and adversely affect the
ability of the Contributor to perform its obligations hereunder, or under any
document to be delivered pursuant hereto, (d) could create a lien on the
Property, any part thereof or any interest therein, or (e) could otherwise
materially adversely affect the Property, any part thereof or any interest
therein or the use, operation, condition or occupancy thereof.
3.11 Labor Disputes and Agreements. Contributor has no labor disputes
pending or, threatened as to the operation or maintenance of the Property or any
part thereof. Contributor is not a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror will not be obligated to
give or pay any amount to any employee of the Contributor unless the Acquiror
elects to hire that employee, and the Acquiror shall not have any liability
under any pension or profit sharing plan with respect to the Property or its
employees.
3.12 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.13 Organizational Documents. The Contributor's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.14 Operation of Property. The Contributor covenants that between the
date hereof and the date of Closing it will make good faith efforts to (a)
operate the Property only in the usual, regular and ordinary manner consistent
with the Contributor's prior practice, (b) maintain its books of account and
records in the usual, regular and ordinary manner, in accordance with sound
accounting principles applied on a basis consistent with the basis used in
keeping its books in prior years, and (c) use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with suppliers and
others having business dealings with it. The Contributor shall make good faith
efforts to continue to make good efforts to take guest room reservations and to
book functions and meetings and otherwise to promote the business of the
Property in generally the same manner as the Contributor did prior to the
execution of this Agreement. Except as otherwise permitted hereby, from the date
hereof until Closing, the Contributor shall ensure that it shall not take any
action or fail to take action the result of which (i) would have a material
adverse effect on the Property or the Acquiror's ability to continue the
operation thereof after the date of Closing in substantially the same manner as
presently conducted, (ii) reduce or cause to be reduced any room rents or any
other charges over which the Contributor has operational control, or (iii) would
cause any of the representations and warranties contained in this Article III to
be untrue as of Closing.
3.15 Personal Property. All of the Tangible Personal Property,
Intangible Personal Property and Inventory being conveyed by the Contributor to
the Acquiror or to the Acquiror's managing agent, lessee or designee, will be
free and clear of all liens, leases (other than the Leases) and other
encumbrances on the date of Closing and the Contributor has good, merchantable
title thereto and the right to convey same in accordance with the terms of the
Agreement.
3.16 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Contributor or any of the partners of the Contributor.
3.17 Intentionally Omitted.
3.18 Hazardous Substances. Except for matters in Contributor's or
Acquiror's audits, Contributor has no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributor has
no actual knowledge of any failure to comply with any applicable local, state
and federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributor shall have no liability to
Acquiror for any Hazardous Substances of which Contributor has no actual
knowledge.
3.19 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.20 License. The license from Holiday Hospitality, Inc. (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributor will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.21 Independent Audit. Contributor shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with the Securities and Exchange Commission (the "Commission") and
to enable them to prepare a registration statement, report or disclosure
statement for filing with the Commission. Contributor shall also provide to
Acquiror's representatives a signed representative letter and a hold harmless
letter which would be sufficient to enable an independent public accountant to
render an opinion on the financial statements related to the Property.
3.22 Bulk Sale Compliance. Contributor shall indemnify Acquiror against
any claim, loss or liability arising under the bulk sales law in connection with
the transaction contemplated herein.
3.23 Liquor License. The liquor license for the restaurant located
within the Hotel (the "Liquor License") is in full force and effect and validly
licensed to the person(s) required to be licensed under Pennsylvania law.
3.24 Sufficiency of Certain Items. The Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.25 Noncompetition. If Contributor develops or acquires other lodging
facilities, not owned at the time of execution of this agreement, within 15
miles of any facility owned or to be owned by Acquiror, the Contributors shall
give the Acquiror the option to purchase the facility at fair market value for a
period of two years following the opening or acquisition of such facility.
3.26 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributor, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributor and Contributor will have obtained consents all necessary
consents of any third party.
3.27 Securities Law Matters. Contributor further represents and
warrants that it and the Transferees have (i) received, reviewed, been given the
opportunity to ask questions of representatives of the Partnership and the REIT
regarding, and understands the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributor and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.28 Tax Matters. The Contributor represents and warrants that it (and
each of its partners) has obtained from its own counsel advice regarding the tax
consequences of (i) the transfer of the Property to the Acquiror and the receipt
of cash and LP Units as consideration therefor, (ii) the Transferees' admission
as partners of the Acquiror, and (iii) any other transaction contemplated by
this Agreement. The Contributor further represents and warrants that it (and
each of its partners) has not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the Contributor.
Acquiror acknowledges and agrees that, except for the representations and
warranties expressly set forth herein, Acquiror is acquiring the Property
"AS-IS, WHERE-IS" with no representations or warranties by or from Contributor
or any of its affiliates, express or implied, or any nature whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributor to enter into this Agreement and to
contribute the Property, the Acquiror hereby makes the following
representations, warranties and covenants with respect to the Property, upon
each of which the Acquiror acknowledges and agrees that the Contributor is
entitled to rely and has relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributor to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributor with
the following covenants:
5.1 Contributor's Deliveries. The Contributor shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributor
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its material covenants
and other obligations under this Agreement and the Contributor shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.3.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributor shall not have diminished the quality or quantity of maintenance and
upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributor shall not have diminished the Inventory.
The Contributor shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributor shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998. Possession of the
Property shall be delivered to the Acquiror at Closing, subject only to
Permitted Title Exceptions and rights of guests of the Hotel.
6.2 Contributor's Deliveries. At Closing, the Contributor shall deliver
to Acquiror all of the following instruments, each of which shall have been duly
executed and, where applicable, acknowledged on behalf of the Contributor and
shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Deed.
(c) The Bill of Sale [Inventory].
(d) The Bill of Sale [Personal Property].
(e) The Assignment and Assumption Agreement.
(f) Certificate(s)/Registration of Title for any vehicle
owned by the Contributor and used in connection with the Property.
(g) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title Policy with affirmative
coverage over mechanics' and materialmen's liens.
(h) The FIRPTA Certificate.
(i) True, correct and complete copies of all warranties, if
any, of manufacturers, suppliers and installers possessed by the Contributor and
relating to the Improvements and the Personal Property, or any part thereof.
(j) Certified copies of the Contributor's Organizational
Documents.
(k) Appropriate resolutions of the partners of the
Contributor, together with all other necessary approvals and consents of the
Contributor, authorizing (A) the execution on behalf of the Contributor of this
Agreement and the documents to be executed and delivered by the Contributor
prior to, at or otherwise in connection with Closing, and (B) the performance by
the Contributor of its obligations hereunder and under such documents.
(l) Valid, final and unconditional certificate(s) of
occupancy for the Real Property and Improvements, issued by the appropriate
governmental authority.
(m) The written consent of the Licensor to the transfer of
the license, if applicable, and if so required.
(n) If the Acquiror is assuming the Contributor's
obligations under any or all of the Operating Agreements, the originals of such
agreements, duly assigned to the Acquiror and with such assignment acknowledged
and approved by the other parties to such Operating Agreements.
(o) Such proof as the Acquiror may reasonably require with
respect to Contributor's compliance with the bulk sales laws or similar
statutes.
(p) A written instrument executed by the Contributor,
conveying and transferring to the Acquiror all of the Contributor's right, title
and interest in any telephone numbers and facsimile numbers relating to the
Property, and, if the Contributor maintains a post office box, conveying to the
Acquiror all of its interest in and to such post office box and the number
associated therewith, so as to assure a continuity in operation and
communication.
(q) All current real estate and personal property tax bills
in the Contributor's possession or under its control.
(r) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest information.
(s) An updated schedule of employees, showing salaries and
duties with a statement of the length of service of each such employee, brought
current to a date not more than 48 hours prior to the Closing.
(t) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to enable the Acquiror to
honor the Contributor's commitments in that regard.
(u) A list of the Contributor's outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due the Contributor.
(v) Written notice executed by Contributor notifying all
interested parties, including all tenants under any leases of the Property, that
the Property has been conveyed to the Acquiror and directing that all payments,
inquiries and the like be forwarded to the Acquiror at the address to be
provided by the Acquiror.
(w) All keys for the Property.
(x) All books, records, operating reports, appraisal
reports, files and other materials in the Contributor's possession or control
which are necessary in the Acquirors discretion to maintain continuity of
operation of the Property.
(y) To the extent permitted under applicable law, documents
of transfer necessary to transfer to the Acquiror the Contributor's employment
rating for workmens' compensation and state unemployment tax purposes.
(z) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and suppliers in effect with
respect to the Improvements.
(aa) Complete set of "as-built" drawings for the
Improvements.
(bb) Such agreements, affidavits or other documents as may
be required by the Title Company in order to issue affirmative mechanics lien
coverage in the Owner's Title Policy for the Property.
(cc) a completed version of the Questionnaire from the
Contributor and each Transferee.
(dd) Any other document or instrument reasonably requested
by the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributor the following:
(a) The portion of the Consideration described in Section
2.4.
(b) The Assignment and Assumption Agreement.
(c) The certificates described in Section 2.7 evidencing the
Transferees ownership of the LP Units and the admission of the Transferrees as
limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested by
the Contributor or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall also be paid by the Acquiror. The Acquiror shall
pay reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.4(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributor and the Acquiror. The Contributor shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the date of Closing (the "Effective Date"), and the Acquiror shall
be entitled to all income and responsible for all expenses for the period of
time from, after and including the date of Closing. All adjustments shall be
shown on the settlement statements (with such supporting documentation as the
parties hereto may require being attached as exhibits to the settlement
statements) and shall increase or decrease (as the case may be) the amount
payable by the Acquiror pursuant to Section 2.4(d). Without limiting the
generality of the foregoing, the following items of income and expense shall be
allocated as of the date of Closing:
(a) Current and prepaid rents, including, without
limitation, prepaid room receipts, function receipts and other reservation
receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements to be assigned to
and assumed by the Acquiror.
(d) Utility charges (including but not limited to charges
for water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid
for such fuel by the Contributor, including any taxes.
(g) All prepaid reservations and contracts for rooms
confirmed by Contributor prior to the Effective Date for dates after the date of
Closing, all of which Acquiror shall honor.
(h) Current insurance premiums.
The Tray Ledger shall be retained by the Contributor. The Contributor
shall be required to pay all sales taxes and similar impositions currently up to
the date of Closing.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the date of Closing for Contributor, but if Acquiror
collects same, such amounts will be promptly remitted to Contributor in the form
received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributor or the Acquiror with respect to the Property
after the date of Closing shall be promptly allocated in the manner described
herein and the parties shall promptly pay or reimburse any amount due. The
Contributor shall pay at Closing all special assessments and taxes applicable to
the Property.
The certificates evidencing the Transferees' ownership of the LP Units
will be dated as of date of Closing, and the Transferees will be entitled to any
dividends accruing thereon on and after the date of Closing.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributor shall give
written notice thereof to the Acquiror promptly after the Contributor learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributor. If any such
loss or damage to more than twenty five percent (25%) of the Property occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTOR;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributor or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributor. The Contributor hereby indemnifies
and holds the Acquiror harmless from and against any and all claims, costs,
penalties, damages, losses, liabilities and expenses (including reasonable
attorneys' fees), subject to Section 9.11 that may at any time be incurred by
the Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement, in which event all other rights and obligations of the Contributor
and the Acquiror hereunder shall terminate immediately, or (b) to waive its
right to terminate and, instead, to proceed to Closing.
8.4 Termination by Contributor. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to acquire the Property), and the Acquiror fails to cure any such
default within ten business days after notice thereof from the Contributor, then
the Contributor's sole remedy for such default shall be to terminate this
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributor and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 614
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: (717) 774-7383
If to the Acquiror: Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Telephone: (215) 238-1045
Fax: (215) 238-0157
with a copy to: Cameron Cosby, Esquire
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributor and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributor and the Acquiror each covenant
and agree to sign, execute and deliver, or cause to be signed, executed and
delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributor and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributor and its representatives, including
any brokers or other professionals representing Contributor, shall keep the
existence and terms of this Agreement strictly confidential, except to the
extent disclosure is compelled by law, and then only to the extent of such
compulsion.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTOR:
Shree Associates, a Pennsylvania limited partnership
By: /s/ Hasu P. Shah
-------------------------------
Hasu P. Shah, President
ACQUIROR:
Hersha Hospitality Limited Partnership, a Virginia
limited partnership
By: Hersha Hospitality Trust, a Maryland business
trust, its sole general partner
By: /s/ Hasu P. Shah
----------------------
Hasu P. Shah
President
CONTRIBUTION AGREEMENT
dated as of June 3, 1998
between
JSK Associates, Shanti Associates,
Shreeji Associates, Kunj Associates, Neil Shah,
David Desfor, and Shreenathji Enterprises, Ltd.
as Contributors,
and
Hersha Hospitality Limited Partnership,
a Virginia limited partnership,
as Acquiror
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION............................................1
1.1 Definitions.....................................................................................1
1.2 Rules of Construction...........................................................................6
ARTICLE II
PURCHASE AND SALE; DEPOSIT;
PAYMENT OF CONSIDERATION AND CONTINGENT CONSIDERATION....................................7
2.1 Contribution and Acquisition....................................................................7
2.2 Study Period....................................................................................7
2.3 Payment of Consideration........................................................................8
2.4 Determination of Number of Partnership Units....................................................9
2.5 Contributors' Distribution of Partnership Units.................................................9
2.6 Intentionally Omitted...........................................................................9
2.7 Intentionally Omitted...........................................................................9
2.8 Redemption......................................................................................9
2.9 Registration of Common Shares...................................................................9
2.10 Payment of Contingent Consideration............................................................10
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS...........................11
3.1 Organization and Power.........................................................................11
3.2 Authorization, No Violations and Notices ......................................................11
3.3 Litigation with respect to Contributors .......................................................12
3.4 Interest.......................................................................................12
3.5 Bankruptcy with respect to Contributors........................................................12
3.6 Brokerage Commission...........................................................................12
3.7 The Partnership................................................................................12
3.8 Liabilities, Debts and Obligations.............................................................13
3.9 Tax Matters with respect to Partnership........................................................13
3.10 Contracts and Agreements.......................................................................14
3.11 No Special Taxes...............................................................................14
3.12 Compliance with Existing Laws..................................................................14
3.13 Operating Agreements...........................................................................15
3.14 Warranties and Guaranties......................................................................15
3.15 Insurance......................................................................................15
3.16 Condemnation Proceedings; Roadways.............................................................15
3.17 Litigation with respect to Partnership.........................................................15
3.18 Labor Disputes and Agreements..................................................................16
3.19 Financial Information..........................................................................16
3.20 Organizational Documents.......................................................................16
3.21 Operation of Property..........................................................................16
3.22 Intentionally Omitted..........................................................................17
3.23 Bankruptcy with respect to Partnership.........................................................17
3.24 Hazardous Substances...........................................................................17
3.25 Room Furnishings...............................................................................17
3.26 License........................................................................................17
3.27 Independent Audit..............................................................................18
3.28 Bulk Sale Compliance...........................................................................18
3.29 Intentionally Omitted..........................................................................18
3.30 Sufficiency of Certain Items...................................................................18
3.31 Noncompetition.................................................................................18
3.32 Leases.........................................................................................18
3.33 Securities Law Matters.........................................................................18
3.34 Tax Matters with respect to Contributors.......................................................19
3.35 Noncontravention...............................................................................19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............................20
4.1 Organization and Power.........................................................................20
4.2 Noncontravention...............................................................................20
4.3 Litigation.....................................................................................20
4.4 Bankruptcy.....................................................................................21
4.5 No Brokers.....................................................................................21
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS.....................................21
5.1 Contributors' Deliveries.......................................................................21
5.2 Representations, Warranties and Covenants; Obligations of Contributors; Certificate............21
5.3 Title Insurance................................................................................21
5.4 Intentionally Omitted..........................................................................21
5.5 Condition of Improvements......................................................................21
5.6 Utilities......................................................................................22
5.7 Intentionally Omitted..........................................................................22
5.8 License........................................................................................22
5.9 Intentionally Omitted..........................................................................22
ARTICLE VI
CLOSING
6.1 Closing........................................................................................22
6.2 Contributors' Deliveries.......................................................................22
6.3 Acquiror's Deliveries..........................................................................24
6.4 Closing Costs..................................................................................24
6.5 Income and Expense Allocations.................................................................25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII
CONDEMNATION; RISK OF LOSS..........................................26
7.1 Condemnation...................................................................................26
7.2 Risk of Loss...................................................................................26
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS..............................................27
8.1 Liability of Acquiror..........................................................................27
8.2 Indemnification by Contributors................................................................27
8.3 Termination by Acquiror........................................................................27
8.4 Termination by Contributors....................................................................27
ARTICLE IX
MISCELLANEOUS PROVISIONS...........................................27
9.1 Completeness; Modification.....................................................................27
9.2 Assignments....................................................................................27
9.3 Successors and Assigns.........................................................................28
9.4 Days...........................................................................................28
9.5 Governing Law..................................................................................28
9.6 Counterparts...................................................................................28
9.7 Severability...................................................................................28
9.8 Costs..........................................................................................28
9.9 Notices........................................................................................28
9.10 Incorporation by Reference.....................................................................30
9.11 Survival.......................................................................................30
9.12 Further Assurances.............................................................................30
9.13 No Partnership.................................................................................30
9.14 Time of Essence................................................................................30
9.15 Confidentiality................................................................................30
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit A - Land
Exhibit B - Employment Agreements
Exhibit C - Insurance Policies
Exhibit D - Leases
Exhibit E - Operating Agreements
Exhibit F - Contributors' Partnership Agreement
Exhibit G - Contributors' Certificate of Limited Partnership
Exhibit H - Contributors' Warranties and Guaranties
Exhibit I - Litigation Schedule
Exhibit J - Allocation of Consideration
Exhibit K - Schedule of Transferees
Exhibit L - Investor Questionnaire and Agreement
Exhibit M - Hersha Hospitality Limited Partnership Agreement
Exhibit N - Contingent Consideration Calculation
Exhibit O - Shreenathji Enterprises, Ltd. Articles of Incorporation
Exhibit P - Shreenathji Enterprises, Ltd. Bylaws
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 3rd day of June, 1998,
between JSK Associates, a Pennsylvania limited partnership ("JSK"), Shanti
Associates, a Pennsylvania limited partnership ("Shanti"), Shreeji Associates, a
Pennsylvania limited partnership ("Shreeji"), Kunj Associates, a Pennsylvania
limited partnership ("Kunj"), Neil Shah ("Shah"), David Desfor ("Desfor"), and
Shreenathji Enterprises, Ltd., a Pennsylvania corporation ("SEL") (collectively,
the "Contributors"), and Hersha Hospitality Limited Partnership, a Virginia
limited partnership (the "Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated meanings:
"Act of Bankruptcy" shall mean if a party hereto or any
general partner thereof shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"JSK Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby JSK assigns and the Acquiror
assumes the JSK Interest.
<PAGE>
"Shanti Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shanti assigns and the
Acquiror assumes the Shanti Interest.
"Shreeji Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shreeji assigns and the
Acquiror assumes the Shreeji Interest.
"Kunj Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Kunj assigns and the
Acquiror assumes the Kunj Interest.
"Shah Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shah assigns and the
Acquiror assumes the Shah Interest.
"Desfor Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Desfor assigns and the
Acquiror assumes the Desfor Interest.
"SEL Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby SEL assigns and the Acquiror
assumes the SEL Interest.
"Assignment and Assumption Agreements" shall mean the JSK
Assignment and Assumption Agreement, the Shanti Assignment and Assumption
Agreement, the Shreeji Assignment and Assumption Agreement, the Kunj Assignment
and Assumption Agreement, the Shah Assignment and Assumption Agreement, the
Desfor Assignment and Assumption Agreement and Assumption Agreement and the SEL
Assignment and Assumption Agreement.
"Authorizations" shall mean all licenses, permits and
approvals required by any governmental or quasi-governmental agency, body or
officer for the ownership, operation and use of the Property or any part
thereof.
"Closing" shall mean the Closing of the contribution and
acquisition of the Interest pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consideration" shall mean $5,030,000 payable to the
Contributors at Closing in the manner described in Section 2.3.
<PAGE>
"Continuing Liabilities" shall include liabilities arising
under operating agreements, equipment leases, loan agreements, or proration
credits at Closing, but shall exclude any liabilities arising from any other
arrangement, agreement or pending litigation.
"Employment Agreements" shall mean any and all employment
agreements, written or oral, between the Contributors or its managing agent and
the persons employed with respect to the Property. A schedule indicating all
pertinent information with respect to each Employment Agreement in effect as of
the date hereof, name of employee, social security number, wage or salary,
accrued vacation benefits, other fringe benefits, etc.)
is attached hereto as Exhibit B.
"Escrow Agent" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717)
234-8198.
"FIRPTA Certificates" shall mean the affidavit of each of the
Contributors under Section 1445 of the Internal Revenue Code certifying that
such Contributor is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person (as those terms are defined in the
Internal Revenue Code and the Income Tax Regulations), in form and substance
satisfactory to the Acquiror.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"JSK Interest" shall mean all right, title and interest of JSK
in the Partnership, consisting of a 29% limited partnership interest in the
Partnership.
"Shanti Interest" shall mean all right, title and interest of
Shanti in the Partnership, consisting of a 20% limited partnership interest in
the Partnership.
"Shreeji Interest" shall mean all right, title and interest of
Shreeji in the Partnership, consisting of a 12% limited partnership interest in
the Partnership.
"Kunj Interest" shall mean all right, title and interest of
Kunj in the Partnership, consisting of a 15% limited partnership interest in the
Partnership.
<PAGE>
"Shah Interest" shall mean all right, title and interest of
Shah in the Partnership, consisting of a 20% limited partnership interest in the
Partnership.
"Desfor Interest" shall mean all right, title and interest of
Desfor in the Partnership, consisting of a 3% limited partnership interest in
the Partnership.
"SEL Interest" shall mean all right, title and interest of SEL
in the Partnership, consisting of a 1% general partnership interest in the
Partnership.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributors and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Holiday Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger as hereinafter defined,
excluding (a) any of the aforesaid rights the Acquiror elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial
institutions and (c) accounts receivable except for the above described share of
the Tray Ledger.
"Interests" shall mean the JSK Interest, the Shanti Interest,
the Shreeji Interest, the Kunj Interest, the Shah Interest, the Desfor Interest
and the SEL Interest.
"Inventory" shall mean all inventory located at the Hotel,
including without limitation, all mattresses, pillows, bed linens, towels, paper
goods, soaps, cleaning supplies and other such supplies.
"Land" shall mean that certain parcel of real estate lying and
being in Hershey, Dauphin County, Pennsylvania, as more particularly described
on Exhibit A attached hereto, together with all easements, rights, privileges,
remainders, reversions and appurtenances thereunto belonging or in any way
appertaining, and all of the estate, right, title, interest, claim or demand
whatsoever of the Contributors therein, in the streets and ways adjacent thereto
and in the beds thereof, either at law or in equity, in possession or
expectancy, now or hereafter acquired.
<PAGE>
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Management L.P.
"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Organizational Documents" shall mean the current partnership
agreement and certificate of limited partnership of each of the limited
partnership Contributors, true and correct copies of which are attached hereto
as Exhibits F and G and Articles of Incorporation and Bylaws of SEL, true and
correct copies of which are attached hereto as Exhibits O and P.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
"Partnership" shall mean 1644 Associates, a Pennsylvania
limited partnership that owns as its sole asset hotel improvements situate on
the land located in Hershey, Dauphin County, Pennsylvania.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.2.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributors' Reservation
Terminal and Reservation System equipment and software, if any.
"JSK's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of JSK, true and
correct copies of which are attached hereto as Exhibits F and G.
<PAGE>
"Shanti's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shanti, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shreeji's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shreeji, true
and correct copies of which are attached hereto as Exhibits F and G.
"Kunj's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Kunj, true and
correct copies of which are attached hereto as Exhibits F and G.
"SEL's Organizational Documents" shall mean the current
Articles of Incorporation and Bylaws of SEL, true and correct copies of which
are attached hereto as Exhibits O and P.
"Study Period" shall mean the period commencing at 9:00 a.m.
on the date hereof, and continuing through 5:00 p.m. on the Closing Date.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributors;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717)
234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Effective Date, exclusive
of food, beverage, telephone and similar charges which shall be retained by the
Contributors), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
<PAGE>
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are
solely for convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
CONTRIBUTION AND ACQUISITION; STUDY PERIOD; PAYMENT
OF CONSIDERATION ND CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. Each of the Contributors agrees to
contribute, assign and transfer its Interest to the Acquiror and the Acquiror
agrees to accept each Contributor's Interest in exchange for the Consideration
and the Contingent Consideration and in accordance with the other terms and
conditions set forth herein.
2.2 Study Period. (a) The Acquiror shall have the right, until 5:00
p.m. on the last day of the Study Period, and thereafter if the Acquiror
notifies the Contributors that the Acquiror has elected to proceed to Closing in
the manner described below, to enter upon the Real Property and to perform, at
the Acquiror's expense, such economic, surveying, engineering, environmental,
topographic and marketing tests, studies and investigations as the Acquiror may
deem appropriate. If such tests, studies and investigations warrant, in the
Acquiror's sole, absolute and unreviewable discretion, the purchase of the
Interests for the purposes contemplated by the Acquiror, then the Acquiror may
elect to proceed to Closing and shall so notify the Contributors prior to the
expiration of the Study Period. If for any reason the Acquiror does not so
notify the Contributors of its determination to proceed to Closing prior to the
expiration of the Study Period, or if the Acquiror notifies the Contributors, in
writing, prior to the expiration of the Study Period that it has determined not
to proceed to Closing, this Agreement automatically shall terminate, and the
Acquiror shall be released from any further liability or obligation under this
Agreement.
<PAGE>
(b) During the Study Period, the Contributors shall make
available to the Acquiror, its agents, auditors, engineers, attorneys and other
designees, for inspection copies of all existing architectural and engineering
studies, surveys, title insurance policies, zoning and site plan materials,
correspondence, environmental audits and other related materials or information
if any, relating to the Property which are in, or come into, the Contributors'
possession or control.
(c) The Acquiror hereby indemnifies and defends the
Contributors against any loss, damage or claim arising from entry upon the Real
Property by the Acquiror or any agents, contractors or employees of the
Acquiror. The Acquiror, at its own expense, shall restore any damage to the Real
Property caused by any of the tests or studies made by the Acquiror.
(d) During the Study Period, the Acquiror, at its expense,
shall cause an examination of title to the Property to be made, and, prior to
the expiration of the Study Period, shall notify the Contributors of any defects
in title shown by such examination that the Acquiror is unwilling to accept. At
or prior to Closing, the Contributors shall notify the Acquiror whether the
Contributors are willing to cure such defects. Contributors may cure, but shall
not be obligated to cure such defects. If such defects consist of deeds of
trust, mechanics' liens, tax liens or other liens or charges in a fixed sum or
capable of computation as a fixed sum, the Contributors, at its option, shall
either pay and discharge (in which event, the Escrow Agent is authorized to pay
and discharge at Closing) such defects at Closing, or provide bonds or
indemnities in favor of the Title Company in order to remove such items from the
Title Policy at Closing. If the Contributors are unwilling or unable to cure any
other such defects by Closing, the Acquiror shall elect (1) to waive such
defects and proceed to Closing without any abatement in the Consideration or (2)
to terminate this Agreement. The Contributors shall not, after the date of this
Agreement, subject the Property to any liens, encumbrances, covenants,
conditions, restrictions, easements or other title matters or seek any zoning
changes or take any other action which may affect or modify the status of title
without the Acquiror's prior written consent, which consent shall not be
unreasonably withheld or delayed. All title matters revealed by the Acquiror's
title examination and not objected to by the Acquiror as provided above shall be
deemed Permitted Title Exceptions. If Acquiror shall fail to examine title and
notify the Contributors of any such title objections by the end of the Study
Period, all such title exceptions (other than those rendering title unmarketable
and those that are to be paid at Closing as provided above) shall be deemed
Permitted Title Exceptions.
2.3 Payment of the Consideration. The Consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the
Consideration in an amount equal to the Contributor's closing costs assumed and
paid for by the Acquiror pursuant to Section 6.4 hereof.
<PAGE>
(b) The Acquiror shall receive a credit against the
Consideration in an amount equal to the outstanding balance (principal,
interest, fees and the like), as of the date of Closing, of the existing
mortgage loan encumbering the Property as such balance is evidenced by a letter
from the lender, which loan the Acquiror shall take subject to or, if requested,
assume.
(c) The Acquiror shall receive a credit against the
Consideration in an amount equal to the outstanding balance (principal,
interest, fees and the like), as of the date of Closing, of the Contributor's
loan to Shreenathji Enterprises, Ltd. as such balance is evidenced by a letter
from the lender, which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration,
as adjusted by the prorations pursuant to Section 6.5 hereof, in the form of
units of limited partnership interest in the Acquiror (the "LP Units").
The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2.4. Determination of Number of Partnership Units. For purposes of
determining the number of Partnership Units to be delivered by the Acquiror at
the Closing, each Partnership Unit shall be deemed to have a value equal to
$6.00. No fractional Partnership Units will be issued at Closing; in lieu of any
such fraction, the value shall be rounded up to a whole share value.
2.5 Contributors' Distribution of Partnership Units . On the Closing
Date, the Partnership Units shall be distributed among the Contributors , as set
forth on Exhibit K attached hereto, in the amount specified on Exhibit K. On the
date hereof, Contributors shall deliver or cause to be delivered to Acquiror an
Investor Questionnaire and Agreement in the form attached hereto as Exhibit F (a
"Questionnaire"), completed and executed by each of the Contributors . On the
Closing Date, Acquiror shall issue certificates reflecting each of the
Contributors ownership of the Partnership Units. The certificates evidencing the
Partnership Units will bear appropriate legends indicating (i) that the
Partnership Units have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement
restricts the transfer of Partnership Units. The Acquiror shall assume no
responsibility for any allocation of the consideration, including Partnership
Units, to any of the Contributors' partners. Contributors agree to hold Acquiror
and its affiliates harmless and to indemnify Acquiror and its affiliates for all
costs, claims, damages and expenses, including reasonable attorney's fees,
incurred by Acquiror in connection with such allocations. Upon receipt of
Partnership Units, the Acquiror's Partnership Agreement shall be executed by or
on behalf of each of the Contributors and the Contributors shall become limited
partners of Acquiror and agree to be bound by the Partnership Agreement.
<PAGE>
2.6 Intentionally Omitted.
2.7 Intentionally Omitted.
2.8 Redemption. The Partnership Units may be redeemed upon delivery of
a notice ("Redemption Notice") from the Contributors , for common shares
("Common Shares") of beneficial interest in Hersha Hospitality Trust (the
"REIT") or for cash, in accordance with the Hersha Hospitality Limited
Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the Common
Shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the Common Shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M and incorporated herein.
2.10 Consideration Contingency.
The Contributors shall value the Hotel on on December 31, 2000. The
value of the Hotel shall be computed by applying a 12% capitalization rate to
the audited trailing 12 months net operating income, adjusted for a 4% of
revenue management fee and a 4% of revenue furniture, fixture and equipment
reserve.
If the then current value of the Hotel exceeds the consideration paid
by Acquiror hereunder, the Acquiror will issue additional Partnership Units at
the Offering Price equal to the difference between the then current value and
the consideration paid hereunder and all distributions paid on those units since
Closing Date.
If the then current value of the Hotel is less than the Consideration
paid by the Acquiror hereunder, the Contributors will return to the Acquirer
Partnership Units at the Offering Price equal to the difference between the then
current value of the Hotel and the Consideration paid hereunder and all
distributions paid on those units since the Closing Date.
<PAGE>
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<PAGE>
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to purchase the
Interests, the Contributors hereby make the following representations,
warranties and covenants on a joint and several basis , upon each of which the
Contributors acknowledge and agree that the Acquiror is entitled to rely and has
relied:
3.1 Organization and Power. The Contributors are limited partnerships
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or individuals,
and have all requisite powers and all governmental licenses, authorizations,
consents and approvals necessary to carry on its business as now conducted, to
own, lease and operate its properties, to execute and deliver this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Contributors hereunder, to perform their obligations under this Agreement
and any such other documents or instruments and to consummate the transactions
contemplated hereby.
3.2 Authorization, No Violations and Notices.
(a) The execution, delivery and performance of this
Agreement by the Contributors, and the consummation of the
transactions contemplated hereby have been duly authorized,
adopted and approved by the partners of the Contributors for
those Contributors that are partnerships to the extent
required by its organizational documents and applicable law.
No other proceedings are necessary to authorize this
Agreement and the transactions contemplated hereby. This
Agreement has been duly executed by JSK, Shanti, Shreeji,
Kunj, Shah, Desfor, and SEL and is a valid and binding
obligation enforceable against them in accordance with its
terms.
(b) Neither the execution, delivery, or performance
by the Contributors of this Agreement, nor the consummation
of the transactions contemplated hereby, nor compliance by
the Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of
any provision of, constitute a default (or an event
that, which, with or lapse of time or both, would
constitute a default) under, result in the termination
of, accelerate the performance required by, or result
in a right of termination or acceleration, or the
creation of any lien, security interest, charge, or
encumbrance upon any of the properties or assets of
the Partnership, under any of the terms, conditions,
or provisions of, its Partnership, or any note, bond,
mortgage, indenture, deed of trust, license, lease,
agreement, or other instrument, or obligation to which
the Partnership is a party, or by which the
Partnership may be bound, or to which the Partnership
or its properties or assets may be subject; or
<PAGE>
(iii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule, or regulation
applicable to the Partnership or its property or
assets that would not be violated by the execution,
delivery or performance of this Agreement or the
transactions contemplated hereby by the Contributors
or compliance by the Contributors with any of the
provisions hereof.
3.3 Litigation with respect to Contributors. There is no action, suit,
claim or proceeding pending or, to the Contributors knowledge, threatened
against or affecting the Contributors or their assets in any court, before any
arbitrator or before or by any governmental body or other regulatory authority
(i) that would adversely affect the Interests, (ii) that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or the
transactions contemplated hereby, or (iii) would delay the consummation of any
of the transactions contemplated hereby. The Contributors are not subject to any
judgment, decree, injunction, rule or order of any court relating to the
Contribtuors' participation in the transactions contemplated by this Agreement.
3.4 Interests. The Interests will be free and clear of all liens and
encumbrances on the Closing Date and the Contributors have good, merchantable
title thereto and the right to convey same in accordance with the terms of this
Agreement. Upon delivery of the Assignment and Assumption Agreements to the
Acquiror at Closing, good valid and merchantable title to the Interests, free
and clear of all liens and encumbrances, will pass to the Acquiror.
3.5 Bankruptcy with Respect to Contributors. No Act of Bankruptcy has
occurred with respect to the Contributors.
3.6 Brokerage Commission. The Contributors have not engaged the
services of, nor is it or will it or Acquiror become liable to, any real estate
agent, broker, finder or any other person or entity for any brokerage or
finder's fee, commission or other amount with respect to the transactions
described herein on account of any action by the Contributors.
3.7 The Partnership.
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite powers
necessary to carry on its business as now conducted, to own,
lease and operate its properties.
<PAGE>
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that,
with notice or lapse of time or both, would constitute
a default) under, result in the termination of,
accelerate the performance required by, or result in a
right of termination or acceleration, or the creation
of any lien, security interest, charge, or encumbrance
upon any of the properties or assets of the
Partnership, under any of the terms, conditions, or
provisions of, their articles of incorporation or
bylaws, or any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement, or other
instrument or obligation to which the Partnership is a
party, or by which the Partnership may be bound, or to
which the Partnership or its properties or assets may
be subject; or
(ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule, or regulation
applicable to the Partnership or any of the
Partnership's properties or assets.
(c) Except for the Contributors, no party has any interest
in the Partnership or the right or option to acquire any
interest in the Partnership or the property or any portion
thereof. The Partnership has no subsidiaries and does not
directly or indirectly own any securities of or interest in
any other entity, including, without limitation, any
partnership or joint venture.
3.8 Liabilities, Debts and Obligations. Except for the Continuing
Liabilities, the Partnership has no liability, debt or obligation.
3.9 Tax Matters with respect to Partnership.
(a) The Partnership has filed all income tax information returns on IRS
Form 1065 (including K-1s for each partner) and applicable state and
local income tax forms required to be filed with the United States
Government and with all states and political subdivisions thereof
where any such returns are required to be filed and where the failure
to file such return or report would subject the Partnership or its
partners to any material liability or penalty. All taxes (other than
sale taxes, rental taxes or the equivalent and real property taxes)
imposed by the United States, or by any foreign country, or by any
state, municipality, subdivision, or instrumentality of the United
States or of any foreign country or by any other taxing authority,
which are due and payable by the Partnership have been paid in full or
adequately provided for by reserves shown in their records and books
of account and in the Partnership's financial information. The
Partnership has not obtained or received any extension of time (beyond
the Closing Date) for the assessment of deficiencies for any years or
waived or extended the statute of limitations for the determination or
collection of any tax. To the Contributors' knowledge no unassessed
tax deficiency is proposed or threatened against the Partnership.
<PAGE>
(b) All taxes, rental taxes or the equivalent, and all interest and
penalties due thereon, required to be paid or collected by the
Partnership in connection with the operation of the Property as of the
Closing Date will have been collected and/or paid to the appropriate
governmental authorities, as required or such amounts shall be
pro-rated as of the Closing Date. The Partnership shall file, all
necessary returns and petitions required to be filed through the
Closing Date. The Partnership shall prepare and file all federal and
state income tax returns for the tax period ending on the Closing Date,
which shall reflect the termination for tax purposes of the
Partnership. If requested by the Acquiror, the Contributors shall cause
the Partnership to make an election under Section 754 of the Code for
the period ending on the Closing Date.
3.10 Contracts and Agreements. There is no loan agreement, guarantee,
note, bond, indenture and other debt instrument, lease and other contract to
which the Partnership is a party or by which its assets are bound other than
Permitted Title Encumbrances, the Leases, and the Operating Agreements.
3.11 No Special Taxes. The Contributors have no actual knowledge of,
nor have they received any written notice of, any special taxes or assessments
relating to the Partnership or Property or any part thereof or any planned
public improvements that may result in a special tax or assessment against the
Property.
3.12 Compliance with Existing Laws. The Partnership possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributors' actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Partnership has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributors have no actual knowledge of any change in
the circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributors have
no actual knowledge, nor have they received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
<PAGE>
3.13 Operating Agreements. The Partnership has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Partnership shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Partnership enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
date of Closing or (b) the Contributors have obtained the Acquiror's prior
written consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.14 Warranties and Guaranties. The Partnership shall not before
Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.15 Insurance. All of the Partnership's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Partnership on or before the due date therefor. The Partnership
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Partnership's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Partnership shall name the Acquiror as an additional insured
on each of the Partnership's Insurance Policies.
3.16 Condemnation Proceedings; Roadways. The Partnership has received
no written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributors have no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.17 Litigation with respect to Partnership. Except as set forth on
Exhibit I there is no action, suit or proceeding pending or known to be
threatened against or affecting the Partnership or its property in any court,
before any arbitrator or before or by any governmental agency which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement or any other material agreement or instrument to which the Partnership
are a party or by which they are bound and that is or is to be used in
connection with, or is contemplated by, this Agreement, (b) could materially and
adversely affect the business, financial position or results of operations of
the Partnership, (c) could materially and adversely affect the ability of the
Partnership perform its obligations hereunder, or under any document to be
delivered pursuant hereto, (d) could create a lien on the Property, any part
thereof or any interest therein, or (e) could otherwise materially adversely
affect the Property, any part thereof or any interest therein or the use,
operation, condition or occupancy thereof.
<PAGE>
3.18 Labor Disputes and Agreements. The Partnership currently has no
labor disputes pending or, threatened as to the operation or maintenance of the
Property or any part thereof. The Partnership is not a party to any union or
other collective bargaining agreement with employees employed in connection with
the ownership, operation or maintenance of the Property. The Acquiror will not
be obligated to give or pay any amount to any employee of the Partnership, and
the Acquiror shall not have any liability under any pension or profit sharing
plan that the Partnership may have established with respect to the Property or
their or its employees.
3.19 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the end of the
Study Period, for each of the Partnership's accounting years, when a given year
is taken as a whole, all of the Partnership's financial information previously
delivered or to be delivered to the Acquiror is and shall be correct and
complete in all material respects and presents accurately the results of the
operations of the Property for the periods indicated, except such statements do
not have footnotes or schedules that may otherwise be required by GAAP. If
requested by the Acquiror, Contributors will forward promptly all four-week
period ending financial information it receives from the Partnership.
Contributors' financial information is prepared based on information provided by
the Partnership based on books and records maintained by the Partnership in
accordance with the Partnership's accounting system. Partnership financial
information provided by the Acquiror has been provided to the Acquiror without
any changes or alteration thereto. To the best of Contributors' knowledge, since
the date of the last financial statement included in the Partnership's financial
information, there has been no material adverse change in the financial
condition or in the operations of the Property.
3.20 Organizational Documents. The Partnership's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.21 Operation of Property. The Contributors covenant that between the
date hereof and the date of Closing they will make good faith efforts to cause
the Partnership to (a) operate the Property only in the usual, regular and
ordinary manner consistent with the Partnership's prior practice, (b) maintain
their books of account and records in the usual, regular and ordinary manner, in
accordance with sound accounting principles applied on a basis consistent with
the basis used in keeping its books in prior years, and (c) use all reasonable
efforts to preserve intact their present business organization, keep available
the services of their present officers and employees and preserve their
relationships with suppliers and others having business dealings with them. The
Contributor shall make good faith efforts to encourage the Partnership to
continue to make good efforts to take guest room reservations and to book
functions and meetings and otherwise to promote the business of the Property in
generally the same manner as the Partnership did prior to the execution of this
Agreement. Except as otherwise permitted hereby, from the date hereof until
Closing, the Contributors shall use its good faith efforts to ensure that the
Partnership shall not take any action or fail to take action the result of which
(i) would have a material adverse effect on the Property or the Acquiror's
ability to continue the operation thereof after the date of Closing in
substantially the same manner as presently conducted, (ii) reduce or cause to be
reduced any room rents or any other charges over which Contributors have
operational control, or (iii) would cause any of the representations and
warranties contained in this Article III to be untrue as of Closing.
3.22 Intentionally Omitted.
3.23 Bankruptcy with respect to Partnership. No Act of Bankruptcy has
occurred with respect to the Partnership.
3.24 Hazardous Substances. Except for matters in Partnership's or
Acquiror's audits, Contributors have no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributors
have no actual knowledge of any failure to comply with any applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributors shall have no liability
to Acquiror for any Hazardous Substances of which Contributors have no actual
knowledge.
<PAGE>
3.25 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in accordance
with Licensor's standards for the Hotel and room type.
3.26 License. The license from Holiday Hospitality, Inc. (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributors will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.27 Independent Audit. Contributors shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with Regulation S-X of the Securities and Exchange Commission (the
"Commission") and to enable them to prepare a registration statement, report or
disclosure statement for filing with the Commission. Contributors shall also
provide to Acquiror's representatives a signed representative letter and a hold
harmless letter which would be sufficient to enable an independent public
accountant to render an opinion on the financial statements related to the
Property.
3.28 Bulk Sale Compliance. Contributors shall indemnify Acquiror
against any claim, loss or liability arising under the bulk sales law in
connection with the transaction contemplated herein.
3.29 Intentionally Omitted.
3.30 Sufficiency of Certain Items. The Property contains not less
than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.31 Noncompetition. If Contributors develop or acquire other lodging
facilities, not owned at the time of the execution of this Agreement, within 15
miles of any facility owned or to be owned by the Acquiror, the Contributors
shall give the Acquiror the option to purchase the facility for a period of two
years following the opening or acquisition of such facility.
<PAGE>
3.32 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributors, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributors and Contributors will have obtained consents all necessary
consents of any third party.
3.33 Securities Law Matters. Contributors further represent and warrant
that they have (i) received, reviewed, been given the opportunity to ask
questions of representatives of the Operating Partnership and the REIT
regarding, and understand the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributors and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.34 Tax Matters with Respect to Contributors. The Contributors
represent and warrant that they (and each of its partners) have obtained from
its own counsel advice regarding the tax consequences of (i) the transfer of the
Partnership Interest to the Acquiror and the receipt of Partnership Units as
consideration therefor, (ii) the Contributors' admission as partners of the
Acquiror, and (iii) any other transaction contemplated by this Agreement. The
Contributors further represent and warrant that they have not relied on the
Acquiror or the Acquiror's representatives or counsel for such advice.
3.35 Noncontravention. The execution and delivery of, and the
performance by the Contributors of their obligations under this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributors' Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributors, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributors (or any predecessor to or
representative of the Contributors) have agreed to contribute or have granted an
option or right of first refusal to acquire the Property or any part thereof.
Each of the representations, warranties and covenants contained in this Article
III and its various subparagraphs are intended for the benefit of the Acquiror
and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the
Contributors. Acquiror acknowledges and agrees that, except for the
representations and warranties expressly set forth herein, Acquiror is acquiring
the Property "AS-IS, WHERE-IS" with no representations or warranties by or from
Contributors or any of its affiliates, express or implied, or any nature
whatsoever.
<PAGE>
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributors to enter into this Agreement and to sell the
Interests, the Acquiror hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Acquiror
acknowledges and agrees that the Contributors are entitled to rely and have
relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributors to perform its obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
<PAGE>
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributors with
the following covenants:
5.1 Contributors' Deliveries. The Contributors shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributors
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributors; Certificate. All of the Contributors' representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributors shall have performed all of its material covenants
and other obligations under this Agreement and the Contributors shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.2.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributors shall not have diminished the quality or quantity of maintenance
and upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributors shall not have diminished the Inventory.
The Contributors shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
<PAGE>
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributors shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before December 31, 1998.
6.2 Contributors' Deliveries. At Closing, the Contributors shall
deliver to Acquiror all of the following instruments, each of which shall have
been duly executed and, where applicable, acknowledged on behalf of the
Contributors and shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Assignment and Assumption Agreements.
(c) Certificate(s)/Registration of Title for any
vehicle owned by the Contributors and used in connection with the Property.
(d) Such agreements, affidavits or other
documents as may be required by the Title Company to issue the Owner's Title
Policy with affirmative coverage over mechanics' and materialmen's liens.
(e) The FIRPTA Certificates.
(f) True, correct and complete copies of all
warranties, if any, of manufacturers, suppliers and installers possessed by the
Contributors and relating to the Improvements and the Personal Property, or any
part thereof.
<PAGE>
(g) Certified copies of the Contributors' and
the Partnership's Organizational Documents.
(h) Appropriate resolutions of the partners of
the Contributors, together with all other necessary approvals and consents of
the Contributors, authorizing (A) the execution on behalf of the Contributors of
this Agreement and the documents to be executed and delivered by the
Contributors prior to, at or otherwise in connection with Closing, and (B) the
performance by the Contributors of its obligations hereunder and under such
documents.
(i) Valid, final and unconditional
certificate(s) of occupancy for the Real Property and Improvements, issued by
the appropriate governmental authority.
(j) The written consent of the Licensor to the
transfer of the license, if applicable, and if so required.
(k) Such proof as the Acquiror may reasonably
require with respect to Contributors' compliance with the bulk sales laws or
similar statutes.
(l) A written instrument executed by the
Contributors, conveying and transferring to the Acquiror all of the
Contributors' right, title and interest in any telephone numbers and facsimile
numbers relating to the Property, and, if the Contributors maintains a post
office box, conveying to the Acquiror all of its interest in and to such post
office box and the number associated therewith, so as to assure a continuity in
operation and communication.
(m) All current real estate and personal
property tax bills in the Contributors' possession or under its control.
(n) A complete set of all guest registration
cards, guest transcripts, guest histories, and all other available guest
information.
(o) An updated schedule of employees, showing
salaries and duties with a statement
of the length of service of each such employee, brought current to a date not
more than 48 hours prior to the Closing.
(p) A complete list of all advance room
reservations, functions and the like, in reasonable detail so as to enable the
Acquiror to honor the Contributors' commitments in that regard.
(q) A list of the Contributors' outstanding
accounts receivable as of midnight on the date prior to the Closing, specifying
the name of each account and the amount due the Contributors.
<PAGE>
(r) Intentionally Omitted
(s) All keys for the Property.
(t) All books, records, operating reports,
appraisal reports, files and other materials in the Contributors' possession or
control which are necessary in the Acquirors discretion to maintain continuity
of operation of the Property.
(u) To the extent permitted under applicable
law, documents of transfer necessary to transfer to the Acquiror the
Contributors' employment rating for workmens' compensation and state
unemployment tax purposes.
(v) An assignment of all warranties and
guarantees from all contractors and subcontractors, manufacturers, and suppliers
in effect with respect to the Improvements.
(w) Complete set of "as-built" drawings for the
Improvements.
(x) Such agreements, affidavits or other
documents as may be required by the Title Company in order to issue affirmative
mechanics lien coverage in the Owner's Title Policy for the Property.
(y) a completed version of the Questionnaire
from the Contributors and each Transferee.
(z) Any other document or instrument reasonably
requested by the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or
deliver to the Contributors the following:
(a) The Consideration described in Section 2.3.
(b) The Assignment and Assumption Agreements.
(c) The certificates described in Section 2.5
evidencing the Transferees ownership of the Partnership Units and the
admission of the Transferees as limited partners in the Acquiror.
(d) Any other document or instrument reasonably requested
by the Contributors or required hereby.
<PAGE>
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the Deed and the real estate transfer, recording or other
similar taxes due with respect to the transfer of title and all charges for
title insurance premiums shall be paid by the Acquiror. The Acquiror shall pay
reasonable fees for the preparation of the documents to be delivered by the
Contributor hereunder. Acquiror shall assume and pay for the releases of the any
deeds of trust, mortgages and other financing encumbering the Property and for
any costs associated with any corrective instruments, and the Acquiror shall
receive a credit against the Consideration for such costs pursuant to Section
2.3(a) hereof. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributors and the Acquiror. The Contributors shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income
and responsible for all expenses for the period of time from, after and
including the Closing Date. All adjustments shall be shown on the settlement
statements (with such supporting documentation as the parties hereto may require
being attached as exhibits to the settlement statements) and shall increase or
decrease (as the case may be) the amount payable by the Acquiror pursuant to
Section 2.3(d). Without limiting the generality of the foregoing, the following
items of income and expense shall be allocated as of the Closing Date:
(a) Current and prepaid rents, including, without
limitation, prepaid room receipts, function receipts and other reservation
receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements.
(d) Utility charges (including but not limited to
charges for water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits
and other fringe benefits of all persons employed at the Property who the
Acquiror elects to employ.
(f) Value of fuel stored on the Property at the price paid
for such fuel by the Contributors, including any taxes.
<PAGE>
(g) All prepaid reservations and contracts for rooms
confirmed by Contributors prior to the Closing Date for dates after the Closing
Date, all of which Acquiror shall honor.
The Tray Ledger shall be retained by the Contributors. The Contributors
shall be required to pay all sales taxes and similar impositions currently up to
the Closing Date.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the Closing Date for Contributors, but if Acquiror
collects same, such amounts will be promptly remitted to Contributors in the
form received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributors or the Acquiror with respect to the
Property after the date of Closing shall be promptly allocated in the manner
described herein and the parties shall promptly pay or reimburse any amount due.
The Contributors shall pay at Closing all special assessments and taxes
applicable to the Property.
The certificates evidencing the Contributors' ownership of the
Partnership Units will be dated as of the Closing Date, and the Contributors
will be entitled to any dividends accruing thereon on and after the Closing
Date.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributors shall give
written notice thereof to the Acquiror promptly after the Contributors learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the recordation of the Deed shall remain upon the Contributors. If any such
loss or damage to more than twenty five percent (25%) of the value of the
improvements occurs prior to Closing, the Acquiror shall have the right to
terminate this Agreement pursuant to Section 8.3. If the Acquiror elects not to
terminate this Agreement, all insurance proceeds and rights to proceeds arising
out of such loss or damage shall be paid or assigned, as applicable, to the
Acquiror at Closing.
<PAGE>
ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributors or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributors. The Contributors hereby
indemnifies and holds the Acquiror harmless from and against any and all claims,
costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees), subject to Section 9.11 that may at any time be
incurred by the Acquiror, whether before or after Closing, as a result of any
breach by the Contributors of any of its representations, warranties, covenants
or obligations set forth herein or in any other document delivered by the
Contributors pursuant hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributors fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement and all other rights and obligations of the Contributors and the
Acquiror hereunder shall terminate immediately, or (b) to waive its right to
terminate and, instead, to proceed to Closing.
8.4 Termination by Contributors. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to purchase the Property), and the Acquiror fails to cure any
such default within ten business days after notice thereof from the
Contributors, then the Contributors' sole remedy for such default shall be to
terminate this Agreement.
<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. Neither the Acquiror nor the Contributor shall have
the right to assign its interest in this Agreement; provided, however, the
Acquiror may designate one of its subsidiaries to take title to part or all of
the assets transferred to the Acquiror pursuant to this Agreement, which
designation shall not alter the Acquiror's rights or obligations under this
Agreement.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributors and
their respective party hereto.
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 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 on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
<PAGE>
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributors: Jay H. Shah, Esquire
- ----------------------- Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia. PA 19106
Phone:(215) 238-1045
Fax:(215) 238-0157
With a copy to: Kiran P. Patel
- --------------- Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Phone:(717) 770-2405
Fax:(717) 774-7383
If to the Acquiror:
Jay H. Shah, Esquire
Hersha Enterprises, Ltd.
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Phone: (215) 238-1045
Fax: (215) 238-0157
With a copy to: Cameron Cosby, Esquire
- --------------- Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219-4074
Phone: (804) 788-8604
Fax: (804) 788-8218
<PAGE>
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributors and the Acquiror made in, or pursuant to, this
Agreement shall survive for a period of twenty-four (24) months following
Closing and shall not merge into the Deed or any other document or instrument
executed and delivered in connection herewith.
9.12 Further Assurances. The Contributors and the Acquiror each
covenant and agree to sign, execute and deliver, or cause to be signed, executed
and delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributors and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
9.15 Confidentiality. Contributors and its representatives, including
any professionals representing Contributors, shall keep the existence and terms
of this Agreement strictly confidential, except to the extent disclosure is
compelled by law, and then only to the extent of such compulsion.
IN WITNESS WHEREOF, the Contributors and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTORS:
JSK Associates, a Pennsylvania limited partnership
By: /s/ Jay Shah
--------------------------
Jay Shah, General Partner
<PAGE>
Shanti Associates, a Pennsylvania limited partnership
By: /s/ K.D. Patel
---------------------------
K.D. Patel, General Partner
Shreeji Associates, a Pennsylvania limited partnership
By: /s/ Rajendra Gandhi
---------------------------
Rajendra Gandhi, General Partner
Kunj Associates, a Pennsylvania limited partnership
By: /s/ Kiran Patel
----------------------------
Kiran Patel, General Partner
Shreenathji Enterprises, Ltd., a Pennsylvania corporation
By: /s/ Hasu P. Shah
----------------------------
Hasu P. Shah, President
/s/ Neil Shah
-------------------------
Neil Shah
/s/ David Desfor
------------------
David Desfor
ACQUIROR:
Hersha Hospitality Limited Partnership,
a Virginia partnership
By: Hersha Hospitality Trust, a Maryland Business
Trust, its sole general partner
By: /s/ Hasu P. Shah
----------------------------------------
Hasu P. Shah, President
Exhibit 10.17
FORM OF
GROUND LEASE
dated as of _________, 1998
between
------------------------------
("Lessor")
and
---------------------------------------
("Lessee")
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Table of Contents
Preamble - Parties and Addresses
Page
ARTICLE I DEMISE OF LEASED LAND...................................................................................1
1.01. Description of Leased Land........................................................................1
1.02. Land Subject to Liens, Encumbrances, and Other Conditions.........................................1
ARTICLE II TERM AND RENT..........................................................................................1
2.01. Term of Lease.....................................................................................1
2.02. Holdover..........................................................................................1
2.03. Rent..............................................................................................1
2.04. Additional Rent...................................................................................2
2.05. Intentionally Omitted.............................................................................2
ARTICLE III USE AND CONSTRUCTION OF IMPROVEMENTS..................................................................2
3.01. Primary Use.......................................................................................2
3.02. Lessee's Right to Construct Buildings and Other Improvements......................................2
3.03. Lessor's Assistance With Zoning and Building Permits..............................................3
ARTICLE IV OPERATING COSTS AND IMPOSITIONS........................................................................3
4.01. Rent to Be Absolutely Net.........................................................................3
4.02. Definition of Operating Costs.....................................................................3
4.03. Definition of Impositions.........................................................................4
ARTICLE V LAWS AND GOVERNMENTAL REGULATIONS.......................................................................4
5.01. Compliance With Legal Requirements................................................................4
5.02. Contest of Legal Requirements.....................................................................4
ARTICLE VI LIENS AND ENCUMBRANCES.................................................................................4
6.01. Creation Not Allowed..............................................................................4
6.02. Discharge After Filing or Imposition..............................................................4
6.03. Lessor Not Liable for Labor, Services, or Materials Furnished to Lessee...........................5
ARTICLE VII INSURANCE AND INDEMNITY...............................................................................5
7.01. Fire and Extended Coverage........................................................................5
7.02. Property and Personal Injury Liability Insurance..................................................6
7.03. Construction Liability Insurance..................................................................6
7.04. Certificates of Insurance.........................................................................7
7.05. Indemnification of Lessor.........................................................................7
ARTICLE VIII DAMAGE OR DESTRUCTION OF IMPROVEMENTS................................................................7
8.01. Damage or Destruction; Option to Terminate or Repair..............................................7
ARTICLE IX CONDEMNATION...........................................................................................8
9.01. Interests of Parties..............................................................................8
9.02. Termination on Total Taking.......................................................................8
9.03. Termination on Partial Taking.....................................................................9
9.04. Continuation With Rent Abatement After Partial Taking.............................................9
9.05. Voluntary Conveyance..............................................................................9
ARTICLE X LEASEHOLD MORTGAGES.....................................................................................9
10.01. Leasehold Mortgages Permitted....................................................................9
10.02. Provisions for Benefit of Leasehold Mortgagees...................................................9
10.03. Notice of Default Served on Leasehold Mortgagees................................................10
10.04. Monetary Default................................................................................10
10.05. Curable Nonmonetary Default.....................................................................10
10.06. Noncurable Default..............................................................................10
10.07. Mortgagee's Option to Obtain New Lease..........................................................11
10.08. Terms and Conditions of New Lease...............................................................11
10.09. Obligations of New Lessee.......................................................................11
10.10. Performance of Terms by Leasehold Mortgagee.....................................................11
10.11. Assignment of Lease or New Lease by Leasehold Mortgagee.........................................11
10.12. Written Consent of Leasehold Mortgagees.........................................................12
10.13. Leased Land as Security for Loans...............................................................12
10.14. Lessor's Subordination of Fee Interest and Cooperation With Lessee..............................12
10.15. Subordination of This Lease.....................................................................13
10.16. Use of Loan Proceeds............................................................................13
10.17. Right to Terminate Lease........................................................................13
ARTICLE XI DEFAULT...............................................................................................13
11.01. Events of Default...............................................................................13
11.02. Notice of Election to Terminate Lessee's Possession.............................................14
11.03. Lessor's Entry After Termination of Lessee's Possession.........................................14
11.04. Lessee's Liability for Accrued Rent.............................................................14
11.05. Reletting Land and Improvements.................................................................15
11.06. Rent From Reletting.............................................................................15
11.07. Costs Incurred Due to Breach....................................................................15
ARTICLE XII EXPIRATION OF TERM...................................................................................15
12.01. Lessee's Delivery of Possession After Termination or Expiration.................................15
12.02. Lessee's Removal of Movable Objects.............................................................15
ARTICLE XIII GENERAL PROVISIONS..................................................................................16
13.01. No Waiver of Breach by Lessor's Actions.........................................................16
13.02. Waiver of Any Provision Must Be Written.........................................................16
13.03. Entire Agreement................................................................................16
13.04. Notices.........................................................................................16
13.05. Lessor's Entry and Inspection of Premises.......................................................17
13.06. Partial Invalidity or Unenforceability..........................................................17
13.07. Meaning of Term "Lessor"........................................................................17
13.08. Satisfaction of Judgment Against Lessor.........................................................17
13.09. Individuals Benefited by Lease..................................................................17
13.10. Assignment and Subletting.......................................................................18
13.11. Attornment of Sublessee.........................................................................18
13.12. Quiet Enjoyment.................................................................................18
ARTICLE XIV DOCUMENTATION AND RECORDING OF LEASE.................................................................18
14.01. Estoppel Certificates...........................................................................18
14.02. Memorandum of Lease and Recording...............................................................19
</TABLE>
<PAGE>
21
GROUND LEASE
This ground lease ("Lease") is made on the____ day of _____________,
1998, between _________________, a _____________________ ("Lessor"), with a
principal place of business at _____________________________; and
___________________, a ___________________, ("Lessee"), with a principal place
of business at
- -------------------------------------.
ARTICLE I
DEMISE OF LEASED LAND
1.01. Description of Leased Land.
Lessor leases to Lessee, and Lessee rents and accepts from Lessor, a
parcel of land in the town of ____________, County of _________________, State
of ________________________, consisting of approximately ____ acres ("Leased
Land"), more particularly described in Exhibit A, attached hereto and made apart
hereof, together with all appurtenances and rights of way pertaining thereto and
all improvements constituted thereon pursuant to the terms of this Lease or
otherwise.
1.02. Land Subject to Liens, Encumbrances, and Other Conditions.
This Lease and the Leased Land are subject to all present liens,
encumbrances, conditions, rights, easements, restrictions, rights of way,
covenants, other matters of record, and zoning and building laws, ordinances,
regulations, and code affecting or governing the Leased Land or that may affect
and govern the Leased Land after the execution of this Lease, and all matters
that may be disclosed by inspection or survey.
ARTICLE II
TERM AND RENT
2.01. Term of Lease.
Lessee's obligation to pay rent and occupy the Leased Land in accordance
with this Lease shall be for a term of ____ years ("Term"), commencing on
___________, 199___, and ending on ____________, 20___. Unless terminated at an
earlier date for any reason set forth in this Lease.
2.02. Holdover.
If Lessee holds over after the expiration of the Lease Term and
continues to pay Rent without objection from Lessor, then Lessee's tenancy shall
be from month to month on all the terms and conditions of this Lease.
2.03. Rent.
Lessee shall pay rent to Lessor ("Base Rent"), without notice or demand
and without abatement, reduction, or set-off for any reason, at the office of
Lessor or any other place that Lessor may designate in writing. The Base Rent
shall be ____________________________ Dollars ($___________) per year.
2.04. Additional Rent.
Lessee covenants and agrees to pay, as additional rent (herein
sometimes called "Additional Rent"), all sums of money or charges of whatsoever
kind, nature or description, if any, as shall be required to be paid by Lessee
pursuant to the terms of this Lease, whether or not the same is specifically
designated herein as additional rent. Whatever used in this Lease, the term
"Rent" means, collectively, the Base Rent and Additional Rent. The term
Additional Rent is being used herein only for the purpose of preserving Lessor's
statutory and legal remedies to collect the same and for other similar purposes,
and not for the purpose of characterizing the same for purposes of, or to make
the same subject to, any federal, state or local taxes including, without
limitation, any tax on rental, or gross receipts, or the like. Nonetheless, in
the event such a tax is imposed on any given item of Additional Rent, Lessee
agrees to pay said tax or to reimburse the Lessor for the payment of such taxes
paid by Lessor.
2.05. Intentionally Omitted.
ARTICLE III
USE AND CONSTRUCTION OF IMPROVEMENTS
3.01. Primary Use.
Lessee shall have the right to use the Leased Land for any lawful
purposes. In this connection, and without detracting from the foregoing, it is
understood and agreed that the primary purpose for which the Leased Land has
been leased is for the development and construction of buildings for commercial
purposes.
3.02. Lessee's Right to Construct Buildings and Other Improvements.
Lessee shall have the right to construct structures, buildings, and
other improvements ("Improvements") on the Leased Land, at Lessee's sole cost
and expense, without the prior approval of Lessor. In connection with any
construction, Lessee shall be permitted to grade, level, and fill the land,
remove trees and shrubs, install roadways and walkways, and install utilities,
provided all of the foregoing serve the Improvements erected on the Leased Land.
Lessee agrees to protect all pavements curbs, gutters, walks, shoulders and
utility structures within or adjacent to the Leased Land from damage, and agrees
to keep pedestrian and road rights-of-way and drives clear of equipment and
building materials to the extent such matters are within Lessee's reasonable
control. Lessee agrees to confine its construction activities to the area within
the boundary lines of the Land and to take all reasonably necessary precaution
to protect adjacent property from damage. Lessor shall have no liability for any
costs or expenses in connection with the construction of Improvements on the
Leased Land, and Lessee agrees to indemnify, protect and hold harmless Lessor
from any claims that may be made against Lessor in connection therewith.
3.03. Lessor's Assistance With Zoning and Building Permits.
Lessor shall assist Lessee in applying for and obtaining any zoning
changes or variances, use permits, or building permits necessary for the
construction of buildings or other improvements on the Leased Land.
ARTICLE IV
OPERATING COSTS AND IMPOSITIONS
4.01. Rent to Be Absolutely Net.
The Base Rent paid to Lessor in accordance with Article II of this
Lease shall be absolutely net to Lessor. This means that, in addition to the
Base Rent, Lessee shall pay all "Operating Costs" and "Impositions," defined in
Paragraphs 4.02 and 4.03, below, in connection with the Leased Land.
4.02. Definition of Operating Costs.
"Operating Costs" shall include, but shall not be limited to, all
expenses paid or incurred in connection with the following:
(1) Repairs, maintenance, replacements, painting, and redecorating.
(2) Landscaping.
(3) Snow removal.
(4) Insurance.
(5) Heating, ventilating, and air conditioning repair and maintenance.
(6) Water, sewer, gas, electricity, fuel oil, and other utilities.
(7) Rubbish removal.
(8) Supplies and sundries.
(9) Sales or use taxes on supplies or services.
(10) Costs of wages and salaries for all persons engaged in the
operation, maintenance, and repair of the Leased Land,
including fringe benefits and Social Security taxes.
(11) All other expenses, whether or not mentioned in this Lease, that
are incurred with regard to operation of the Leased Land,
including any replacements if necessary for repairs and
maintenance or otherwise.
4.03. Impositions.
"Impositions" shall include all payments, penalties, fees, taxes, fines
and levies that result from construction activities or the operation of the
premises on the Leased Land, all real estate property taxes, assessments, and
other governmental charges that are laid, assessed, levied, or imposed on the
Leased Land and become due and payable during the term of this Lease, or any
lien that arises during the time of this Lease on the Leased Land and
Improvements, any portion of these, or the sidewalks or streets in front of or
adjoining the Leased Land and Improvements.
ARTICLE V
LAWS AND GOVERNMENTAL REGULATIONS
5.01. Compliance With Legal Requirements.
Lessee shall promptly comply with all laws and ordinances, and all
orders, rules, regulations, and requirements of federal, state, and municipal
governments and appropriate departments, commissions, boards, and officers of
these governments ("Legal Requirements") applicable to the Leased Land and the
occupancy and use thereof throughout the term of this Lease, and without cost to
Lessor. Lessee shall promptly comply with these Legal Requirements whether they
are foreseen or unforeseen, or ordinary or extraordinary.
5.02. Contest of Legal Requirements.
Lessee shall have the right, after prior written notice to Lessor, to
contest the validity of any Legal Requirements or Impositions by appropriate
legal proceedings, provided Lessor shall not be subject to any criminal or civil
liability as a result of any legal contest. Lessee shall indemnify and hold
Lessor harmless from all loss, claims, and expenses, including reasonable
attorneys' fees, as a result of Lessee's failure to comply with Legal
Requirements or Impositions or any contest relating to Legal Requirements or
Impositions.
ARTICLE VI
LIENS AND ENCUMBRANCES
6.01. Creation Not Allowed.
Lessee shall not create, permit, or suffer any mechanics' or other lien
or encumbrance on or affecting the Leased Land or the fee estate or reversion of
Lessor except as specifically permitted in this Lease.
6.02. Discharge After Filing or Imposition.
If any lien or encumbrance shall at any time be filed or imposed
against the Leased Land or the fee estate or reversion of Lessor, Lessee shall
cause the lien or encumbrance to be discharged of record within forty-five days
after notice of the filing or imposition by payment, deposit, bond, order of a
court of competent jurisdiction, or as otherwise permitted by law. If Lessee
shall fail to cause the lien or encumbrance to be discharged within the
forty-five day period, then in addition to any other right or remedy of Lessor,
Lessor shall be entitled but not obligated to discharge the lien or encumbrance
either by paying the amount claimed to be due or by procuring the discharge by
deposit or by bonding proceedings. In any event, Lessor shall be entitled to
compel the prosecution of an action for the foreclosure of any lien or
encumbrance by the lien or and to pay the amount of the judgment for and in
favor of the line or with interest, costs, and allowances if Lessor elects to
take this action. All amounts paid by Lessor and all of its costs and expenses
in connection with the actions taken by Lessor, including court costs,
reasonable attorneys' fees, and interest at the highest legal rate in effect at
the time these moneys are due, shall be deemed to be additional rent under this
Lease and shall be paid by Lessee to Lessor promptly on demand by Lessor.
6.03. Lessor Not Liable for Labor, Services, or Materials Furnished to
Lessee.
Lessor shall not be liable for any labor, services, or materials
furnished or to be furnished to Lessee or to any sublessee in connection with
any work performed on or at the Leased Land, and no mechanics' lien or other
lien or encumbrance for any labor, services, or materials shall attach to or
affect Lessor's fee estate or reversion in the Leased Land.
ARTICLE VII
INSURANCE AND INDEMNITY
7.01. Fire and Extended Coverage.
At all times during the Term of this Lease, Lessee shall maintain, at
its sole cost, insurance covering the Improvements, including, without
limitation, all Improvements now located on the Leased Land or that may be
erected on the Leased Land, against loss or damage by fire, vandalism, malicious
mischief, windstorm, hail, smoke, explosion, riot, civil commotion, vehicles,
aircraft, flood, or earthquake, together with any other insurance that Lessor
may require from time to time. The insurance shall be carried by insurance
companies authorized to transact business in the State where the Leased Land is
situated, selected by Lessee and approved by Lessor and any Lender under Article
X of this Lease. In addition, the following conditions shall be met:
(a) The insurance shall be in amounts no less than One
Hundred Percent (100%) of the replacement cost of the
buildings and other improvements, exclusive of
foundations and below-ground improvements (but
sufficient to satisfy the requirements of any
coinsurance clause).
(b) The insurance shall be maintained for the mutual
benefit of Lessor and Lessee, any succeeding owners
of the fee title in the Leased Land, and any
successors and assigns of this Lease. The insurance
policy or policies shall name both Lessor and Lessee
as insureds.
(c) Any and all fire or other insurance proceeds that
become payable at any time during the term of this
lease because of damage to or destruction of any
Improvements on the Leased Land shall be paid to
Lessee and applied by Lessee toward the cost of
repairing, restoring, and replacing the damaged or
destroyed Improvements in the manner required by
Article VIII of this Lease. However, if Lessee elects
to exercise the option given under Article VIII of
this Lease to terminate this Lease because of damage
to or destruction of Improvements, then any and all
fire or other insurance proceeds that become payable
because of that damage or destruction shall be
applied as follows:
(1) Proceeds shall be applied first toward the
reduction of the unpaid principal balance of
any and all obligations secured pursuant to
Article X of this Lease.
(2) The balance of the proceeds, if any, shall
be paid to Lessor to compensate Lessor, at
least in part, for the loss to the fee
estate of value of the damaged or destroyed
Improvements.
7.02. Property and Personal Injury Liability Insurance.
At all times during the Term of this Lease, Lessee shall maintain, at
its sole cost, comprehensive broad-form general public liability insurance
against claims and liability for personal injury, death, and property damage
arising from the use, occupancy, disuse, or condition of the Leased Land and
Improvements, and adjoining areas. The insurance shall be carried by insurance
companies authorized to transact business in the State where the Leased Land is
situated, selected by Lessee and approved by Lessor and any Lender under Article
X of this Lease. In addition, the following conditions shall be met:
(a) The insurance provided pursuant to this Paragraph
7.02 shall be in an amount no less than $1,000,000
for property damage, and in an amount no less than
$1,000,000 for one person and $1,000,000 for one
accident for personal injury.
(b) The insurance shall be maintained for the mutual
benefit of Lessor and Lessee, any succeeding owners
of the fee title in the Leased Land, and any
successors and assigns of this Lease. The insurance
policy or policies shall name both Lessor and Lessee
as insureds.
(c) The amounts of insurance shall be increased as Lessor
may reasonably require from time to time to account
for inflation, or generally increased insurance
settlements or jury verdicts.
7.03. Construction Liability Insurance.
Lessee agrees to obtain and maintain (to the extent reasonably
procurable) construction liability insurance at all times when demolition,
excavation, or construction work is in progress on the Leased Land. This
insurance shall be carried by insurance companies authorized to transact
business in the State where the Leased land is situated, selected by Lessee and
approved by Lessor, and shall be paid for by Lessee. The insurance shall have
limits of no less than $1,000,000 for property damage, and $1,000,000 for one
person and $1,000,000 for one accident for personal injury. The insurance shall
be maintained for the mutual benefit of Lessor and Lessee, as well as any
succeeding owners of the fee title in the Leased Land, and any successors and
assigns of this Lease, against all liability for injury or damage to any person
or property in any way arising out of demolition, excavation, or construction
work on the premises. The insurance policy or policies shall name both Lessor
and Lessee as insureds.
7.04. Certificates of Insurance.
Lessee shall furnish Lessor with certificates of all insurance required
by this Article VII. Lessee agrees that if it does not keep this insurance in
full force and effect, Lessor may notify Lessee of this failure, and if Lessee
does not deliver to Lessor certificates showing all of the required insurance to
be in full force and effect within ten days after this notice, Lessor may, at
its option, take out and pay the premiums on the insurance needed to fulfill
Lessee's obligations under the provisions of this Article VII. On demand from
Lessor, Lessee shall reimburse Lessor the full amount of any insurance premiums
paid by Lessor, with interest at the rate of ten percent (10%) per annum from
the date of Lessor's demand until reimbursement by Lessee.
7.05. Indemnification of Lessor.
Lessor shall not be liable for any loss, damage, or injury of any kind
or character to any person or property arising from any use of the Leased Land
or Improvements, or caused by any defect in any building, structure, equipment,
facility, or other improvement on the Leased Land, or caused by or arising from
any act or omission of Lessee, or any of its agents, employees, licensees, or
invitees, or by or from any accident, fire, or other casualty on the land, or
occasioned by the failure of Lessee to maintain the premises in safe condition.
Lessee waives all claims and demands on its behalf against Lessor for any loss,
damage, or injury, and agrees to indemnify and hold Lessor entirely free and
harmless from all liability for any loss, damage, costs, or injury of other
persons, and from all costs and expenses arising from any claims or demands of
other persons concerning any loss, damage, or injury, caused other than by the
negligent or intentional act or omission of Lessor.
ARTICLE VIII
DAMAGE OR DESTRUCTION OF IMPROVEMENTS
8.01. Damage or Destruction; Option to Terminate or Repair.
There shall be no abatement or reduction in Rent should any of the
Lessee's Improvements on the Leased Land be totally or partially destroyed by
fire, casualty or any other losses whether insured or not, and regardless of
whether rendered untenable or not, unless this Lease shall be terminated as
herein provided (in which event all Rent thereafter accruing shall cease as of
the date of termination). In the event that the Leased Land, the Improvements,
or any part of them are damaged or destroyed by any cause whatsoever, Lessee may
elect either of the following options:
(1) If this Lease shall not be terminated as hereinafter provided,
then in the event of any loss, Lessee's Improvements shall be
promptly and diligently restored and reconstructed by Lessee,
at its sole cost and expense and regardless of whether
available insurance proceeds are sufficient, and this Lease
shall remain in full force and effect. Lessee shall commence
such reconstruction and restoration promptly after the date of
the loss or damage, but in no event later than sixty (60) days
thereafter. Lessee shall complete all restoration and
reconstruction as soon as possible but in any event within six
(6) months after the date such work is commenced as aforesaid,
subject, however, to extension by the number of days Lessee is
delayed by strikes shortages of material or labor, abnormal
weather or other cause beyond Lessee's reasonable control.
(2) In the event that such portion of the Lessee's building(s) as
would cost more than fifty percent (50%) of the then current
replacement cost thereof to repair is destroyed by any loss
during the last year of the Term, then this Lease may be
terminated, at Lessee's option, upon notice given by Lessee
within ninety (90) days of the date of the occurrence of such
damage or destruction. Any repaid Rent attributable to the
period after the date of Lessee's notice shall be refunded to
Lessee by Lessor and Lessee shall pay over or assign, as the
case may be, to Lessor the insurance proceeds actually
received or to be received by Lessee with respect to such
casualty together with the deductible amount specifically
attributable to the Lessee's improvements.
ARTICLE IX
CONDEMNATION
9.01. Interests of Parties.
If the Leased Land and Improvements or any part of these premises is
taken for public or quasi-public purposes by condemnation in any action or
proceeding in eminent domain, or are transferred in lieu of condemnation to any
authority entitled to exercise the power of eminent domain, the interests of
Lessor and Lessee in the award or consideration for the taking or transfer and
the effect of the taking or transfer on this Lease shall be governed by this
Article IX.
9.02. Termination on Total Taking.
If all or substantially all of the Leased Land and Improvements are
taken or transferred as described in Paragraph 9.01, this Lease and all of the
rights, title, and interest under this Lease shall cease on the date title to
the Leased Land and Improvements vests in the condemning authority, and the
proceeds of the condemnation shall be divided between Lessee and Lessor 85% and
15%, respectively. For purposes of this Article IX, "all or substantially all of
the Leased Land and Improvements" shall be deemed to have been taken if 40
percent or more of the gross floor area of all Improvements is taken and cannot
be restored or repaired so as to be suitable for the conduct of the business
conducted on the Leased Land and Improvements prior to the taking.
9.03. Termination on Partial Taking.
If less than all or substantially all of the Leased Land and
Improvements is taken or transferred as described in Paragraph 9.01, and if in
Lessee's opinion the remainder of the Leased Land and Improvements is in a
location, or in a form, shape, or reduced size that makes it impossible for
Lessee to effectively and practicably operate Lessee's business on the remaining
Leased Land and Improvements, then this Lease shall terminate on the date title
to the portion of the Leased Land and Improvements taken or transferred vests in
the condemning authority. The proceeds of the condemnation shall be divided
between Lessee and Lessor 85% and 15%, respectively.
9.04. Continuation With Rent Abatement After Partial Taking.
If less than all or substantially all of the Leased Land and
Improvements is taken or transferred as described in Paragraph 9.01, and if in
Lessee's opinion the remainder of the Leased Land and Improvements is in a
location and a form, shape, or size that makes it possible for Lessee to
effectively and practicably operate Lessee's business on the remaining Leased
Land and Improvements, this Lease shall terminate as to the portion of the
Leased Land and Improvements taken or transferred as of the date title to the
portion vests in the condemning authority. However, this Lease shall continue in
full force and effect as to the portion of the Leased Land and Improvements not
taken or transferred. From and after the date of taking or transfer, the rent
required to be paid by Lessee to Lessor shall be reduced during the unexpired
portion of this Lease by that proportion of the annual rent that the value of
the part of the Leased Land and Improvements taken or transferred bears to the
value of the total Leased Land and Improvements. These values shall be
determined as of the date immediately before any actual taking. The proceeds of
the condemnation shall be divided 85% to Lessee and 15% to Lessor.
9.05. Voluntary Conveyance.
Nothing in this Article IX prohibits Lessor from voluntarily conveying
all or part of the Leased Land and Improvements to a public utility, agency, or
authority under threat of a taking under the power of eminent domain. Any
voluntary conveyance shall be treated as a taking within the meaning of this
Article IX.
ARTICLE X
LEASEHOLD MORTGAGES
10.01. Leasehold Mortgages Permitted.
Except as specifically provided otherwise in this Lease, Lessee shall
be permitted to mortgage Lessee's leasehold interest in the Leased Land without
Lessor's consent or approval.
10.02. Provisions for Benefit of Leasehold Mortgagees.
Lessor agrees that the provisions set forth in this Article X shall
apply to, and be for the benefit of, any mortgagee of Lessee's leasehold
interest in the Leased Land, whose mortgage is a first lien or second lien on
Lessee's leasehold interest ("Leasehold Mortgagee"). Lessor shall be served with
a copy of the mortgage ("Leasehold Mortgage") certified to be true by the
Leasehold Mortgagee and a certified true copy of the title insurance policy
insuring the Leasehold Mortgage to be a first or second lien on Lessee's
leasehold interest in the Leased Land, or Lessor shall be provided with other
proof reasonably satisfactory to Lessor of the priority of the Leasehold
Mortgage.
10.03. Notice of Default Served on Leasehold Mortgagees.
No notice of default, as provided in Article XI of this Lease, shall be
valid, binding, and effective until the notice is served on all Leasehold
Mortgagees in the manner set forth in this Lease, at the address set forth in
the Leasehold Mortgage or the address the Leasehold Mortgagee provides to Lessor
according to the provisions set forth in this Lease. The Leasehold Mortgagee
shall have a right to cure any defaults of the Lessee under the Lease.
10.04. Monetary Default.
If there is a default due to nonpayment of monetary obligations payable
directly by Lessee to Lessor ("Monetary Default"), Lessor shall not exercise any
of the rights and remedies provided in Article XI or elsewhere in this Lease, or
any remedies provided by law, unless the Monetary Default shall have continued
for at least thirty days after notice to all Leasehold Mortgagees.
10.05. Curable Nonmonetary Default.
If there is a curable default other than a Monetary Default ("Curable
Nonmonetary Default"), Lessor shall not exercise any of the rights and remedies
provided in Article XI or elsewhere in this Lease, or any remedies provided by
law, unless the Curable Nonmonetary Default shall have continued for at least
thirty days after notice to all Leasehold Mortgagees. However, if it is not
reasonably possible to cure the default within thirty days, then the time period
for curing the Curable Nonmonetary Default shall be extended, provided that the
default is cured as expeditiously as practicable by actions undertaken
diligently and in good faith.
10.06. Noncurable Default.
If there is a default due to bankruptcy, insolvency, or any other
noncurable default ("Noncurable Default"), Lessor shall not exercise any of the
rights and remedies provided in Article XI or elsewhere in this Lease, or any
remedies provided by law, if within thirty days after notice of default a
Leasehold Mortgagee notifies Lessor that it will foreclose its Leasehold
Mortgage, and that Leasehold Mortgagee diligently and continuously commences and
prosecutes to completion foreclosure proceedings and sale of Lessee's leasehold
interest in the Leased Land, or causes that leasehold interest to be conveyed
and assigned in lieu of foreclosure. However, nothing contained in this
Paragraph 10.06 shall prohibit Lessor from exercising its rights and remedies
pursuant to Article XI or other parts of this Lease (subject to the other
Paragraphs of this Article X), or any remedies provided by law, should there
occur a Monetary Default or Curable Nonmonetary Default after the occurrence of
a Noncurable Default.
10.07. Mortgagee's Option to Obtain New Lease.
If this Lease is terminated due to a default pursuant to Article XI,
Lessor shall serve notice of this termination on all Leasehold Mortgagees,
specifying all sums of money then due and payable under this Lease and
specifying any other default then existing. Each Leasehold Mortgagee shall have
the option of obtaining a new lease ("New Lease") on terms set forth in
Paragraph 10.08; this option shall be waived if it is not exercised within
twenty days after the Leasehold Mortgagee receives notice of termination. If
more than one Leasehold Mortgagee elects to obtain a New Lease, this New Lease
shall be entered into with the Leasehold Mortgagee holding the Leasehold
Mortgage senior in priority.
10.08. Terms and Conditions of New Lease.
The New Lease entered into between Lessor and Leasehold Mortgagee as
the New Lessee shall contain terms identical to the terms of this Lease, except
that the commencement date of the New Lease shall be the date of termination of
this Lease, and the term of the New Lease shall be equal to the remaining term
of this Lease.
10.09. Obligations of New Lessee.
The New Lease shall be subject to the following terms:
(1) All Monetary Defaults and Curable Nonmonetary Defaults shall
be cured by the New Lessee.
(2) Effectiveon commencement of the term of the New Lease, all
subleases shall be assigned without recourse by Lessor to the
New Lessee.
(3) All fees and expenses, including reasonable counsel fees,
incurred by Lessor in connection with Lessee's defaults,
termination of this Lease, recovery of possession,
negotiations with Leasehold Mortgagees, and preparation and
execution of the New Lease, shall be paid by the New Lessee.
10.10. Performance of Terms by Leasehold Mortgagee.
Lessor shall accept performance of the terms of this Lease or a New
Lease by a Leasehold Mortgagee, or any agent, nominee, or designee of a
Leasehold Mortgagee, as if the terms were performed by Lessee.
10.11. Assignment of Lease or New Lease by Leasehold Mortgagee.
If any Leasehold Mortgagee shall enter into a New Lease or acquire
Lessee's leasehold interest in the Leased Land by foreclosure or otherwise, and
then Leasehold Mortgagee assigns or otherwise conveys its interest in this Lease
or the New Lease, on that assignment or conveyance the Leasehold Mortgagee shall
be discharged and relieved from all liability for performance of the terms of
this Lease or the New Lease subsequently accruing, but nothing contained in this
Lease shall relieve the Leasehold Mortgagee from its liabilities and obligations
accruing before the assignment or conveyance.
10.12. Written Consent of Leasehold Mortgagees.
This Lease shall not be modified or amended, nor shall it be
voluntarily terminated by Lessor and Lessee, without the prior written consent
of all Leasehold Mortgagees.
10.13. Leased Land as Security for Loans.
It is the understanding and agreement of Lessee and Lessor that, Lessee
having agreed to construct Improvements on the Leased Land, all of the Leased
Land will be used as security for any loan, temporary or permanent, required to
construct these Improvements. This financing, which may be evidenced by one or
more promissory notes secured by one or more mortgages, shall not at any one
time constitute a lien against the Leased Land and Improvements in excess of an
amount equal to the appraised value of the Land and Improvements.
10.14. Lessor's Subordination of Fee Interest and Cooperation With
Lessee.
It is agreed by Lessor and Lessee that Lessor will subordinate its
interest in the Leased Land to the financing described in the paragraph above,
and that Lessor will cooperate with Lessee in obtaining this financing. Lessor
further agrees to execute any instrument, including notes, mortgages, or other
evidences of indebtedness reasonable required in connection with this financing,
provided that:
(a) The loan instruments executed by Lessor, Lessee, or
both, shall expressly provide that as to Lessor, the
mortgagee, payee, or obligee, as the case may be,
shall look solely to the security of the Leased Land
for the payment of the indebtedness evidenced by this
instrument, and will not seek to collect the
indebtedness from, or obtain a deficiency judgment
against, Lessor or from Lessor's assigns, successors,
or representatives.
(b) No costs, fees, title insurance charges, recording
fees, taxes, legal fees, or expenses of any kind
incurred or payable in connection with the
indebtedness and the encumbrance shall be the
obligation of Lessor, and Lessor shall not be
required to pay any of these. The provision of this
Subparagraph (b) shall also be included in, and made
a part of, any loan instrument executed by Lessor,
Lessee, or both.
(c) Lessor and Lessee agree that, other than as set forth
above, both Lessor and Lessee must approve the terms
of financing and that the Lender or Lenders may wish
to approve the terms and provisions of this Lease,
and Lessor and Lessee agree to amend the terms of
this Lease to accommodate the reasonable requests of
such Lenders. Lessor and Lessee agree that their
signatures appearing on any loan instrument shall
constitute acceptance of the terms and conditions set
forth in that loan instrument, and that if provisions
are incorporated in the loan instrument with wording
conveying substantially the same meaning as set out
in this paragraph, that shall constitute compliance
with these provisions and conditions.
10.15. Subordination of This Lease.
It is agreed by Lessor and Lessee that this Lease may be subordinated
by Lessee to any Lender for the purpose of obtaining a loan for the construction
of improvements on the Leased Land.
10.16. Use of Loan Proceeds.
It is further agreed by Lessor and Lessee that all loan proceeds for
which the Leased Land serves as security shall be used for the benefit of the
Leased Land, and for the construction, maintenance, or repair of the Leased
Land, and not for the personal use or benefit of the borrower or any principal
of the borrower.
10.17. Right to Terminate Lease.
Should Lessor or Lessee fail to approve any terms of the available
financing other than those terms approved in this Lease, or should Lessor or
Lessee refuse to approve any changes in this lease required by the Lenders, then
Lessor or Lessee shall have the right to terminate this Lease on sixty days'
written notice to the other. After the giving of notice, this Lease shall become
void and of no effect on the expiration of the number of days specified.
ARTICLE XI
DEFAULT
11.01. Events of Default.
(a) Any one or more of the events listed in Subparagraphs
(b) through (f) of this Paragraph 11.01 shall
constitute a default under this Lease.
(b) Lessee's failure to pay Rent within fifteen days
after the Rent becomes due and payable in accordance
with the terms, covenants, and agreements of this
Lease shall constitute a default under this Lease.
(c) Lessee's failure to observe or perform or cause to be
observed or performed any other term, covenant, or
agreement under this Lease, and continuation of this
failure for a period of thirty days after Lessor's
written notice to Lessee specifying the nature of
Lessee's failure shall constitute a default under
this lease. However, a failure as described in this
Subparagraph (b) shall not constitute a default if it
is curable but cannot with reasonable diligence be
cured by Lessee within a period of thirty days, and
if Lessee proceeds to cure the failure with
reasonable diligence and in good faith.
(d) Lessee's abandonment of the leased land and
improvements shall constitute a default under this
lease. For the purposes of this Lease, "abandonment"
shall be defined as Lessee's failure to begin
construction of Improvements or operate a commercial
facility within one year following the date of this
Lease.
(e) The occurrence of both of the following events at the
date of the commencement of this Lease or during its
effective term shall constitute a default under this
lease:
(1) Filing of a petition in bankruptcy or
insolvency, for reorganization or the
appointment of a receiver or trustee of all
or a portion of Lessee's property, by or
against Lessee in any court pursuant to any
statute either of the United States or of
any state.
(2) Lessee's failure to secure a dismissal of
the petition within sixty days after its
filing.
(f) Lessee's assignment of the leasehold interest under
this Lease for the benefit of creditors shall
constitute a default under this lease.
11.02. Notice of Election to Terminate Lessee's Possession.
Subject to the provisions of Article X, if any event creating default
occurs, Lessor may elect to terminate Lessee's right of possession under this
Lease after thirty days from the date of service of notice of the election. If
this notice is given, then at the expiration of the thirty days all Lessee's
rights, title, and interest in the Leased Land shall expire completely, and
Lessee shall quit and surrender the Leased Land and any Improvements erected on
the Leased Land to Lessor.
11.03. Lessor's Entry After Termination of Lessee's Possession.
At any time after the termination of Lessee's right of possession under
this Lease pursuant to Paragraph 11.02 of this Lease, Lessor may enter and
possess the Leased Land and Improvements by summary proceedings, ejectment, or
otherwise, and Lessor may remove Lessee and all other persons and property from
the Leased Land and Improvements. If Lessor takes the actions described in this
Paragraph 11.03, Lessor may then possess the Leased Land and Improvements and
assume the right to receive all rents, income, and profits from the Leased Land
and Improvements, and Lessor may also sell any of the Improvements.
11.04. Lessee's Liability for Accrued Rent.
The expiration of this Lease or termination of Lessee's right of
possession pursuant to Paragraphs 2.01 or 11.02 shall not relieve Lessee of its
liability and obligation to pay the rent and any other charges accrued prior to
these events, or relieve Lessee of liability for damages for breach. These
liabilities and obligations of Lessee shall survive any expiration or
termination of the Lease or any entry and possession by Lessor.
11.05. Reletting Land and Improvements.
After the expiration of this Lease or termination of Lessee's right of
possession under this Lease pursuant to Paragraphs 2.01 or 11.03, Lessor shall
use reasonable efforts to mitigate damages by reletting the Leased Land and
Improvements, in whole or in part, either in its own name or as agent of Lessee,
for a term or terms that, at Lessor' s option, may be for the remainder of the
then-current term of this Lease or for any longer or shorter period.
11.06. Rent From Reletting.
Lessee shall be entitled to a credit if the rent received on reletting
exceeds the rent required pursuant to this Lease. Lessee shall remain liable for
the difference between the rent reserved under this Lease, and the rent
collected and received, if any, by Lessor during the remainder of the unexpired
term. Lessor shall have the option of collecting the deficiency between the rent
reserved and the rent collected in monthly payments as these payments become due
and payable, or of receiving in advance the deficiency for the remainder of the
term reduced to present value at the rate of eight percent per year.
11.07. Costs Incurred Due to Breach.
Lessee expressly agrees to pay all expenses that Lessor may incur for
reasonable attorneys' fees or brokerage commissions, and all other costs paid or
incurred by Lessor for enforcing the terms and provisions of this Lease,
reletting the Leased Land and Improvements, restoring the Leased Land and
Improvements to good order and condition, altering, decorating, repainting or
otherwise repairing the same for reletting, and for maintaining the Leased Land
and Improvements.
ARTICLE XII
EXPIRATION OF TERM
12.01. Lessee's Delivery of Possession After Termination or Expiration.
On the expiration date of this Lease as set forth in Paragraph 2.01, or
the termination of Lessee's possession under this Lease pursuant to Paragraph
11.03, or any entry or possession of the Leased Land and Improvements by Lessor
pursuant to Paragraph 11.04 (collectively referred to as the Expiration Date ),
Lessee shall promptly quit and surrender the Leased Land and Improvements, and
deliver to Lessor actual possession and ownership of the Leased Land and
Improvements in good order, condition, and repair.
12.02. Lessee's Removal of Movable Objects.
Lessee shall have the right to remove from the Leased Land and
Improvements all movable trade fixtures, movable equipment, and articles of
personal property used or procured for use in connection with the operation of
its business on or before the Expiration Date, provided that Lessee shall
promptly repair, or cause to be repaired, any damage resulting to the Leased
Land or Improvements by reason of this removal. Any trade fixtures, equipment,
or articles of personal property of Lessee that remain at or on the Leased Land
after the Expiration Date shall be deemed to have been abandoned by Lessee, and
may either be retained by Lessor as its property or disposed of by Lessor
without accountability to Lessee for the value of these trade fixtures,
equipment, or articles of personal property, or any proceeds derived from the
sale of these items.
ARTICLE XIII
GENERAL PROVISIONS
13.01. No Waiver of Breach by Lessor's Actions.
The failure of Lessor to seek redress for violation of, or to insist on
the strict performance of any covenant, agreement, term, provision, or condition
of this Lease shall not constitute a waiver of the covenant, agreement, term,
provision, or condition. The receipt by Lessor of rent with knowledge of the
breach of any covenant, agreement, term, provision, or condition of this Lease
shall not be deemed a waiver of that breach.
13.02. Waiver of Any Provision Must Be Written.
No provision of this Lease shall be deemed to have been waived, unless
the waiver is in writing and signed by the party against whom enforcement is
sought. No payment by Lessee or receipt by Lessor of a lesser amount than the
rent stipulated in this Agreement shall be deemed to be other than for the
payment of rent or other charge owing by Lessee, as Lessor shall elect. No
endorsement or statement on any check or any letter accompanying any check or
payment as rent shall be deemed binding on Lessor or deemed an accord and
satisfaction, and Lessor may accept a check or payment from Lessee without
prejudice to Lessor's right to recover the balance of the rent or other charges
owing by Lessee, and without limitation on Lessor's right to pursue each and
every remedy in this Lease or provided by law. Each right and remedy of Lessor
provided for in this Lease shall be cumulative and in addition to every other
right or remedy provided for in this Lease, or now or later existing at law, in
equity, by statute, or otherwise.
13.03. Entire Agreement.
This Lease and the Exhibits annexed to this Lease contain the entire
agreement between Lessor and Lessee, and any agreement made after the execution
of this Lease between Lessor and Lessee shall be ineffective to change, modify,
waive, release, discharge, terminate, or effect a surrender or abandonment of
this Lease, in whole or in part, unless that agreement is in writing and signed
by the party against whom enforcement is sought.
13.04. Notices.
All notices and demands of any kind that either party may be required
or may desire to give to the other in connection with this Lease must be given
by registered or certified mail, return receipt requested, with postage fully
prepaid, and addressed to the party to be served at the party's address as set
forth above. Any notice shall be deemed received on first attempted delivery.
Any party may change the address to which notices to that party are to be
directed by notice given in the manner provided in this Paragraph 13.04.
13.05. Lessor's Entry and Inspection of Premises.
Lessor, or Lessor's agents or designees, shall have the right to enter
the Leased Land and Improvements during reasonable business hours for
inspection, or to complete any work that may be necessary because of Lessee's
default under any of the terms, covenants, and conditions of this Lease
continuing beyond the applicable periods of grace, or to exhibit the Leased Land
and Improvements to potential buyers and agents.
13.06. Partial Invalidity or Unenforceability.
If any term, covenant, or condition of this Lease shall be invalid or
unenforceable to any extent, the remainder of the terms, covenants, and
conditions of this Lease shall remain in full force and effect and shall in no
way be affected, impaired, or invalidated.
13.07. Meaning of Term "Lessor".
The term "Lessor," as used in this Lease in relation to Lessor's
covenants and agreements under this Lease, shall be limited to mean and include
only the owner or owners of the fee title to the Leased Land at the time in
question. In the event of any conveyance of this fee title, Lessor named in this
Lease and each subsequent grantor shall be automatically relieved, at the date
of the conveyance, of all liability in respect to the performance of any of
Lessor's covenants and agreements remaining to be performed after the date of
conveyance, and each grantee shall be bound by all of the covenants and
agreements remaining to be performed under the Lease during the time of
grantee's ownership.
13.08. Satisfaction of Judgment Against Lessor.
Anything contained in this Lease to the contrary notwithstanding,
Lessee agrees to look solely to the Leased Land and Lessor's interest in the
Leased Land for the collection and satisfaction of any judgment that Lessee may
obtain against Lessor because of Lessor's failure to observe or perform any of
its covenants or obligations under this Lease, including, but not limited to,
the breach of the covenant of quiet enjoyment, whether express or implied. If
Lessee receives any judgment resulting from Lessor's failure to observe or
perform any of its covenants or obligations under this Lease, Lessee further
agrees not to collect or execute, or attempt to collect or execute, that
judgment out of or against any other assets or properties of Lessor.
13.09. Individuals Benefited by Lease.
This Lease shall inure to the benefit of and be binding on Lessor and
Lessee and their respective distributees, personal representatives, executors,
successors, and assigns except as otherwise provided in this Lease.
13.10. Assignment and Subletting.
This Lease and the term and estate granted by this Lease, or any part
of this Lease or that term and estate, may be subleased or assigned, without
Lessor's written consent. However, no assignment or subletting shall release or
discharge Lessee from the terms of this Lease.
13.11. Attornment of Sublessee.
All subleases shall provide that in the event of cancellation,
termination, expiration, or surrender of this Lease, the sublessee will attorn
to and recognize Lessor, or any assignee of Lessor, as Lessor under this Lease
for the balance then remaining of the term of this Lease, and subject to all
terms of this Lease. The provisions of this paragraph 13.11 shall be automatic
and no further instrument or document shall be necessary unless required by
Lessor or any assignee of Lessor.
13.12. Quiet Enjoyment.
Lessor covenants and agrees that Lessee, on payment of the rent and
other charges provided for in this Lease and fulfillment of the obligations
under the covenants, agreements, and conditions of this Lease, shall lawfully
and quietly hold, occupy, and enjoy the Leased Land during the term of this
Lease without any interference from anyone claiming through or under Lessor.
ARTICLE XIV
DOCUMENTATION AND RECORDING OF LEASE
14.01. Estoppel Certificates.
Lessor or Lessee shall have the right to request the other party to
provide an estoppel certificate, as described below, without charge, at any time
on or after twenty days after the requesting party sends a written notice. This
estoppel certificate shall consist of a written statement certifying the
following information to the requesting party or to any person specified by that
party:
(1) That this Lease is unmodified and in full force and effect;
or, if there have been any modifications in this Lease, that
this Lease is in full force and effect as modified, specifying
the nature of each modification.
(2) The dates through which the Base Rent, and all Additional Rent
and other charges payable under this Lease have been paid.
(3) Whether the other party to this Lease is in default in the
performance or observance of any covenant, agreement,
condition, term, or provision contained in this Lease, to the
best knowledge of the certifying party, and, if so, specifying
the nature of each default the certifying party has knowledge
of.
(4) Any other information with respect to this Lease and the
Leased Land that the requesting party shall reasonably
request.
14.02. Memorandum of Lease and Recording.
As soon as practicable after execution of this Lease, Lessor and Lessee
shall execute, in recordable form, a Memorandum of Lease in the form annexed to
this Lease as Exhibit C, and Lessee shall record the Memorandum of Lease in the
office of the County Recording Officer of County, Pennsylvania.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed and signed this
Lease or have caused this Lease to be executed and signed on ____________[date].
------------------------------------
[LESSOR]
By: ______________________________
------------------------------------
[LESSEE]
By: _____________________________
<PAGE>
Commonwealth of _______________________
County of ______________________
I certify that on this ______________________-, personally appeared
before me and acknowledged under oath, to my satisfaction, that he is the person
who is named in and who executed the foregoing instrument, and that he signed,
sealed, and delivered this instrument as his act and deed for the purposes
expressed in this instrument.
------------------------------
Notary Public
[Notarial Seal]
Notary Public for the Commonwealth of ____________________
My commission expires: _____________________
Commonwealth of _______________________
County of _______________________
I certify that on this __________________________, personally appeared
before me and acknowledged under oath, to my satisfaction, that he is the person
who is named in and who executed the foregoing instrument, and that he signed,
sealed, and delivered this instrument as his act and deed for the purposes
expressed in this instrument.
-----------------------------
Notary Public
[Notarial Seal]
Notary Public for the Commonwealth of ________________________
My commission expires: __________________________
<PAGE>
EXHIBIT C
MEMORANDUM OF LEASE
THIS IS A MEMORANDUM OF LEASE made as of this day of 19 ________, by
and between__________________________, a _____________________having offices
at ("Lessor"), and _________________________, a ____________________ ,having
offices at _________________________ ("Lessee").
Lessor and Lessee hereby state and confirm, as a matter of public
record, the following:
1. Lessor and Lessee have entered into an Agreement of Lease dated as
of ________________________, 19______, ("Lease"), relating to the lease from the
Lessor to Lessee of a tract of ground comprising
approximately____________________________ acres of land, more or less, located
in __________________ Township, County, State of ______________, the legal
description of which is attached hereto as Exhibit A and made a part hereof
("Ground").
2. The initial term of the Lease is approximately __________ years,
commencing on ___________________ and expiring at 12:00 midnight on
____________________________.
3. This memorandum is intended for recording purposes only, and does
not modify, supersede, diminish, add to or change all or any of the terms of the
Lease in any respect.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed and acknowledged
this Memorandum of Lease, effective as of the date and year first above written.
Lessor:
--------------------------------
Attest: By:
------------------------------- ---------------
(Corporate Seal)
- ------------------------------------
Secretary
Lessee:
-------------------
Exhibit 10.18
FORM OF
LEASE AGREEMENT
DATED AS OF _________ __, 1998
BETWEEN
HERSHA HOSPITALITY LIMITED PARTNERSHIP
AS LESSOR
AND
HERSHA HOSPITALITY MANAGEMENT, L.P.
AS LESSEE
IN CONNECTION WITH THE
_______________ HOTEL
<PAGE>
TABLE OF CONTENTS
ARTICLE 1....................................................................1
1.1. Leased Property................................................1
1.2. Term...........................................................2
1.3. Initial Transition.............................................3
ARTICLE 2....................................................................3
2.1. Definitions....................................................3
ARTICLE 3...................................................................13
3.1. Rent..........................................................13
3.2. Confirmation of Percentage Rent...............................14
3.3. Additional Charges............................................15
3.4. No Set Off....................................................16
3.5. Books and Records.............................................16
3.6. Changes in Operations.........................................16
ARTICLE 4...................................................................16
4.1. Payment of Impositions........................................16
4.2. Notice of Impositions.........................................18
4.3. Adjustment of Impositions.....................................18
4.4. Utility Charges...............................................18
ARTICLE 5...................................................................18
5.1. No Termination, Abatement, etc................................18
ARTICLE 6...................................................................19
6.1. Ownership of the Leased Property..............................19
6.2. Lessee's Personal Property....................................19
6.3. Lessor's Lien.................................................19
ARTICLE 7...................................................................20
7.1. Condition of the Leased Property..............................20
7.2. Use of the Leased Property....................................20
ARTICLE 8...................................................................22
8.1. Compliance with Legal and Insurance Requirements, etc.......22
8.2. Legal Requirement Covenants...................................22
8.3. Environmental Covenants.......................................23
ARTICLE 9...................................................................25
9.1. Maintenance and Repair; Capital Expenditures..................25
9.2. Encroachments, Restrictions, Etc..............................26
ARTICLE 10..................................................................27
10.1. Alterations..................................................27
10.2. Salvage......................................................27
10.3. Lessor Alterations...........................................27
ARTICLE 11..................................................................27
11.1. Liens........................................................27
ARTICLE 12..................................................................28
12.1. Permitted Contests...........................................28
ARTICLE 13..................................................................29
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13.1. General Insurance Requirements...............................29
13.2. Replacement Cost.............................................31
13.3. (Intentionally omitted)......................................31
13.4. Waiver of Subrogation........................................31
13.5. Form Satisfactory, etc.......................................31
13.6. Increase in Limits...........................................32
13.7. Blanket Policy...............................................32
13.8. Separate Insurance...........................................32
13.9. Reports On Insurance Claims..................................32
ARTICLE 14..................................................................33
14.1. Insurance Proceeds...........................................33
14.2.Reconstruction in the Event of Damage or Destruction
Covered by Insurance..........................................33
14.3.Reconstruction in the Event of Damage or Destruction
Not Covered by Insurance or When Holder Will
Not Release Insurance Proceeds................................34
14.4.Lessee's Property and Business Interruption Insurance.........34
14.5.Abatement of Rent.............................................34
ARTICLE 15..................................................................35
15.1. Definition...................................................35
15.2. Parties' Rights and Obligations..............................35
15.3. Total Taking.................................................35
15.4. Allocation of Award..........................................35
15.5. Partial Taking...............................................36
15.6. Temporary Taking.............................................36
ARTICLE 16..................................................................37
16.1. Events of Default............................................37
16.2. Remedies.....................................................38
16.3. Waiver.......................................................39
16.4. Application of Funds.........................................39
ARTICLE 17..................................................................40
17.1. Lessor's Right to Cure Lessee's Default......................40
ARTICLE 18..................................................................40
18.1. Personal Property Limitation.................................40
18.2. Sublease Rent Limitation.....................................41
18.3. Sublease Lessee Limitation...................................41
18.4. Lessee Ownership Limitation..................................41
18.5. Director, Officer and Employee Limitation....................41
ARTICLE 19..................................................................42
19.1. Holding Over.................................................42
ARTICLE 20..................................................................42
20.1. Indemnification..............................................42
ARTICLE 21..................................................................43
21.1. Subletting and Assignment....................................43
21.2. Attornment...................................................43
21.3. Management Agreement.........................................44
ARTICLE 22..................................................................44
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<PAGE>
22.1. Officer's Certificates; Financial Statements; Lessor's
Estoppel Certificates and Covenants..........................44
ARTICLE 23..................................................................46
23.1. Regular Meetings; Lessor's Right to Inspect..................46
ARTICLE 24..................................................................47
24.1. No Waiver....................................................47
ARTICLE 25..................................................................47
25.1. Remedies Cumulative..........................................47
ARTICLE 26..................................................................47
26.1. Acceptance of Surrender......................................47
ARTICLE 27..................................................................48
27.1. No Merger of Title...........................................48
ARTICLE 28..................................................................48
28.1. Conveyance by Lessor.........................................48
28.2. Lessor May Grant Liens.......................................48
ARTICLE 29..................................................................50
29.1. Quiet Enjoyment..............................................50
ARTICLE 30..................................................................50
30.1. Notices......................................................50
ARTICLE 31..................................................................51
31.1. Appraisers...................................................51
ARTICLE 32..................................................................52
32.1. Lessee's Right to Cure.......................................52
ARTICLE 33..................................................................52
33.1. Miscellaneous................................................52
33.2. Transition Procedures........................................52
33.3. Waiver of Presentment, etc...................................54
33.4. Standard of Discretion.......................................54
33.5. Action for Damages...........................................54
33.6. Lease Assumption in Bankruptcy Proceeding....................54
33.7. Intra-Family Transfers.......................................55
ARTICLE 34..................................................................55
34.1. Memorandum of Lease..........................................55
ARTICLE 35..................................................................55
ARTICLE 36..................................................................55
36.1. Lessor's Option to Terminate Lease...........................55
ARTICLE 37..................................................................57
37.1. Compliance with Franchise Agreement..........................57
ARTICLE 38..................................................................57
38.1. Capital Expenditures.........................................57
ARTICLE 39..................................................................58
39.1. Lessor's Default.............................................58
ARTICLE 40..................................................................59
40.1. Arbitration..................................................59
40.2. Alternative Arbitration......................................59
40.3. Arbitration Procedures.......................................59
iii
<PAGE>
LIST OF EXHIBITS
Exhibit A - Property Description
Exhibit B - Other Properties
Exhibit C - Percentage Rent Provisions
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the ___
day of ___________, 1998, by and between [HERSHA HOSPITALITY LIMITED
PARTNERSHIP, a Virginia limited partnership] (hereinafter called "Lessor"), and
HERSHA HOSPITALITY MANAGEMENT, L.P., a Pennsylvania limited partnership
(hereinafter called "Lessee"), provides as follows.
W I T N E S S E T H:
Contemporaneously with the execution hereof, Lessor acquired (i) the
Leased Property (as hereinafter defined) and certain Other Properties, and (ii)
Lessor is entering with Lessee into the Other Leases; and
Lessor and Lessee now wish to enter into this Lease.
NOW, THEREFORE, Lessor, in consideration of the payment of rent by
Lessee to Lessor, the covenants and agreements to be performed by Lessee, and
upon the terms and conditions hereinafter stated, does hereby rent and lease
unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased
Property.
ARTICLE
1
1.1. Leased Property.
The leased property (the "Leased Property") is comprised of
Lessor's interest in the following:
(a) [delete this section for the Holiday Inn Express,
Harrisburg, PA and the Comfort Inn, Denver, PA] the land described in Exhibit
"A" attached hereto and by reference incorporated herein (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 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 required for or incidental to the use of the Leased Improvements as a
hotel, including all components thereof, now and hereafter permanently affixed
to or incorporated into the Leased Improvements, including, without limitation,
<PAGE>
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
greatest extent permitted by law are hereby deemed by the parties hereto to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto (collectively, the "Fixtures");
(e) all furniture and furnishings and all other items of
personal property (excluding Inventory and personal property owned by Lessee)
located on, and used in connection with, the operation of the Leased
Improvements as a hotel, together with all replacements, modifications,
alterations and additions thereto; and
(f) all existing leases of the Leased Property (including any
security deposits or collateral held by Lessor pursuant thereto).
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH
WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE
SURVEY THEREOF.
1.2. Term.
(a) The term of the Lease (the "Term") shall commence on the
date hereof (the "Commencement Date") and shall end on the fifth anniversary of
the last day of the month in which the Commencement Date occurs, unless sooner
terminated in accordance with the provisions hereof. Lessor and Lessee
acknowledge that the Commencement Date is the date of Lessor's acquisition of
the Leased Property.
(b) Lessee may elect to extend this Lease and all of the Other
Leases for an additional five-year term and, at the end of the first extended
term, may elect to extend this Lease for an additional five-year term (each such
extension, a "Renewal Term") by providing written Notice (a "Renewal Notice") to
Lessor no sooner than 30 months and no later than 6 months prior to the end of
the Term or Renewal Term, as applicable. A Renewal Notice, if given, shall be
irrevocable, but it shall not preclude Lessor from exercising any of its rights
to terminate this Lease in accordance with the provisions hereof. Lessee
acknowledges that Lessor will rely on any Renewal Notice received from Lessee
and not pursue opportunities to select another lessee for the Facility and will
be materially damaged if Lessee fails subsequently to act as lessee for the
Renewal Term for any reason other than Lessor's termination of the Lease in
accordance herewith. No Renewal Notice may be given or shall be effective if an
Event of Default shall have occurred and, if curable hereunder, shall not have
been cured. The terms of the Lease during a Renewal Term shall be the same as
the terms hereof.
2
<PAGE>
1.3. Initial Transition.
Simultaneously with the execution of this Lease, Lessee shall
acquire for fair market value from the contributor of the Leased Property to
Lessor all deposits, prepaid revenue and similar accounts, and Inventory
existing at or with respect to the Leased Property as of the Commencement Date.
ARTICLE
2
2.1. Definitions.
For all purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (a) the terms defined in this
Lease have the meanings assigned to them in this Article and include the plural
as well as the singular, (b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP, (c) all references
in this Lease to designated "Articles", "Sections" and other subdivisions are to
the designated Articles, Sections and other subdivisions of this Lease and (d)
the words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Lease as a whole and not to any particular Article, Section or
other subdivision:
Additional Charge(s): As defined in Section 3.3.
Affiliate: The term "Affiliate" of a Person shall mean (a) any Person
that, directly or indirectly, controls or is controlled by or is under common
control with such Person, (b) any other Person that owns, beneficially, directly
or indirectly, ten percent or more of the outstanding capital stock, shares or
equity interests of such Person, or (c) any officer, director, employee,
partner, manager, member or trustee of such Person or any Person controlling,
controlled by or under common control with such Person (excluding trustees and
Persons serving in similar capacities who are not otherwise an Affiliate of such
Person). For the purposes of this definition, "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, through the ownership of voting securities,
partnership interests or other equity interests, by contract or otherwise.
Award: As defined in Section 15.1(c).
Base Rate: The prime rate (or base rate) reported in the Money Rates
column or comparable section of The Wall Street Journal, Eastern Edition, as the
rate then in effect for corporate loans at large U.S. money center commercial
banks, whether or not such rate has actually been charged by any such bank. If
no such rate is reported in The Wall Street Journal, Eastern Edition or if such
rate is discontinued, then Base Rate shall mean such other successor or
comparable rate as Lessor may reasonably designate.
3
<PAGE>
Base Rent: As defined in Article 3.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which national banks in the City of Philadelphia, Pennsylvania,
or in the municipality wherein the Leased Property is located are closed.
Capital Expenditures: Amounts advanced to pay the costs of Capital
Improvements.
Capital Expenditures Allowance: As defined in Article 38.
Capital Impositions: Taxes, assessments or similar charges imposed upon
or levied against the Leased Property for the costs of public improvements,
including, without limitation, roads, sidewalks, public lighting fixtures,
utility lines, storm sewers drainage facilities, and similar improvements.
Capital Improvements: Improvements to the Leased Property and
replacement or refurbishing of Fixtures and of Furniture and Equipment, all as
designated as capital improvements by and determined in accordance with GAAP.
CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
Change of Control: (i) The issuance or sale by the Lessee or the sale
by any partner of the Lessee of a Controlling interest in Lessee; (ii) the sale,
conveyance or other transfer of all or substantially all of the assets of the
Lessee (whether by operation of law or otherwise); (iii) any transaction, or
series of transactions, pursuant to which the Lessee is merged with or
consolidated into another entity and either (A) the Lessee is not the surviving
entity or (B) the Lessee is the surviving entity but the previous partners of
the Lessee do not maintain a Controlling interest in the Lessee.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Section 1.2.
Company: Hersha Hospitality Trust, a Maryland real estate investment
trust.
Condemnation, Condemnor: As defined in Section 15.1.
Consolidated Financials: For any fiscal year or other accounting period
for (i) Lessee and (ii) Lessee and Lessee's Affiliates, if any, that lease hotel
properties from Lessor or its Affiliates, a balance sheet and 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
4
<PAGE>
such period and the related balance sheet as at 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 Company or Lessor, 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 audited annually (and quarterly if required by the SEC) by a firm
of independent certified public accountants selected by Lessor. Consolidated
Financials shall be prepared on the basis of a fiscal year ending on the Friday
closest to December 31.
Control: As applied to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership or voting securities, by
contract or otherwise. The terms "Controlling" and "Controlled by" shall have
correlative meanings.
Cumulative Period Portion: For the first three calendar quarters of a
Lease Year, a fraction having as its numerator the Lessee's budgeted Gross
Revenues for the calendar quarter in a Lease Year which have elapsed prior to
and including the calendar quarter in which a payment of Percentage Rent is due,
and having as its denominator the Lessee's budgeted Gross Revenues for such
Lease Year. For the fourth calendar quarter of a Lease Year, the Cumulative
Period Portion shall be 100%.
Date of Taking: As defined in Section 15.1(b).
Emergency Expenditures: Expenditures required to take necessary or
appropriate actions to respond to Emergency Situations.
Emergency Situations: Fire, any other casualty, or any other events,
circumstances or conditions which threaten the safety or physical well-being of
the Facility's guests or employees or which involve the risk of material
property damage or material loss to the Facility.
Environmental Authority: Any department, agency or other body or
component of any Government that exercises any form of jurisdiction or authority
under any Environmental Law.
Environmental Authorization: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.
Environmental Laws: All applicable federal, state, local and foreign
laws and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including without limitation laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials. Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.
Environmental Liabilities: Any and all actual or potential obligations
to pay the amount of any judgment or settlement, the cost of complying with any
5
<PAGE>
settlement, judgment or order for injunctive or other equitable relief, the cost
of compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or criminal
fine, and any court costs and reasonable amounts for attorney's fees, fees for
witnesses and experts, and costs of investigation and preparation for defense of
any claim or any Proceeding, regardless of whether such Proceeding is
threatened, pending or completed, that may be or have been asserted against or
imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any
property used therein and arising out of:
(a) the failure to comply at any time with all Environmental
Laws applicable to the Leased Property;
(b) the presence of any Hazardous Materials on, in, under, at
or in any way affecting the Leased Property;
(c) a Release or threatened Release of any Hazardous Materials
on, in, at, under or in any way affecting the Leased Property;
(d) the identification of Lessee, Lessor or any Predecessor as
a potentially responsible party under CERCLA or under any other Environmental
Law;
(e) the presence at any time of any above-ground and/or
underground storage tanks, as defined in RCRA or in any applicable Environmental
Law on, in, at or under the Leased Property or any adjacent site or facility; or
(f) any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or located
at the Leased Property, or resulting from operation thereof or any adjoining
property.
Event of Default: As defined in Section 16.1.
Facility: The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as
amended.
First Annual Room Revenues Break Point: The amount of Room Revenues for
the applicable Lease Year corresponding to such term as set forth on Exhibit C.
First Tier Room Revenue Percentage: The percentage corresponding to
such term as set forth on Exhibit C.
Fixtures: As defined in Section 1.1.
Franchise Agreement: The franchise agreement or license agreement with
_____________ or any other franchisor under which the Facility is operated.
6
<PAGE>
Furniture and Equipment: The terms "furniture and equipment" shall mean
collectively all furniture, furnishings, wall coverings, Fixtures and hotel
equipment and systems located at, or used in connection with, the Facility,
together with all replacements therefor and additions thereto, including,
without limitation, (i) all equipment and systems required for the operation of
kitchens, bars and restaurants, and laundry and dry cleaning facilities, (ii)
office equipment (excluding any office equipment used by the Lessee for its own
operations, rather than hotel operations), (iii) dining room wagons, materials
handling equipment, and cleaning and engineering equipment, (iv) telephone and
computerized accounting systems, and (v) vehicles (excluding any vehicles used
by the lessee for its own operations, rather than hotel operations).
GAAP: Generally accepted accounting principles as are at the time
applicable and otherwise consistently applied.
Government: The United States of America, any city, county, state,
district or territory thereof, any foreign nation, any city, county, state,
district, department, territory or other political division thereof, or any
political subdivision of any of the foregoing.
Gross Revenues: The sum of Room Revenues and Other Revenues.
Hazardous Materials: All chemicals, pollutants, contaminants, wastes
and toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in RCRA or in
any Environmental Law;
(b) Hazardous substances, as defined in CERCLA or in any
Environmental Law;
(c) Toxic substances, as defined in TSCA or in any
Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined
in FIFRA or in any Environmental Law;
(e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenols, asbestos and urea formaldehyde;
(f) Asbestos or asbestos containing materials;
(g) Urea Formaldehyde foam insulation; and
(h) Radon gas.
Holder: Any holder of a Mortgage, any purchaser of the Leased Property
or any portion thereof at a foreclosure sale or any sale in lieu thereof, or any
designee of any of the foregoing.
7
<PAGE>
Impositions: Collectively, all taxes (including, without limitation,
all ad valorem, sales and use, occupancy, single business, gross receipts,
transaction privilege, rent or similar taxes as the same relate to or are
imposed upon Lessee or Lessor or Lessee's business conducted upon the Leased
Property), assessments (including, without limitation, all private property
association assessments and all assessments for public improvements or benefit,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), ground rents, water, sewer or other rents
and charges, excises, tax 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 Lessee (including all
interest and penalties thereon caused by any failure in payment by Lessee),
which at any time prior to, during or with respect to the Term hereof may be
assessed or imposed on or with respect to or be a lien upon (a) Lessor'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 Lessee. Nothing contained in this
definition of Impositions shall be construed to require Lessee to pay (1) any
tax based on net income (whether denominated as a franchise or capital stock or
other tax) imposed on Lessor or any other person, or (2) any net or gross
revenue tax of Lessor or any other person, or (3) any tax imposed with respect
to the sale, exchange or other disposition by Lessor of any Leased Property or
the proceeds thereof.
Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an Indemnified
Party pursuant to any provision of this Lease.
Insurance Requirements: All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.
Inventory: All "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System, including, but not limited to,
linens, china, silver, glassware and other non-depreciable personal property,
and any property of the type described in Section 1221(1) of the Code.
Land: As defined in Article 1.
Lease: This Lease.
Lease Year: Any 12-month period from January 1 through December 31
during the Term, or any shorter period at the beginning or the end of the Term.
Leased Improvements: As defined in Article 1.
Leased Property: As defined in Section 1.1.
8
<PAGE>
Legal Requirements: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction, use, operation or alteration thereof (whether by Lessee or
otherwise), whether or not hereafter enacted and in force, including (a) all
laws, rules or regulations pertaining to the environment, occupational health
and safety and public health, safety or welfare, and (b) any laws, rules or
regulations that may (1) require repairs, modifications or alterations in or to
the Leased Property or (2) in any way adversely affect the use and enjoyment
thereof; and all permits, licenses and authorizations necessary or appropriate
to operate the Leased Property for its Primary Intended Use and all covenants,
agreements, restrictions and encumbrances contained in any instruments, either
of record or known to Lessee (other than encumbrances hereafter created by
Lessor without the consent of Lessee), at any time in force affecting the Leased
Property.
Lessee: The Lessee designated on this Lease and its permitted
successors and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest in Lessee, the officers,
directors, stockholders, partners, members, employees, agents and
representatives of any of the foregoing Persons and any corporate stockholder,
agent, or representative of any of the foregoing Persons, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, partner, member, stockholder, employee, agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
Lessor: The Lessor designated on this Lease and its respective
successors and assigns.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, including
the Company, any other Person against whom any claim for indemnification may be
asserted hereunder as a result of a direct or indirect ownership interest in
Lessor, the officers, trustees, directors, stockholders, partners, members,
employees, agents and representatives of any of the foregoing Persons and of any
stockholder, partner, member, agent, or representative of any of the foregoing
Persons, and the respective heirs, personal representatives, successors and
assigns of any such officer, trustee, director, partner, member, stockholder,
employee, agent or representative.
Lessor's Audit: An audit by Lessor's independent certified public
accountants of the operation of the Leased Property during any Lease Year, which
audit may, at Lessor's election, be either a complete audit of the Leased
Property's operations or an audit of Room Revenues realized from the operation
of the Leased Property during such Lease Year.
Management Agreement: As defined in Section 21.3.
Manager: As defined in Section 21.3.
9
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Mortgage: As defined in Section 28.2.
Notice: A notice given pursuant to Article 30.
Officer's Certificate: A certificate of Lessee reasonably acceptable to
Lessor, signed by the chief financial officer or another officer duly authorized
so to sign by Lessee or a general partner of Lessee, or any other person whose
power and authority to act has been authorized by delegation in writing by any
such officer.
Other Leases: The leases of the Other Properties.
Other Properties: The properties described on Exhibit B attached
hereto.
Other Revenues: All revenues, receipts and income of any kind derived
directly or indirectly from or in connection with the Facility other than Room
Revenues.
Other Revenue Percentage: The percentage corresponding to such term as
set forth on Exhibit C.
Overdue Rate: On any date, a rate equal to the Base Rate plus 5% per
annum, but in no event greater than the maximum rate then permitted under
applicable law.
Payment Date: Any due date for the payment of any installment of
Rent.
Percentage Rent: As defined in Article 3.
Period Revenues Computation: The amount obtained by adding, for the
applicable Lease Year, (i) an amount equal to the First Tier Room Revenue
Percentage of all Lease Year to date Room Revenues up to (but not exceeding) the
Cumulative Period Portion of the First Annual Room Revenues Break Point, (ii) an
amount equal to the Second Tier Room Revenue Percentage of all Lease Year to
date Room Revenues in excess of the Cumulative Period Portion of the First
Annual Room Revenues Break Point but not exceeding the Cumulative Period Portion
of the Second Annual Room Revenues Break Point, (iii) an amount equal to the
Third Tier Room Revenue Percentage of all Lease Year to date Room Revenues in
excess of the Cumulative Period Portion of the Second Annual Room Revenues Break
Point, and (iv) an amount equal to the Other Revenue Percentage of all Lease
Year to date Other Revenues.
Person: The term "Person" means and includes individuals, corporations,
general and limited partnerships, limited liability companies, stock companies
or associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and any Government
and agencies and political subdivisions thereof.
Personal Property Taxes: All personal property taxes imposed on the
furniture, furnishings or other items of personal property located on, and used
in connection with, the operation of the Leased Improvements as a hotel (other
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than Inventory and other personal property owned by the Lessee), together with
all replacements, modifications, alterations and additions thereto.
Predecessor: Any Person whose liabilities arising under any
Environmental Law have or may have been retained or assumed by Lessor or Lessee
pursuant to the provisions of this Lease.
Primary Intended Use: As defined in Section 7.2(b).
Proceeding: Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
RCRA: The Resource Conservation and Recovery Act, as amended.
Real Estate Taxes: All real estate taxes, including general and special
assessments, if any, which are imposed upon the Land and any improvements
thereon.
Release: A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
Rent: Collectively, the Base Rent or Percentage Rent, and Additional
Charges.
Room Revenues: Gross revenue from the rental of guest rooms, whether to
individuals, groups or transients, at the Facility, determined in a manner
consistent with the Uniform System and excluding the following:
(a) The amount of all credits, bad debt write-off rebates or
refunds to customers, guests or patrons; and
(b) All sales taxes or any other taxes imposed on the rental
of such guest rooms; and
(c) any fees collected for amenities including, but not
limited to, telephone, laundry, movies or concessions.
SARA: The Superfund Amendments and Reauthorization Act of 1986, as
amended.
SEC: The U.S. Securities and Exchange Commission or any successor
agency.
Second Annual Room Revenues Break Point: The amount of Room Revenues
for the applicable Lease Year corresponding to such term as set forth on Exhibit
C.
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Second Tier Room Revenue Percentage: The percentage corresponding to
such term as set forth on Exhibit C.
State: The State or Commonwealth of the United States in which the
Leased Property is located.
Subsidiaries: Corporations or other entities in which Lessee owns,
directly or indirectly, 50% or more of the voting rights or control, as
applicable (individually, a "Subsidiary").
Taking: A permanent or temporary taking or voluntary conveyance during
the Term hereof of all or part of the Leased Property, or any interest therein
or right accruing thereto or use thereof, as the result of, 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.
Term: As defined in Section 1.2.
Termination Fee: As defined in Section 36.1(c).
Third Tier Room Revenue Percentage: The percentage corresponding to
such term as set forth on Exhibit C.
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delay: Delay due to strikes, lock-outs, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty,
condemnation or other similar causes beyond the reasonable control of the party
responsible for performing an obligation hereunder, provided that lack of funds
shall not be deemed a cause beyond the reasonable control of either party hereto
unless such lack of funds is caused by the breach of the other party's
obligation to perform any obligations of such other party under this Lease.
Uneconomic for its Primary Intended Use: A state or condition of the
Facility such that in the reasonable judgment of Lessor the Facility cannot be
operated on a commercially practicable basis for its Primary Intended Use, such
that Lessor intends to, and shall, cease operation of the Facility.
Uniform System: Shall mean the Uniform System of Accounts for Hotels
(9th Revised Edition, 1996) as published by the Hotel Association of New York
City, Inc., as the same may hereafter be revised, and as the same is interpreted
and applied by the Lessor's independent certified public accountants in
connection with any audit.
Unsuitable for its Primary Intended Use: A state or condition of the
Facility such that in the reasonable judgment of Lessor the Facility (i) cannot
function as an integrated hotel facility consistent with standards applicable to
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a well maintained and operated hotel comparable in quality and function to that
of the Facility prior to the damage or loss and, (ii) notwithstanding the
application of insurance proceeds that may occur under Section 14.1, will remain
unsuitable for its Primary Intended Use for a period of 90 days or more.
ARTICLE
3
3.1. Rent.
Lessee will pay to Lessor, by wire transfer, in lawful money
of the United States of America which shall be legal tender for the payment of
public and private debts, at Lessor's address set forth in Article 30 hereof or
at such other place or to such other Person as Lessor from time to time may
designate in a Notice, all Base Rent, Percentage Rent and Additional Charges,
during the Term, as follows:
[insert for Newly-Developed Hotels and Newly-Renovated Hotels:
(a) The Rent payable from the Commencement Date until the
calendar quarter ending December 31, ___ shall equal (A) the annual amount of
Initial Fixed Rent set forth on Exhibit C; provided, however, that Initial Fixed
Rent shall be prorated as to any Lease Year which is less than four calendar
quarters and any partial calendar quarter;]
(a) The Rent payable in each calendar quarter [insert for
Newly-Developed Hotels and Newly-Renovated Hotels: from January 1, ___ until the
end of the Lease Term] shall equal
(i) the annual amount of Base Rent set forth on
Exhibit C; provided, however, that (A) Base Rent shall be prorated as to any
Lease Year which is less than four calendar quarters and any partial calendar
quarter, and (B) the last payment of Base Rent shall be pro rated as to any
partial calendar quarter; plus
(ii) an amount of percentage rent ("Percentage
Rent"), calculated for each calendar quarter by the following formula:
The amount equal to the Period Revenues Computation through
the end of such calendar quarter for the applicable Lease Year
less
an amount equal to the Base Rent paid for the Lease Year to
date for the applicable Lease Year
less
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an amount equal to the Percentage Rent paid for the Lease Year
to date for the applicable Lease Year.
[Initial Fixed Rent or] Base Rent for each calendar quarter of
the Term shall be payable in arrears on or before the first business day of each
subsequent calendar quarter. The amount of [Initial Fixed Rent or] Base Rent
payable for the first three calendar quarters of a Lease Year shall equal the
annual amount of [Initial Fixed Rent or] Base Rent multiplied by a fraction, the
numerator of which is the amount of the Lessee's budgeted Gross Revenues for
such calendar quarter and the denominator of which is the amount of the Lessee's
budgeted Gross Revenues for such Lease Year. The amount of [Initial Fixed Rent
or] Base Rent payable for the fourth calendar quarter of such Lease Year shall
equal the annual amount of [Initial Fixed Rent or] Base Rent, less the aggregate
amount of [Initial Fixed Rent or] Base Rent payments made by the Lessee for the
first three calendar quarters of such Lease Year. Percentage Rent for each
calendar quarter during such period of the Term shall be paid on or before the
15th day of the next calendar quarter. In no event will the amount of Percentage
Rent payable for any quarter pursuant to the foregoing formula be less than
zero, and there shall be no reduction in Base Rent regardless of the result of
the Period Revenues Computation.
If the Term begins or ends in the middle of a calendar year,
then the number of calendar quarters falling within the Term during such
calendar year shall constitute a separate Lease Year. In that event, the First
Annual Room Revenues Break Point and the Second Annual Room Revenues Break Point
shall be multiplied by a fraction equal to (x) the number of calendar quarters
(including partial calendar quarters) in the Lease Year divided by (y) four, and
the Cumulative Period Portion for each of the calendar quarters in such Lease
Year shall be determined as set forth in the definition of Cumulative Period
Portion.
(b) Officer's Certificates. An Officer's Certificate shall be
delivered to Lessor with each Percentage Rent payment setting forth the
calculation of the Percentage Rent payment for the most recently completed
calendar quarter of each Lease Year in the Term. Percentage Rent shall be
subject to confirmation and adjustment, if applicable, as set forth in Section
3.2.
The obligation to pay Percentage 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
accrued after such expiration or termination date but which related to
Percentage Rent accrued prior to such termination date, shall be made not later
than 60 days after such expiration or termination date.
3.2. Confirmation of Percentage Rent.
Lessee 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, that will
accurately record all data necessary to compute Percentage Rent, and Lessee
shall retain, for at least five years after the expiration of each Lease Year,
reasonably adequate records conforming to such accounting system showing all
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data necessary to conduct Lessor's Audit and to compute Percentage Rent for the
applicable Lease Years. Lessor shall have the right, for a period of two years
following each Lease Year, from time to time, by its accountants or
representatives, to audit such information in connection with Lessor's Audit,
and to examine all Lessee's records (including supporting data and sales and
excise tax returns) reasonably required to complete Lessor's Audit and to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of any
such data under Legal Requirements. If any Lessor's Audit discloses a deficiency
in the payment of Percentage Rent, and either Lessee agrees with the result of
Lessor's Audit or the matter is otherwise determined or compromised, Lessee
shall forthwith pay to Lessor the amount of the deficiency, as finally agreed or
determined, together with interest at the Overdue Rate from the date when said
payment should have been made to the date of payment thereof. If any Lessor's
Audit discloses a deficiency in the determination or reporting of Room Revenue
which, as finally agreed or determined, exceeds 3%, Lessee shall pay the costs
of the portion of Lessor's Audit allocable to the determination of Room Revenues
(the "Revenue Audit"). Any proprietary information obtained by Lessor pursuant
to the provisions of this Section shall be treated as confidential, except that
such information may be used, subject to appropriate confidentiality safeguards,
in any litigation or arbitration between the parties and except further that
Lessor may disclose such information to prospective lenders, investors and
underwriters and to any other persons to whom disclosure is necessary to comply
with applicable laws, regulations and government requirements. The obligations
of Lessee contained in this Section shall survive the expiration or earlier
termination of this Lease. Any dispute as to the existence or amount of any
deficiency in the payment of Percentage Rent as disclosed by Lessor's Audit
shall, if not otherwise settled by the parties, be submitted to arbitration
pursuant to the provisions of Section 40.2.
3.3. Additional Charges.
In addition to the Base Rent and Percentage Rent, (a) Lessee
also will pay and discharge as and when due and payable all other amounts,
liabilities, obligations and Impositions that Lessee assumes or agrees to pay
under this Lease, and (b) in the event of any failure on the part of Lessee to
pay any of those items referred to in clause (a) of this Section 3.3, Lessee
also will promptly pay and discharge every fine, penalty, interest and cost that
may be added for non-payment or late payment of such items (the items referred
to in clauses (a) and (b) of this Section 3.3 being additional rent hereunder
and being referred to herein collectively as the "Additional Charge(s)"), and
Lessor shall have all legal, equitable and contractual rights, powers and
remedies provided either in this Lease or by statute or otherwise in the case of
non-payment of the Additional Charges as in the case of non-payment of the Base
Rent. If any installment of Base Rent, Percentage Rent or Additional Charges
(but only as to those Additional Charges that are payable directly to Lessor)
shall not be paid on its due date, Lessee will pay Lessor within ten days of
demand, as Additional Charges, an amount equal to the interest 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 Lessee pays any
Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee
shall be relieved of its obligation to pay such Additional Charges to the entity
to which they would otherwise be due and Lessor shall pay the same from monies
received from Lessee.
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3.4. No Set Off.
Rent shall be paid to Lessor without set off, deduction or
counterclaim, subject to Lessee's right to assert any claim or mandatory
counterclaim in any action brought by either party under this Lease.
3.5. Books and Records.
Lessee shall keep full and adequate books of account and other
records reflecting the results of operation of the Facility on an accrual basis,
all in accordance with the Uniform System and GAAP and the obligations of Lessee
under this Lease. Lessee agrees that bad-debt expenses will be recorded in a
manner which is consistent with the past practice of the current operator of the
Facility for bad debt writeoffs. The books of account and all other records
relating to or reflecting the operation of the Facility (whether maintained by
Lessee or Manager) shall be kept either at the Facility or at 148 Sheraton
Drive, New Cumberland, Pennsylvania 17070, and shall be available to Lessor and
its representatives and its auditors or accountants, at all reasonable times for
examination, audit, inspection, and transcription. All of such books and records
pertaining to the Facility (whether maintained by Lessee or Manager) including,
without limitation, books of account, guest records and front office records, at
all times shall be the property of Lessor and shall not be removed from the
Facility or Lessee's offices without Lessor's prior written approval. Lessee
shall be entitled to make copies of any or all such books and records for its
own files. Lessee's obligations under this Section 3.5 shall survive termination
of this Lease for any reason.
3.6. Changes in Operations.
Without Lessor's prior written consent, which shall not be
unreasonably withheld, Lessee shall not (i) provide food and/or beverage
operations at the Facility if not presently provided, (ii) discontinue any food
and/or beverage operations which are presently provided, or (iii) convert a
subtenant, licensee or concessionaire to an operating department of the Facility
or vice-versa.
ARTICLE
4
4.1. Payment of Impositions.
Lessor shall pay, or cause to be paid, all Real Estate Taxes
and Personal Property Taxes. Subject to Article 12 relating to permitted
contests, Lessee will pay, or cause to be paid, all Impositions (other than Real
Estate Taxes and Personal Property Taxes) before any fine, penalty, interest or
cost may be added for nonpayment, such payments to be made directly to the
taxing or other authorities where feasible, and will promptly furnish to Lessor
copies of official receipts or other satisfactory proof evidencing such
payments. Lessee's obligation to pay such Impositions shall be deemed absolutely
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fixed upon the date such Impositions become a lien upon the Leased Property or
any part thereof. 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), Lessee 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 (subject to Lessee's
right of contest pursuant to the provisions of Article 12) as the same
respectively become due and before any fine, penalty, premium, further interest
or cost may be added thereto. If an Imposition becomes fixed during the Term
hereof and the Lessee elects to pay such Imposition in installments that
continue after the Term hereof, the Lessee's obligation to pay such installments
shall survive the termination of this Lease. Lessor, at its expense, shall, to
the extent required or permitted by applicable law, prepare and file all tax
returns in respect of Lessor's net income, gross receipts, sales and use, single
business, transaction privilege, rent, ad valorem, franchise taxes, and taxes on
its capital stock, and Lessee, 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
governmental authorities. Lessee shall submit copies of Real Estate Taxes and
Personal Property Tax invoices to Lessor promptly upon Lessee's receipt of such
invoices. If any refund shall be due from any taxing authority in respect of any
Imposition paid by Lessee, the same shall be paid over to or retained by Lessee
if no Event of Default shall have occurred hereunder and be continuing. If an
Event of Default shall have been declared by Lessor and be continuing, any such
refund shall be paid over to or retained by Lessor. Any such funds retained by
Lessor due to an Event of Default shall be applied as provided in Article 16.
Any refund for Real Estate Taxes and Personal Property Taxes shall be promptly
remitted to Lessor. Lessor and Lessee shall, upon request of the other,
cooperate with the other party and otherwise 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. Lessor, to the
extent it possesses the same, and Lessee, to the extent it possesses the same,
will provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property classified as personal property.
Lessor may, upon notice to Lessee, at Lessor's option and at Lessor's sole
expense, protest, appeal, or institute such other proceedings (in its or
Lessee's name) as Lessor may deem appropriate to effect a reduction of real
estate assessments, and Lessee, at Lessor's expense as aforesaid, shall fully
cooperate with Lessor in such protest, appeal, or other action. Lessor hereby
agrees to indemnify, defend, and hold harmless Lessee from and against any
claims, obligations, and liabilities against or incurred by Lessee in connection
with such cooperation. Lessor, however, reserves the right to effect any such
protest, appeal or other action and, upon notice to Lessee, shall control any
such activity, which shall then proceed at Lessor's sole expense. Upon such
notice, Lessee, at Lessor's expense, shall cooperate fully with such activities.
To the extent received by it, Lessee shall furnish Lessor with copies of all
assessment notices for Real Estate Taxes in sufficient time for Lessor to file
any protest with respect to such tax must be made and pay such taxes without
penalty.
4.2. Notice of Impositions.
Lessor shall give prompt Notice to Lessee of all Impositions
payable by Lessee hereunder of which Lessor at any time has knowledge, provided
that Lessor's failure to give any such Notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions, but if Lessee did not otherwise
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have knowledge of such Imposition sufficient to permit it to pay same, such
failure shall obviate any default hereunder for a reasonable time after Lessee
receives Notice of any Imposition which it is obligated to pay during the first
taxing period applicable thereto.
4.3. Adjustment of Impositions.
Impositions payable by Lessee which are imposed in respect of
the tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof after termination shall survive such termination.
4.4. Utility Charges.
Lessee will be solely responsible for obtaining and
maintaining utility services to the Leased Property and will pay or cause to be
paid all charges for electricity, gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.
ARTICLE
5
5.1. No Termination, Abatement, etc.
Except as otherwise specifically provided in this Lease,
Lessee, to the extent permitted by law, shall remain bound by this Lease in
accordance with its terms and shall neither take any action without the written
consent of Lessor to modify, surrender or terminate the same, nor seek nor be
entitled to any abatement, deduction, deferment or reduction of the Rent, or
setoff against the Rent, nor shall the obligations of Lessee be otherwise
affected by reason of (a) any damage to, or destruction of, any Leased Property
or any portion thereof from whatever cause or any Taking of the Leased Property
or any portion thereof, (b) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (c) for
any other cause whether similar or dissimilar to any of the foregoing other than
a discharge of Lessee from any such obligations as a matter of law. Lessee
hereby specifically waives all rights, arising from any default under this Lease
by Lessor, which may now or hereafter be conferred upon it by law to (1) modify,
surrender or terminate this Lease or quit or surrender the Leased Property or
any portion thereof, or (2) entitle Lessee to any abatement, reduction,
suspension or deferment of or set off against the Rent or other sums payable by
Lessee hereunder, except as otherwise specifically provided in this Lease. The
obligations of Lessee hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Lessee 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 Lease or by
termination of this Lease other than by reason of an Event of Default.
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ARTICLE
6
6.1. Ownership of the Leased Property.
Lessee acknowledges that the Leased Property is the property
of Lessor and that Lessee has only the right to the possession and use of the
Leased Property upon the terms and conditions of this Lease.
6.2. Lessee's Personal Property.
At commencement of the Term, Lessee shall purchase for fair
market value from Lessor or the Contributor of the Leased Property to Lessor all
Inventory at the Leased Property. At all times during the Term, Lessee shall
maintain Inventory consistent with the amount of inventory which is customarily
maintained in a hotel of the type and character of the Facility and is otherwise
required to operate the Leased Property in the manner contemplated by this Lease
and in compliance with the Franchise Agreement and all Legal Requirements. All
Inventory shall be the property of Lessee. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee (collectively, the "Lessee's Personal
Property"). Lessee may, subject to the following sentence of this Section 6.2,
remove any of Lessee's Personal Property at any time during the Term or upon the
expiration or any prior termination of the Term. All of Lessee's Personal
Property not removed by Lessee within 30 days following the expiration or
earlier termination of the Term shall be considered abandoned by Lessee and may
be appropriated, sold, destroyed or otherwise disposed of by Lessor without
first giving Notice thereof to Lessee, without any payment to Lessee and without
any obligation to account therefor. Lessee will, at its expense, restore the
Leased Property to the condition required by Section 9.1(d), including repair of
all damage to the Leased Property caused by the removal of Lessee's Personal
Property, whether effected by Lessee or Lessor.
6.3. Lessor's Lien.
To the fullest extent permitted by applicable law, Lessor is
granted a lien and security interest on all Lessee's Personal Property now or
hereinafter placed in or upon the Leased Property, and such lien and security
interest shall remain attached to such Lessee's Personal Property until payment
in full of all Rent and satisfaction of all of Lessee's obligations hereunder;
provided, however, Lessor shall subordinate its lien and security interest only
to that of any non-Affiliate of Lessee which finances such Lessee's Personal
Property or any non-Affiliate conditional seller of such Lessee's Personal
Property, the terms and conditions of such subordination to be satisfactory to
Lessor in the exercise of reasonable discretion. Lessee shall, upon the request
of Lessor, execute such financing statements or other documents or instruments
reasonably requested by Lessor to perfect the lien and security interests herein
granted.
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ARTICLE
7
7.1. Condition of the Leased Property.
Lessee acknowledges receipt and delivery of possession of the
Leased Property. Lessee has examined and otherwise has knowledge of the
condition of the Leased Property and has found the same to be satisfactory for
its purposes hereunder. Lessee is leasing the Leased Property "as is", "with all
faults", and in its present condition. Except as otherwise specifically provided
herein, Lessee waives any claim or action against Lessor in respect of the
condition of the Leased Property. LESSOR 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 LESSEE.
LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY TO IT. Lessee shall have the right to proceed against any
predecessor in title for breaches of warranties or representations or for latent
defects in the Leased Property, and Lessor shall, if requested by Lessee, assign
any such right to Lessee (other than claims against Affiliates of Lessee). If
either party determines to exercise such right, the other party shall fully
cooperate in the prosecution of any such claim, in Lessor's or Lessee's name,
all at the cost and expense of the prosecuting party, who hereby agrees to
indemnify, defend and hold harmless the other party from and against any claims,
obligations and liabilities against or incurred by such other party in
connection with such cooperation, and who further agrees to apply all amounts
realized from the prosecution of such claim, less its expenses in connection
therewith, to remedy such breach or cure such defect.
7.2. Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due
diligence and will exercise its best efforts to obtain and to maintain all
approvals needed to use and operate the Leased Property and the Facility under
applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property
only as a hotel facility, and for such other uses as may be necessary or
incidental to such use, or such other use as otherwise approved by Lessor (the
"Primary Intended Use"). Lessee shall not use the Leased Property or any portion
thereof for any other use without the prior written consent of Lessor. No use
other than the Primary Intended Use shall be made or permitted to be made of the
Leased Property, and no acts shall be done other than the Primary Intended Use,
which will cause the cancellation or increase the premium of any insurance
policy covering the Leased Property or any part thereof (unless another adequate
policy satisfactory to Lessor is available and Lessee pays any premium
increase), nor shall Lessee sell or permit to be kept, used or sold in or about
the Leased Property any article which is prohibited by law or fire underwriter's
regulations. Lessee shall comply with all of the requirements pertaining to the
Leased Property of any insurance board, association, organization or company
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necessary for the maintenance of insurance, as herein provided, covering the
Leased Property and Lessee's Personal Property, which compliance shall be
performed at Lessee's sole cost.
(c) Subject to the provisions of Articles 14 and 15, Lessee
covenants and agrees that during the Term it will either directly or through an
approved Manager (1) operate continuously the Leased Property as a hotel
facility, (2) keep in full force and effect and comply in all material respects
with all the provisions of the Franchise Agreement, (3) not terminate or amend
in any respect the Franchise Agreement without the consent of Lessor, (4)
maintain appropriate certifications and licenses for such use and (5) keep
Lessor advised of the status of any material litigation affecting the Leased
Property.
(d) Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility, nor shall Lessee cause or
permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property
or any portion thereof, or Lessee's Personal Property, to be used in such a
manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case
may be) title thereto or to any portion thereof, or (2) may reasonably make
possible a claim or claims of adverse usage or adverse possession by the public,
as such, or of implied dedication of the Leased Property or any portion thereof.
(f) Lessee shall comply with all of the Lessor's covenants, in
any loan agreement or other financing arrangement, applicable to this Lease or
the operation of the Leased Property. Notwithstanding the foregoing, Lessee
shall not be obligated to comply with Lessor's covenants in any loan agreements
which (A) (i) are not customary, (ii) are not otherwise contemplated by this
Lease Agreement or any agreement or instrument executed by Lessee in connection
herewith for the benefit of Lessor, and (iii)(x) materially and adversely affect
the operations at the Facility or (y) materially increase Lessee's costs of
doing business or decrease revenues, unless in cases where Subsection (iii)(y)
is relied upon by Lessee the additional cost thereof is borne by Lessor, or (B)
obligate Lessee to guarantee repayment of any debt of Lessor, or (C) require any
indemnification undertakings other than customary undertakings with respect to
servicing agents or similar administrative agents which administer escrow
accounts into which Lessee may deposit Rent payments as required by Lessor's
lenders or other servicing agents. Lessor will provide Lessee with not less than
15, and will attempt in good faith to provide not less than 30, days prior
written notice of the terms of such covenants, and if Lessee is relying upon
Subsection (iii)(y), Lessee shall within five days of receipt of such notice,
notify Lessor in writing of any anticipated material additional costs which
Lessee may incur. Lessor shall then notify Lessee in writing whether it agrees
to pay or reimburse Lessee for the material additional cost thereof as incurred
by Lessee, and Lessee's receipt of such notice shall be a condition precedent to
Lessee's obligation to comply with such covenants. Lessor shall have the right
to dispute Lessee's reliance on Subsections (A)-(C) or Lessee's estimates of
additional costs pursuant to Subsection (A)(iii)(y), and either party may submit
any such disputes to arbitration under the provisions of Section 40.2.
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ARTICLE
8
8.1. Compliance with Legal and Insurance Requirements, etc.
Subject to Section 8.2, 8.3(b) below and Article 12 relating
to permitted contests, Lessee, at its expense, will promptly (a) comply with all
applicable Legal Requirements and Insurance Requirements in respect of the use,
operation, maintenance, repair and restoration of the Leased Property, and (b)
procure, maintain and comply with all appropriate licenses and other
authorizations required for any use of the Leased Property and Lessee's Personal
Property then being made, and for the proper erection, installation, operation
and maintenance of the Leased Property or any part thereof.
8.2. Legal Requirement Covenants.
(a) Subject to Section 8.3(b) below, Lessee covenants and
agrees that the Leased Property and Lessee's Personal Property shall not be used
by anyone other than Lessor for any unlawful purpose, and that Lessee shall use
all commercially reasonable efforts not to permit or suffer to exist any
unlawful use of the Leased Property by others. Lessee shall acquire and maintain
all licenses, certifications, permits and other authorizations and approvals
required to operate the Leased Property in its customary manner for the Primary
Intended Use, and any other lawful use conducted on the Leased Property as may
be permitted from time to time hereunder. Lessee further covenants and agrees
that Lessee's use of the Leased Property and maintenance, alteration, and
operation of the same, and all parts thereof, shall at all times conform to all
Legal Requirements, unless the same are finally determined by a court of
competent jurisdiction to be unlawful (and Lessee shall cause all its
sub-tenants, invitees or others to so comply with all Legal Requirements).
(b) As between Lessor and Lessee, Lessee is solely responsible
for all liabilities or obligations of any kind with respect to employees at the
Leased Property during the Term. Without limiting the generality of the
foregoing sentence, Lessee is solely responsible for any required compliance
with the Worker Adjustment, Retraining and Notification Act of 1988 (WARN) or
any similar state law applicable to the Leased Property; any required compliance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(COBRA); and all alleged and actual obligations and claims arising from or
relating to any employment agreement, collective bargaining agreement or
employee benefit plans, any grievances, arbitrations, or unfair labor practice
charges, and relating to compliance with any applicable state or federal labor
employment law, including but not limited to all laws pertaining to
discrimination, workers' compensation, unemployment compensation, occupational
safety and health, unfair labor practices, family and medical leave, and wages,
hours or employee benefits. Lessee agrees to indemnify and defend and hold
harmless Lessor from and against any claims relating to any of the foregoing
matters. Lessee further agrees to reimburse Lessor for any and all losses,
damages, costs, expenses, liabilities and obligations of any kind, including
without limitation reasonable attorney's fees and other legal costs and
expenses, incurred by Lessor in connection with any of the foregoing matters.
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Notwithstanding the Lessee's obligations under Section 8.1 to obtain
and maintain all permits and licenses required for the use of the Leased
Property, and without limiting any obligations of Lessee hereunder, if (i)
applicable law requires that the owner (rather than a lessee) of a hotel be the
licensee under the required liquor license for the Facility or (ii) the former
owner of the Facility is holding the liquor license and continuing to exercise
management and supervision of the liquor services at the Facility pending
transfer of the license to Lessor or Lessee, the Lessee shall indemnify and hold
the Lessor harmless from any liability, damages or claims (a) arising in
connection with liquor operations at the Facility during such period of time,
except for the Lessor's gross negligence or willful misconduct or (b) made by or
through the former owner with respect to liquor operations at the Facility.
8.3. Environmental Covenants.
Lessor and Lessee (in addition to, and not in diminution of,
Lessee's covenants and undertakings in Sections 8.1 and 8.2 hereof) covenant and
agree as follows:
(a) At all times hereafter until Lessee completely vacates the
Leased Property and surrenders possession of the same to Lessor, Lessee shall
fully comply with all Environmental Laws applicable to the Leased Property and
the operations thereon, except to the extent that such compliance would require
the remediation of Environmental Liabilities for which Lessee has no indemnity
obligations under Section 8.3(b). Lessee agrees to give Lessor prompt written
notice of (1) all Environmental Liabilities; (2) all pending, threatened or
anticipated Proceedings, and all notices, demands, requests or investigations,
relating to any Environmental Liability or relating to the issuance, revocation
or change in any Environmental Authorization required for operation of the
Leased Property; and (3) all Releases at, on, in, under or in any way affecting
the Leased Property, or any Release known by Lessee at, on, in or under any
property adjacent to the Leased Property; in each case as to which it has actual
knowledge.
(b) Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities except to the extent that the same (i) are caused by
the intentionally wrongful acts or grossly negligent failures to act of Lessor,
or (ii) result from Releases or other violations of Environmental Laws
originating on adjacent property but affecting the Leased Property (a
"Migration"), provided that such exclusions shall not apply to the extent that
the Migration has been exacerbated by Lessee's act or negligent failure to act.
(c) Lessor hereby agrees to defend, indemnify and save
harmless any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities to the extent that the same were caused by the
intentionally wrongful acts or grossly negligent failures to act of Lessor.
(d) If any Proceeding is brought against any Indemnified Party
in respect of an Environmental Liability with respect to which such Indemnified
Party may claim indemnification under either Section 8.3(b) or (c), the
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Indemnifying Party, upon request, shall at its sole expense resist and defend
such Proceeding, or cause the same to be resisted and defended by counsel
designated by the Indemnifying Party and approved by the Indemnified Party,
which approval shall not be unreasonably withheld; provided, however, that such
approval shall not be required in the case of defense by counsel designated by
any insurance company undertaking such defense pursuant to any applicable policy
of insurance. Each Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel will be at the sole expense of such
Indemnified Party unless a conflict of interest prevents representation of such
Indemnified Party by the counsel selected by the Indemnifying Party and such
separate counsel has been approved by the Indemnifying Party, which approval
shall not be unreasonably withheld. The Indemnifying Party shall not be liable
for any settlement of any such Proceeding made without its consent, which shall
not be unreasonably withheld, but if settled with the consent of the
Indemnifying Party, or if settled without its consent (if its consent shall be
unreasonably withheld), or if there be a final, nonappealable judgment for an
adversary party in any such Proceeding, the Indemnifying Party shall indemnify
and hold harmless the Indemnified Parties from and against any liabilities
incurred by such Indemnified Parties by reason of such settlement or judgment.
(e) At any time any Indemnified Party has reason to believe
circumstances exist which could reasonably result in an Environmental Liability,
upon reasonable prior written notice to the Lessee and the Lessor stating such
Indemnified Party's basis for such belief, an Indemnified Party shall be given
immediate access to the Leased Property (including, but not limited to, the
right to enter upon, investigate, drill wells, take soil borings, excavate,
monitor, test, cap and use available land for the testing of remedial
technologies), Manager and Lessee's or Manager's employees, and to all relevant
documents and records regarding the matter as to which a responsibility,
liability or obligation is asserted or which is the subject of any Proceeding;
provided that such access may be conditioned or restricted as may be reasonably
necessary to ensure compliance with law and the safety of personnel and
facilities or to protect confidential or privileged information. All Indemnified
Parties requesting such immediate access and cooperation shall endeavor to
coordinate such efforts to result in as minimal interruption of the operation of
the Leased Property as practicable.
(f) The indemnification rights and obligations provided for in
this Article 8 shall be in addition to any indemnification rights and
obligations provided for elsewhere in this Lease, provided that in the event of
a conflict between the provisions of this Section 8.3 and Article 20, the
provisions of this Section 8.3 shall control.
(g) The indemnification rights and obligations provided for in
this Article 8 shall survive the termination of this Lease.
For purposes of this Section 8.3, all amounts for which any
Indemnified Party seeks indemnification shall be computed net of (a) any actual
income tax benefit resulting therefrom to such Indemnified Party, (b) any
insurance proceeds received (net of tax effects) with respect thereto, and (c)
any amounts recovered (net of tax effects) from any third parties based on
claims the Indemnified Party has against such third parties which reduce the
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damages that would otherwise be sustained; provided that in all cases, the
timing of the receipt or realization of insurance proceeds or income tax
benefits or recoveries from third parties shall be taken into account in
determining the amount of reduction of damages. Each Indemnified Party agrees to
use its reasonable efforts to pursue, or assign to Lessee or Lessor, as the case
may be, any claims or rights it may have against any third party which would
materially reduce the amount of damages otherwise incurred by such Indemnified
Party.
ARTICLE
9
9.1. Maintenance and Repair; Capital Expenditures.
(a) Lessee will keep the Leased Property and all private
roadways, sidewalks and curbs appurtenant thereto that are under Lessee's
control, including windows and plate glass, parking lots, HVAC, mechanical,
electrical and plumbing systems and equipment (including conduit and ductwork),
and non-load bearing interior walls, in good order and repair, except for
ordinary wear and tear (whether or not the need for such repairs occurred as a
result of Lessee's use, any prior use, the elements or the age of the Leased
Property, or any portion thereof but subject to the obligation to make necessary
and appropriate repairs and replacements as provided in this Section 9.1(a)),
and, except as otherwise provided in Article 14 or Article 15, with reasonable
promptness, make all necessary and appropriate repairs, replacements and
improvements 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 of this Lease
(concealed or otherwise), or required by any governmental agency having
jurisdiction over the Leased Property. Lessee, however, shall be permitted to
prosecute claims against Lessor's predecessors in title for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action, the taking or omission of which might materially impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use.. If Lessee fails to make any required repairs or replacements
after 30 days notice from Lessor, or after such longer period as may be
reasonably required provided that Lessee at all times diligently proceeds with
such repair or replacement, then Lessor shall have the right, but shall not be
obligated, to make such repairs or replacements on behalf of and for the account
of Lessee. In such event, such work shall be paid for in full by Lessee as
Additional Charges.
(b) Subject to Lessor's obligation to make available to the
Lessee amounts for Capital Expenditures as set forth in Article 38, Lessee shall
be required to make all Capital Expenditures required in connection with (i)
Emergency Situations, (ii) Legal Requirements, (iii) maintenance of the
Franchise Agreement, (iv) the performance by Lessee of its obligations under
this Lease, and (v) other additions to the Leased Property as it may reasonably
deem appropriate and that are permitted hereunder during the Term. Lessee hereby
waives, to the extent permitted by law, the right to make repairs at the expense
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of Lessor pursuant to any law in effect at the time of the execution of this
Lease or hereafter enacted. Lessor shall have the right to give, record and
post, as appropriate, notices of non-responsibility under any mechanic's lien
laws now or hereafter existing.
(c) Nothing contained in this Lease and no action or inaction
by Lessor shall be construed as (1) constituting the request of Lessor,
expressed or implied, to any contractor, subcontractor, laborer, materialman or
vendor to or for the performance of any labor or services or the furnishing of
any materials or other property for the construction, alteration, addition,
repair or demolition of or to the Leased Property or any part thereof, or (2)
giving Lessee any right, power or permission to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against Lessor
in respect thereof or to make any agreement that may create, or in any way be
the basis for any right, title, interest, lien, claim or other encumbrance upon
the estate of Lessor in the Leased Property, or any portion thereof.
(d) Lessee will, upon the expiration or prior termination of
the Term, vacate and surrender the Leased Property to Lessor in the condition in
which the Leased Property was originally received from Lessor, except as
repaired, rebuilt, restored, altered or added to as permitted or required by the
provisions of this Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and repair in
accordance with Section 9.1(a) above, as would a prudent owner of comparable
property, during the entire Term) or damage by casualty or Condemnation (subject
to the obligation of Lessee to restore or repair as set forth in this Lease.)
9.2. Encroachments, Restrictions, Etc.
If any of the Leased Improvements, at any time, materially
encroach upon any property, street or right of way adjacent to a Leased
Property, or violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting a Leased Property, or any part
thereof, or impair the rights of others under any easement or right of way to
which said Leased Property is subject, then promptly upon the request of Lessor
or at the behest of any person affected by any such encroachment, violation or
impairment, Lessee shall, at its expense, subject to its right to contest the
existence of any encroachment, violation or impairment and, in such case, in the
event of an adverse final determination, either (a) obtain valid and effective
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation or impairment, whether the same shall affect
Lessor or Lessee or (b) make such changes in the Leased Improvements, and take
such other actions, as Lessee in the good faith exercise of its judgment deems
reasonably practicable to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation, impairment
or encroachment. Any such alteration shall be made in conformity with the
applicable requirements of Article 10. Lessee's obligations under this Section
9.2 shall be in addition to and shall in no way discharge or diminish any
obligation of any insurer under any policy of title or other insurance held by
Lessor.
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ARTICLE
10
10.1. Alterations.
After first obtaining the written approval of Lessor, which
shall not be unreasonably withheld, Lessee shall have the right, but not the
obligation, to make such additions, modifications or improvements to the Leased
Property from time to time as Lessee deems desirable for its permitted uses and
purposes, provided that such action will not alter the character or purposes of
the Leased Property or detract from the value or operating efficiency thereof
and will not impair the revenue-producing capability of the Leased Property or
adversely affect the ability of the Lessee to comply with the provisions of this
Lease. All such work shall be performed in a first class manner in accordance
with all applicable governmental rules and regulations and after receipt of all
required permits and licenses. The cost of such additions, modifications or
improvements to the Leased Property shall be paid by Lessee, and all such
additions, modifications and improvements shall, without payment by Lessor at
any time, be included under the terms of this Lease and upon expiration or
earlier termination of this Lease shall pass to and become the property of
Lessor.
10.2. Salvage.
All materials which are scrapped or removed in connection with
the making of repairs required by Articles 9 or 10 shall be or become the
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work.
10.3. Lessor Alterations.
Lessor shall have the right, but not the obligation, to make
such other additions to the Leased Property as it may reasonably deem
appropriate during the Term, subject to the Lessee's approval which shall not be
unreasonably withheld. All such work shall be done after reasonable notice to
and coordination with Lessee, so as to minimize any disruptions or interference
with the operation of the Facility.
ARTICLE
11
11.1. Liens.
Subject to the provision of Article 12 relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property resulting from the action
or inaction of Lessee, or any attachment, levy, claim or encumbrance in respect
of the Rent, excluding, however, (a) this Lease, (b) the matters, if any,
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included as exceptions or insured against in the title policy insuring Lessor's
interest in the Leased Property,(c) restrictions, liens and other encumbrances
which are consented to in writing by Lessor, (d) liens for those taxes which
Lessee is not required to pay hereunder, (e) subleases permitted by Article 21
hereof, (f) liens for Impositions or for sums resulting from noncompliance with
Legal Requirements so long as (1) the same are not yet delinquent or (2) such
liens are in the process of being contested as permitted by Article 12, (g)
liens of mechanics, laborers, suppliers or vendors for sums either disputed or
not yet due provided that any such liens for disputed sums are in the process of
being contested as permitted by Article 12 hereof, and (h) any liens which are
the responsibility of Lessor pursuant to the provisions of Article 32 of this
Lease.
ARTICLE
12
12.1. Permitted Contests.
Lessee shall have the right to contest the amount or validity
of any Imposition to be paid by Lessee or any Legal Requirement or any lien,
attachment, levy, encumbrance, charge or claim (any such Imposition, Legal
Requirement, lien, attachment, levy, encumbrance, charge or claim herein
referred to as "Claims") not otherwise permitted by Article 11, by appropriate
legal proceedings in good faith and with due diligence (but this shall not be
deemed or construed in any way to relieve, modify or extend Lessee's covenants
to pay or its covenants to cause to be paid any such charges at the time and in
the manner as in this Article provided), on condition, however, that such legal
proceedings shall not operate to relieve Lessee from its obligations hereunder
and shall not cause the sale or risk the loss of any portion of the Leased
Property, or any part thereof, or cause Lessor or Lessee to be in default under
any mortgage, deed of trust, security deed or other agreement encumbering the
Leased Property or any interest therein. Upon the request of Lessor, Lessee
shall either (a) provide a bond or other assurance reasonably satisfactory to
Lessor that all Claims which may be assessed against the Leased Property
together with interest and penalties, if any, thereon and legal fees anticipated
to be incurred in connection therewith will be paid, or (b) deposit within the
time otherwise required for payment with a bank or trust company as trustee upon
terms reasonably satisfactory to Lessor, as security for the payment of such
Claims, money in an amount sufficient to pay the same, together with interest
and penalties thereon and legal fees anticipated to be incurred in connection
therewith, as to all Claims which may be assessed against or become a Claim on
the Leased Property, or any part thereof, in said legal proceedings. Lessee
shall furnish Lessor and any lender of Lessor with reasonable evidence of such
deposit within five days of the same. Lessor agrees to join in any such
proceedings if the same be required to legally prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability for the payment of any costs or expenses in
connection with any proceedings brought by Lessee; and Lessee covenants to
indemnify and save harmless Lessor from any such costs or expenses. Lessee shall
be entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and for which
Lessor has been fully reimbursed. In the event that Lessee fails to pay any
Claims when due or to provide the security therefor as provided in this
paragraph and to diligently prosecute any contest of the same, Lessor may, upon
ten days advance Notice to Lessee, pay such charges together with any interest
and penalties and the same shall be repayable by Lessee to Lessor as Additional
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Charges at the next Payment Date provided for in this Lease. Provided, however,
that should Lessor reasonably determine that the giving of such Notice would
risk loss to the Leased Property or cause damage to Lessor, then Lessor shall
only give such Notice as is practical under the circumstances. Lessor reserves
the right to contest any of the Claims at its expense not pursued by Lessee.
Lessor and Lessee agree to cooperate in coordinating the contest of any Claims.
ARTICLE
13
13.1. General Insurance Requirements.
(a) Coverages. During the Term of this Lease, the Leased
Property shall at all times be insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized to
issue insurance in the State. The policies must name the Lessor as an additional
named insured, and the Manager shall also be named as an additional insured
under the coverages described in Sections 13.1(a) (iv) through (xi). Losses
shall be payable to Lessor or Lessee as provided in this Lease. Any loss
adjustment for coverages insuring both parties shall require the written consent
of Lessor and Lessee, each acting reasonably and in good faith. Evidence of
insurance shall be deposited with Lessor. The policies on the Leased Property,
including the Leased Improvements, Fixtures and Lessee's Personal Property,
shall satisfy the requirements of the Franchise Agreement and of any ground
lease, mortgage, security agreement or other financing lien affecting the Leased
Property and at a minimum shall include:
(i) Building insurance on the "Special Form" (formerly
"All Risk" form) (including earthquake and flood in reasonable amounts
if and as determined by Lessor, in the exercise of its reasonable
discretion, or Lessor's underwriters or lenders) in an amount not less
than 100% of the then full replacement cost thereof (as defined in
Section 13.2) or such other amount which is acceptable to Lessor, and
personal property insurance on the "Special Form" in the full amount of
the replacement cost thereof;
(ii) Insurance for loss or damage (direct and indirect)
from steam boilers, pressure vessels or similar apparatus, air
conditioning systems, piping and machinery, and sprinklers, if any, now
or hereafter installed in the Facility, in the minimum amount of
$5,000,000 or in such greater amounts as are then customary or as may
be reasonably requested by Lessor from time to time;
(iii) Loss of income insurance on the "Special Form", in
the amount of 18 months of the sum of [Initial Fixe Rent or] Base Rent
plus Percentage Rent (based on the last Lease Year of operation or,
to the extent the Leased Property has not been operated for an entire
18-month Lease Year, based on prorated Percentage Rent) for the
benefit of Lessor, and business interruption insurance on the "Special
Form" in the amount of 18 months of gross profit, for the benefit of
Lessee;
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(iv) Commercial general liability insurance, with amounts
not less than $1,000,000 combined single limit for each occurrence and
$2,000,000 for the aggregate of all occurrences within each policy
year, as well as excess liability (umbrella) insurance with limits of
at least $50,000,000 per occurrence, covering each of the following:
bodily injury, death, or property damage liability per occurrence,
personal and advertising injury, general aggregate, products and
completed operations, with respect to Lessor, and "all risk legal
liability" (including liquor law or "dram shop" liability, if liquor or
alcoholic beverages are served on the Leased Property) with respect to
Lessor and Lessee;
(v) Fidelity bonds or blanket crime policies with limits
and deductibles as may be reasonably determined by Lessor, covering
Lessee's and/or Manager's employees in job classifications normally
bonded under prudent hotel management practices in the United States or
otherwise required by law;
(vi) Workers' compensation insurance to the extent
necessary to protect Lessor, Lessee and the Leased Property against
Lessee's and/or Manager's workman's compensation claims to the extent
required by applicable state laws;
(vii) Comprehensive form vehicle liability insurance for
owned, non-owned, and hired vehicles, in the amount of $1,000,000;
(viii) Garagekeeper's legal liability insurance covering
both comprehensive and collision-type losses with a limit of liability
of $3,000,000 for any one occurrence, of which coverage in excess of
$1,000,000 may be provided by way of an excess liability policy;
(ix) Innkeeper's legal liability insurance covering
property of guests while on the Leased Property for which Lessor is
legally responsible with a limit of not less than $2,000 per guest and
$50,000 in any one occurrence or $25,000 annual aggregate;
(x) Safe deposit box legal liability insurance covering
property of guests while in a safe deposit box on the Leased Property
for which Lessor is legally responsible with a limit of not less than
$50,000 in any one occurrence; and
(xi) Insurance covering such other hazards (such as plate
glass or other common risks) and in such amounts as may be (A) required
by a Holder, or (B) customary for comparable properties in the area of
the Leased Property and is available from insurance companies,
insurance pools or other appropriate companies authorized to do
business in the State at rates which are economically practicable in
relation to the risks covered as may be reasonably determined by
Lessor.
(b) Responsibility for Insurance. Lessor shall obtain the
insurance and pay the premiums for the coverages described in Section 13.1(a)(i)
- - (iii) above (excluding the business interruption insurance for the benefit of
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the Lessee in Section 13.1(a)(iii)). Lessee shall obtain the insurance and pay
the premiums for the coverages described in Section 13.1(a)(iii) - (xi) above
(excluding the loss of income insurance for the benefit of the Lessor in Section
13.1(a)(iii)). The Lessee shall also be responsible for any and all deductibles
in connection with such coverages. In the event that Lessor can obtain
comparable insurance coverage required to be carried by Lessee from comparable
insurers and at a cost significantly less than that at which Lessee can obtain
such coverage, the parties shall cooperate in good faith to obtain such coverage
at the lower cost and the Lessee shall pay the premiums therefor.
13.2. Replacement Cost.
The term "full replacement cost" as used herein shall mean the
actual replacement cost of the Leased Property requiring replacement from time
to time including an increased cost of construction endorsement, if available,
and the cost of debris removal. In the event either party believes that full
replacement cost has increased or decreased at any time during the Term, it
shall have the right to have such full replacement cost redetermined.
13.3. (Intentionally omitted)
13.4. Waiver of Subrogation.
All insurance policies covering the Leased Property, the
Fixtures, the Facility or Lessee's Personal Property, including, without
limitation, contents, fire and casualty insurance, shall expressly waive any
right of subrogation on the part of the insurer against the other party. Each
party agrees to seek recovery from any applicable insurance coverage prior to
seeking recovery against the other party.
13.4. Form Satisfactory, etc.
All of the policies of insurance referred to in this Article
13 that are the responsibility of the Lessee shall be written in a form, with
deductibles and by insurance companies satisfactory to Lessor and shall satisfy
the requirements of any ground lease, mortgage, security agreement or other
financing lien on the Leased Property and of the Franchise Agreement. The Lessee
shall pay all of the premiums therefor, and deliver copies of such policies or
certificates thereof to the Lessor prior to their effective date (and, with
respect to any renewal policy, 30 days prior to the expiration of the existing
policy), and in the event of the failure of the Lessee either to effect such
insurance as herein called for or to pay the premiums therefor, or to deliver
such policies or certificates thereof to the Lessor at the times required, the
Lessor shall be entitled, but shall have no obligation, after 10 days' Notice to
Lessee (or after less than 10 days' Notice if required to prevent the expiration
of any existing policy), to effect such insurance and pay the premiums therefor,
and to be reimbursed by Lessee for any such premiums upon written demand
therefor. Each insurer mentioned in this Article 13 shall agree, by endorsement
to the policy or policies issued by it, or by independent instrument furnished
to the Lessor that it will give to Lessor 30 days' written notice before the
policy or policies in question shall be materially altered, allowed to expire or
canceled.
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13.6. Increase in Limits.
If either Lessor or Lessee at any time deems the limits of the
personal injury or property damage under the comprehensive public liability
insurance then carried to be either excessive or insufficient, Lessor and Lessee
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. If the parties fail to agree on such limits, the matter shall be
referred to arbitration as provided for in Section 40.2.
13.7. Blanket Policy.
Notwithstanding anything to the contrary contained in this
Article 13, Lessee may bring the insurance provided for herein within the
coverage of a so-called blanket policy or policies of insurance carried and
maintained by Lessee; provided, however, that the coverage afforded to Lessor
and Lessee will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all other requirements of this
Lease by reason of the use of such blanket policy of insurance, and provided
further that the requirements of this Article 13 are otherwise satisfied.
13.8. Separate Insurance.
Neither Lessor nor Lessee shall on its own initiative or
pursuant to the request or requirement of any third party, take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article to be furnished, or increase the amount of any then
existing insurance by securing an additional policy or additional policies,
unless all parties having an insurable interest in the subject matter of the
insurance, including in all cases Lessor, are included therein as additional
insureds, and the loss is payable under such additional separate insurance in
the same manner as losses are payable under this Lease. Each party shall
immediately notify the other party that it has obtained any such separate
insurance or of the increasing of any of the amounts of the then existing
insurance.
13.9. Reports On Insurance Claims.
Lessee shall promptly investigate and make a complete and
timely written report to the appropriate insurance company as to all accidents,
all claims for damage relating to the ownership, operation, and maintenance of
the Facility, and any damage or destruction to the Facility and the estimated
cost of repair thereof and shall prepare any and all reports required by any
insurance company in connection therewith. All such reports shall be timely
filed with the insurance company as required under the terms of the insurance
policy involved, and a copy of all such reports shall be furnished to Lessor.
Lessee shall be authorized to adjust, settle or compromise any insurable loss,
or to execute proofs of such losses, in the aggregate, of $10,000 or less, with
respect to any single casualty or other event.
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ARTICLE
14
14.1. Insurance Proceeds.
Subject to the provision of Section 13.9, all proceeds of the
insurance contemplated by Sections 13.1(a) (i) and (ii) 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 13 of this Lease shall be paid to
Lessor and held in trust in an interest bearing account and made available, if
applicable, for reconstruction or repair, as the case may be, of any damage to
or destruction of the Leased Property or any portion thereof, and, if
applicable, shall be paid out by Lessor from time to time for the reasonable
costs of such reconstruction or repair upon satisfaction of reasonable terms and
conditions specified by Lessor. Any excess proceeds of insurance remaining after
the completion of the restoration or reconstruction of the Leased Property shall
be paid to Lessor. If neither Lessor nor Lessee is required or elects to repair
and restore, and the Lease is terminated as described in Section 14.2, all such
insurance proceeds shall be retained by Lessor except for any amount thereof
paid with respect to Lessee's Personal Property. All salvage resulting from any
risk covered by insurance shall belong to Lessor, except to the extent of
salvage relating to Lessee's Personal Property.
14.2. Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) If during the Term the Leased Property is totally or
partially destroyed by a risk covered by the insurance described in Article 13
and the Facility thereby is rendered Unsuitable for its Primary Intended Use,
the Lease shall terminate as of the date of the casualty and neither Lessor nor
Lessee shall have any further liability hereunder except for any liabilities
which have arisen prior to or which survive such termination, and Lessor shall
be entitled to retain all insurance proceeds except for any amount thereof paid
with respect to Lessee's Personal Property.
(b) If during the Term the Leased Property is partially
destroyed by a risk covered by the insurance described in Article 13, but the
Facility is not thereby rendered Unsuitable for its Primary Intended Use, Lessor
or, at the election of Lessor, Lessee shall restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease. Such damage
or destruction shall not terminate this Lease. If Lessee restores the Facility,
the insurance proceeds shall be paid out by Lessor from time to time for the
reasonable costs of such restoration upon satisfaction of terms and conditions
specified by Lessor, and any excess proceeds remaining after such restoration
shall be paid to Lessor except for any amount thereof paid with respect to
Lessee's Personal Property.
(c) If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessor from the insurance required under Article
13, Lessor shall agree to contribute any excess amounts needed to restore the
Facility prior to requiring Lessee to commence such work. Such difference shall
be made available by Lessor, together with any other insurance proceeds, for
application to the cost of repair and restoration in accordance with the
provisions of Section 14.2(b).
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14.3. Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance or When Holder Will Not Release
Insurance Proceeds.
If during the Term the Facility is totally or materially
damaged or destroyed by a risk not covered by the insurance described in Article
13, or, notwithstanding the provisions of Section 14.2(b), if the Holder will
not make the proceeds of such insurance available to Lessor for restoration of
the Facility, whether or not in either event such damage or destruction renders
the Facility Unsuitable for its Primary Intended Use, Lessor, at its option,
shall either, (a) at Lessor's sole cost and expense, restore the Facility to
substantially the same condition it was in immediately before such damage or
destruction and such damage or destruction shall not terminate this Lease, or
(b) terminate the Lease and neither Lessor nor Lessee shall have any further
liability thereunder except for any liabilities which have arisen or occurred
prior to such termination and those which expressly survive termination of this
Lease. If such damage or destruction is determined by Lessor not to be material,
Lessor may, at Lessor's sole cost and expense, restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease, and such
damage or destruction shall not terminate the Lease.
14.4. Lessee's Property and Business Interruption Insurance.
All insurance proceeds payable by reason of any loss of or
damage to any of Lessee's Personal Property and the business interruption
insurance maintained for the benefit of Lessee shall be paid to Lessee;
provided, however, no such payments shall diminish or reduce the insurance
payments otherwise payable to or for the benefit of Lessor hereunder.
14.5. Abatement of Rent.
Any damage or destruction due to casualty notwithstanding, and
provided the Lease has not otherwise been terminated, this Lease shall remain in
full force and effect and Lessee's obligation to pay Rent required by this Lease
shall remain unabated by any damage or destruction which does not result in a
reduction of Gross Revenues. If and to the extent that any damage or destruction
results in a reduction of Gross Revenues which would otherwise be realizable
from the operation of the Facility, then Lessor shall receive all loss of income
insurance and Lessee shall have no obligation to pay Rent in excess of the
amount of Percentage Rent, if any, realizable from Gross Revenues generated by
the operation of the Leased Property during the existence of such damage or
destruction.
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ARTICLE
15
15.1. Definition.
(a) "Condemnation" means a Taking resulting from (1) the
exercise of any governmental power, whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending.
(b) "Date of Taking" means the date the Condemnor has the
right to possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
15.2. Parties' Rights and Obligations.
If during the Term there is any Condemnation of all or any
part of the Leased Property or any interest in this Lease, the rights and
obligations of Lessor and Lessee shall be determined by this Article 15.
15.3. Total Taking.
If title to the fee of the whole of the Leased Property is
condemned by any Condemnor, this Lease shall cease and terminate as of the Date
of Taking by the Condemnor. If title to the fee of less than the whole of the
Leased Property is so taken or condemned, which nevertheless renders the Leased
Property Unsuitable for its Primary Intended Use or Uneconomic for its Primary
Intended Use, then either Lessee or Lessor shall have the option, by notice to
the other, at any time prior to the Date of Taking, to terminate this Lease as
of the Date of Taking. Upon such date, if such Notice has been given, this Lease
shall thereupon cease and terminate. All Base Rent, Percentage Rent and
Additional Charges paid or payable by Lessee hereunder shall be apportioned as
of the Date of Taking, and Lessee shall promptly pay Lessor such amounts.
15.4. Allocation of Award.
The total Award made with respect to the Leased Property or
for loss of rent, or for Lessor's loss of business beyond the Term, shall be
solely the property of and payable to Lessor. Any Award made for loss of
Lessee's business during the remaining Term, if any, for the taking of Lessee's
Personal Property, or for removal and relocation expenses of Lessee in any such
proceedings shall be the sole property of and payable to Lessee. In any
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Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, neither
Lessor nor Lessee shall initiate, prosecute or acquiesce in any proceedings that
may result in a diminution of any Award payable to the other.
15.5. Partial Taking.
(a) If title to less than the whole of the Leased Property is
condemned, and the Leased Property is not Unsuitable for its Primary Intended
Use or Uneconomic for its Primary Intended Use, or if Lessor is entitled but
elects not to terminate this Lease as provided in Section 15.3, then Lessor or,
at Lessor's election, Lessee shall, with all reasonable dispatch and to the
extent that the Holder permits the application of the Award therefor and the
Award is sufficient therefor, restore the untaken portion of any Leased
Improvements so that such Leased Improvements constitute a complete
architectural unit of the same general character and condition (as nearly as may
be possible under the circumstances) as the Leased Improvements existing
immediately prior to the Condemnation. Lessor and Lessee shall each contribute
to the cost of restoration that part of its Award specifically allocated to such
restoration, if any, together with severance and other damages awarded for the
taken Leased Improvements; provided, however, that the amount of such
contribution shall not exceed such cost.
(b) In the event of a partial Taking as described in Section
15.5(a), which does not result in a termination of this Lease by Lessor, the
Base Rent shall be abated in the manner and to the extent that is fair, just and
equitable to both Lessee and Lessor, taking into consideration, among other
relevant factors, the number of usable rooms, the amount of square footage, or
the revenues affected by such partial Taking. If Lessor and Lessee are unable to
agree upon the amount of such abatement within 30 days after such partial
Taking, the matter shall be submitted to Arbitration as provided for in Section
40.2 hereof.
15.6. Temporary Taking.
If the whole or any part of the Leased Property or of Lessee's
interest under this Lease is condemned by any Condemnor for its temporary use or
occupancy, this Lease shall not terminate by reason thereof, and Lessee shall
continue to pay, in the manner and at the times herein specified, the full
amounts of Base Rent and Additional Charges, but only to the extent of the Award
made to Lessee for such Condemnation allocable to the Term. In addition, to the
extent of the remaining balance, if any, of the Award made for such Condemnation
allocable to the Term (after payment of Base Rent and Additional Charges),
Lessee shall pay Percentage Rent at a rate equal to the average Percentage Rent
during the last three preceding full Lease Years (or if three full Lease Years
shall not have elapsed, the average during the preceding full Lease Years).
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Except only to the extent that Lessee may be prevented from so doing pursuant to
the terms of the order of the Condemnor, Lessee shall continue to perform and
observe all of the other terms, covenants, conditions and obligations hereof on
the part of the Lessee to be performed and observed, as though such Condemnation
had not occurred. In the event of any Condemnation as in this Section 15.6
described, the entire amount of any Award made for such Condemnation allocable
to the Term of this Lease, whether paid by way of damages, rent or otherwise,
shall be paid to Lessee. Lessee covenants that upon the termination of any such
period of temporary use or occupancy it will, to the extent that its Award is
sufficient therefor and subject to Lessor's contribution as set forth below,
restore the Leased Property as nearly as may be reasonably possible to the
condition in which the same was immediately prior to such Condemnation, unless
such period of temporary use or occupancy extends beyond the expiration of the
Term, in which case Lessee shall not be required to make such restoration. If
restoration is required hereunder, Lessor shall contribute to the cost of such
restoration that portion of its entire Award that is specifically allocated to
such restoration in the judgment or order of the court, if any.
ARTICLE
16
16.1. Events of Default.
Any one or more of the following events shall constitute an
Event of Default hereunder:
(a) if Lessee fails to make any payment of Base Rent or
Percentage Rent or Additional Charges within ten days after the same has become
due and payable; or
(b) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not curable, or if
curable is not cured by Lessee within a period of 30 days after receipt by the
Lessee of Notice thereof from Lessor, unless such failure is curable but cannot
with due diligence be cured within a period of 30 days, in which case it shall
not be deemed an Event of Default if (i) Lessee, within such 30 day period,
proceeds with due diligence to cure the failure and thereafter diligently
completes the curing thereof within 120 days of Lessor's Notice to Lessee and
(ii) the failure does not result in a notice or declaration of default under any
material contract or agreement to which Lessor, the Company, or any Affiliate of
either of them is a party or by which any of their assets are bound; or
(c) if Lessee or Manager shall (i) be generally not paying its
debts as they become due, (ii) file, or consent by answer or otherwise to the
filing against it of, 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, (iii) make an assignment for
the benefit of its creditors, (iv) consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its assets, (v) be adjudicated insolvent
or (vi) 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 Lessee, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to 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 Lessee, or if any petition for any
such relief shall be filed against Lessee and such petition shall not be
dismissed within 60 days; or
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(d) if Lessee or Manager is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner, ceases to
do business or permits the sale or divestiture of substantially all of its
assets; or
(e) if the estate or interest of Lessee in the Leased Property
or any part thereof is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in any Proceeding (for purposes of this
Section 16.1(e), a Change of Control shall constitute an assignment of this
Lease); or
(f) if, except as a result of and to the extent required by
damage, destruction or Condemnation, Lessee ceases operations on the Leased
Property; or
(g) if the Franchise Agreement with respect to the
Facility on the Leased Property is terminted by the franchisor as a result of
any action or failure to act by the Lessee or its agents, other than the failure
to complete improvement required by the franchisor because the Lessor fails to
pay the costs of such improvements; or
(h) if an Event of Default occurs under any of the Other
Leases.
If litigation or arbitration is commenced with respect to any
alleged default under this Lease, the prevailing party in such litigation shall
receive, in addition to its damages incurred, such sum as the court shall
determine as its reasonable attorneys' fees, and all costs and expenses incurred
in connection therewith.
16.2. Remedies.
Upon the occurrence of an Event of Default, Lessor shall have the
right, at Lessor's option, to elect to do any one or more of the following
without further notice or demand to Lessee: (a) terminate this Lease, in which
event Lessee shall immediately surrender the Leased Property to Lessor, and, if
Lessee fails to so surrender, Lessor shall have the right, without notice, to
enter upon and take possession of the Leased Property and to expel or remove
Lessee and its effects without being liable for prosecution or any claim for
damages therefor; and Lessee shall, and hereby agrees to, indemnify Lessor for
all loss and damage which Lessor suffers by reason of such termination,
including without limitation, damages in an amount equal to the total of (1) the
reasonable costs of recovering the Leased Property in the event that Lessee does
not promptly surrender the Leased Property, and all other reasonable expenses
incurred by Lessor in connection with Lessee's default; and (2) the unpaid Rent
earned as of the date of termination, plus interest at the Overdue Rate accruing
after the due date; (3) the total Rent (including Percentage Rent as determined
below) which Lessor would have received under this Lease for the remainder of
the Term, but discounted to the then present value at a rate of 12% per annum,
less the fair market rental value of the balance of the Term as of the time of
such default discounted to the then present value at a rate of 12% per annum;
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and (4) all other sums of money and damages owing by Lessee to Lessor; or (b)
enter upon and take possession of the Leased Property without terminating this
Lease and without being liable to prosecution or any claim for damages therefor,
and, if Lessor elects, relet the Leased Property on such terms as Lessor deems
advisable, in which event Lessee shall pay to Lessor on demand the reasonable
cost of repossessing the Leased Property and any deficiency between the Rent
payable hereunder (including Percentage Rent as determined below) and the rent
paid under such reletting; provided, however, that Lessee shall not be entitled
to any excess payments received by Lessor from such reletting (Lessor's failure
to relet the Leased Property shall not release or affect Lessee's liability for
Rent or for damages); or (c) enter the Leased Property without terminating this
Lease and without being liable for prosecution or any claim for damages therefor
and maintain the Leased Property and repair or replace any damage thereto or do
anything for which Lessee is responsible hereunder. Lessee shall reimburse
Lessor immediately upon demand for any expense which Lessor incurs in thus
effecting Lessee's compliance under this Lease, and Lessor shall not be liable
to Lessee for any damages with respect thereto. Notwithstanding anything herein
to the contrary, Lessee shall not be liable to Lessor for consequential,
punitive or exemplary damages.
The rights granted to Lessor in this Section 16.2 shall be
cumulative of every other right or remedy provided in this Lease or which Lessor
may otherwise have at law or in equity or by statute, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies or constitute a forfeiture or
waiver of Rent or damages accruing to Lessor by reason of any Event of Default
under this Lease.
Percentage Rent for the purposes of this Section 16.2 shall be
a sum equal to (i) the average of the annual amounts of the Percentage Rent for
the three full Lease Years immediately preceding the Lease Year in which the
termination, re-entry or repossession takes place, or (ii) if three full Lease
Years shall not have elapsed, the average of the Percentage Rent during the
preceding full Lease Years during which the Lease was in effect, or (iii) if one
full Lease Year has not elapsed, the amount derived by annualizing the
Percentage Rent from the effective date of this Lease.
16.3. Waiver.
Each party waives, to the extent permitted by applicable law,
any right to a trial by jury in any proceedings brought by either party to
enforce the provisions of this Lease, including, without limitation, proceedings
to enforce the remedies set forth in this Article 16, and Lessee waives the
benefit of any laws now or hereafter in force exempting property from liability
for rent or for debt. Lessor waives any right to "pierce the corporate veil" of
Lessee other than to the extent funds shall have been paid to any Affiliate of
Lessee following a default leading to any Event of Default, and then only to the
extent of such payments.
16.4. Application of Funds.
Any payments received by Lessor under any of the provisions of
this Lease during the existence or continuance of any Event of Default shall be
applied to Lessee's obligations in the order that Lessor may determine or as may
be prescribed by the laws of the State.
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ARTICLE
17
17.1. Lessor's Right to Cure Lessee's Default.
If Lessee fails to make any payment or to perform any act
required to be made or performed under this Lease including, without limitation,
Lessee's failure to comply with the terms of any Franchise Agreement, and fails
to cure the same within the relevant time periods provided in Section 16.1,
Lessor, without waiving or releasing any obligation of Lessee, and without
waiving or releasing any obligation or default, may (but shall be under no
obligation to) at any time thereafter upon Notice to Lessee make such payment or
perform such act for the account and at the expense of Lessee, and may, to the
extent permitted by law, enter upon the Leased Property for such purpose and,
subject to Section 16.2, take all such action thereon as, in Lessor's opinion,
may be necessary or appropriate therefor. No such entry shall be deemed an
eviction of Lessee. All sums so paid by Lessor and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, in each
case to the extent permitted by law) so incurred, together with a late charge
thereon (to the extent permitted by law) at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Lessor, shall be paid by
Lessee to Lessor on demand. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier termination of
this Lease.
ARTICLE
18
18.1. Personal Property Limitation.
(a) Anything contained in this Lease to the contrary
notwithstanding, the average of the adjusted tax bases of the items of Lessor's
personal property that are leased to Lessee under this Lease 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 real and personal property contained in the
Leased Property at the beginning and at the end of such Lease Year (the
"Personal Property Limitation"). If Lessor reasonably anticipates that the
Personal Property Limitation will be exceeded with respect to the Leased
Property for any Lease Year, Lessor shall notify Lessee, and Lessee shall
purchase items of personal property anticipated by Lessor to be in excess of the
Personal Property Limitation ("Excess Personal Property Items") either from
Lessor or a third party. If the Excess Personal Property Items are purchased
from Lessor, the purchase prices of such Excess Personal Property Items shall be
equal to the adjusted tax bases of such Excess Personal Property Items in the
hands of Lessor as of the closing of the purchase.
(b) If Lessee purchases Excess Personal Property Items, the
Rent shall be reduced for the calendar quarter in which such purchase occurs and
each of four succeeding calendar quarters by an amount each calendar quarter
equal to 20% of the aggregate purchase prices of such Excess Personal Property
Items.
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(c) If Lessee purchases Excess Personal Property Items, the
amount required by Lessor to be deposited in the Capital Expenditure Reserve
pursuant to Article 38 hereof shall be reduced for the Lease Year during which
such purchase occurs by an amount equal to the aggregate purchase prices of such
Excess Personal Property Items.
18.2. Sublease Rent Limitation.
Anything contained in this Lease to the contrary
notwithstanding, Lessee shall not sublet the Leased Property or enter into any
similar arrangement on any basis such that the rental or other amounts to be
paid by the sublessee thereunder would be based, in whole or in part, on either
(a) the net income or profits derived by the business activities of the
sublessee, or (b)any other formula such that any portion of the Rent 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.
18.3. Sublease Lessee Limitation.
Anything contained in this Lease to the contrary
notwithstanding, Lessee shall not sublease the Leased Property to, or enter into
any similar arrangement with, any Person in which the Company owns, directly or
indirectly, a 10% or greater interest, within the meaning of Section 856(d) (2)
(B) of the Code, or any similar or successor provisions thereto.
18.4. Lessee Ownership Limitation.
Anything contained in this Lease to the contrary
notwithstanding, neither party shall take, or permit to take, any action that
would cause the Company to own, directly or indirectly, a 10% or greater
interest in the Lessee within the meaning of Section 856(d) (2) (B) of the Code,
or any similar or successor provision thereto.
18.5. Director, Officer and Employee Limitation.
Anything contained in this Lease to the contrary
notwithstanding, Lessor and Lessee shall cooperate to ensure that (i) no
officers or employees of Lessor or the Company shall be officers or employees
of, or own any ownership interest in, any Person who furnishes or renders
services to the tenants of the Leased Property, or manages or operates the
Leased Property, other than the Lessee and (ii) no officers or employees of any
Person who furnishes or renders services to the tenants of the Leased Property,
or manages or operates the Leased Property, other than the Lessee shall be
officers or employees of Lessor or the Company. Furthermore, if a Person serves
as both (a) a director or trustee of Lessor, the Company or any other Affiliate
of Lessor and (b) a director and officer (or employee) of the any Person who
furnishes or renders services to the tenants of the Leased Property, or manages
or operates the Leased Property, other than the Lessee, that Person shall not
receive any compensation (excluding reimbursement for expenses) for serving as a
trustee of the Lessor, the Company or the other Affiliate of Lessor.
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ARTICLE
19
19.1. Holding Over.
If Lessee for any reason remains in possession of the Leased
Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month the aggregate of (a) one-twelfth of the aggregate Base Rent
and Percentage Rent payable with respect to the last Lease Year of the Term,
(b)all Additional Charges accruing during the applicable month and (c) all other
sums, if any, payable by Lessee under this Lease with respect to the Leased
Property. During such period, Lessee shall be obligated to perform and observe
all of the terms, covenants and conditions of this Lease, but shall have no
rights hereunder other than the right, to the extent given by law to tenancies
at sufferance, to continue its occupancy and use of the Leased Property. Nothing
contained herein shall constitute the consent, express or implied, of Lessor to
the holding over of Lessee after the expiration or earlier termination of this
Lease.
ARTICLE
20
20.1. Indemnification.
Subject to the last sentence of Section 13.4, Lessee will
protect, indemnify, hold harmless and defend Lessor Indemnified Parties from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses), to the extent permitted by law, including those resulting
from a Lessor Indemnified Party's own negligence but excluding those resulting
from a Lessor Indemnified Party's gross negligence or willful misconduct,
imposed upon or incurred by or asserted against Lessor Indemnified Parties 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,
including without limitation any claims under liquor liability, "dram shop" or
similar laws, (b) any past, present or future use, misuse, non-use, condition,
management, maintenance or repair by Lessee or any of its agents, employees or
invitees of the Leased Property or Lessee's Personal Property or any litigation,
proceeding or claim by governmental entities or other third parties to which a
Lessor Indemnified Party is made a party or participant related to such use,
misuse, non-use, condition, management, maintenance, or repair thereof by Lessee
or any of its agents, employees or invitees, including any failure of Lessee or
any of its agents, employees or invitees to perform any obligations under this
Lease or imposed by applicable law (other than arising out of Condemnation
proceedings), (c) any Impositions, other than any portion of Real Estate Taxes
that the Lessor is obligated to pay under this Lease, (d) any failure on the
part of Lessee to perform or comply with any of the terms of this Lease, and (e)
the nonperformance of any of the terms and provisions of any and all existing
and future subleases of the Leased Property to be performed by the landlord
thereunder.
Subject to the last sentence of Section 13.4, Lessor shall
indemnify, save harmless and defend Lessee Indemnified Parties from and against
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all liabilities, obligations, claims, damages, penalties, causes of action,
costs and expenses imposed upon or incurred by or asserted against Lessee
Indemnified Parties as a result of (a) the gross negligence or willful
misconduct of Lessor arising in connection with this Lease or (b) any failure on
the part of Lessor to perform or comply with any of the terms of this Lease.
Any amounts that become payable by an Indemnifying Party under
this Section shall be paid within ten days after liability therefor on the part
of the Indemnifying Party is determined by litigation or otherwise, and if not
timely paid, shall bear a late charge (to the extent permitted by law) at the
Overdue Rate from the date of such determination to the date of payment. Any
such amounts shall be reduced by insurance proceeds received and any other
recovery (net of costs) obtained by the Indemnified Party. An Indemnifying
Party, at its expense, shall contest, resist and defend any such claim, action
or proceeding asserted or instituted against the Indemnified Party. The
Indemnified Party, at its expense, shall be entitled to participate in any such
claim, action, or proceeding, and the Indemnifying Party may not compromise or
otherwise dispose of the same without the consent of the Indemnified Party,
which may not be unreasonably withheld. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own grossly negligent acts
or omissions or willful misconduct.
Lessee's or Lessor's liability for a breach of the provisions
of this Article shall survive any termination of this Lease.
ARTICLE
21
21.1. Subletting and Assignment.
In addition to the provisions of Article 18 and Sections 21.2,
21.3 and any other express consents, conditions, limitations or other provisions
set forth herein and in the Lease Master Agreement, Lessee shall not assign this
Lease or hereafter sublease all or any part of the Leased Property without first
obtaining the written consent of Lessor. In the case of a permitted subletting,
the sublessee shall comply with the provisions of Section 21.2 and 21.3, and in
the case of a permitted assignment, the assignee shall assume in writing and
agree to keep and perform all of the terms of this Lease on the part of Lessee
to be kept and performed and shall be, and become, jointly and severally liable
with Lessee for the performance thereof. In case of either an assignment or
subletting made during the Term, Lessee 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 Lessee hereunder. An original counterpart of each such sublease and
assignment and assumption, duly executed by Lessee and such sublessee or
assignee, as the case may be, in form and substance satisfactory to Lessor,
shall be delivered promptly to Lessor.
21.2. Attornment.
Lessee shall insert in each future sublease permitted under
Section 21.1 provisions to the effect that (a) such sublease is subject and
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subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (b) if this Lease terminates before the expiration of such
sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor
and waive any right the sublessee may have to terminate the sublease or to
surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a written Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
21.3. Management Agreement.
If the Lessee decides to enter into a management or agency
agreement relating to the management or operation of the Facility (collectively,
the "Management Agreement"), Lessor shall have the right to approve the
Management Agreement , any modifications to the Management Agreement affecting
the fees, costs or expenses payable or collectible thereunder, and any other
material modification to the Management Agreement. Lessor's approval shall not
be unreasonably withheld. The Management Agreement shall provide, among other
things, that (i) upon termination of this Lease or termination of Lessee's right
to possession of the Leased Property for any reason whatsoever, the Management
Agreement may be terminated by Lessor without liability for any payment due or
to become due to the manager of the Facility (the "Manager"), and (ii) all fees
and other amounts payable by Lessee to the Manager shall be subordinate on a
month to month basis to Rent and other amounts payable by Lessee to Lessor
hereunder prior to the existence of an Event of Default, and shall be at all
times subordinate to Rent and such other amounts after the occurrence of an
Event of Default
ARTICLE
22
22.1. Officer's Certificates; Financial Statements; Lessor's Estoppel
Certificates and Covenants.
(a) At any time and from time to time upon not less than 10
days Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, whether to the
knowledge of Lessee there is any existing default or Event of Default hereunder
by Lessor or Lessee, and such other information as may be reasonably requested
by Lessor. Any such certificate furnished pursuant to this Section may be relied
upon by Lessor, any lender, any underwriter and any prospective purchaser of the
Leased Property.
(b) Lessee will furnish, at Lessee's cost and expense, the
following statements and operating information to Lessor, each in a form
satisfactory to Lessor:
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(i) Consolidated Financials of Lessee for each
calendar quarter of each Lease Year, and for each calendar quarter in
the Lease Year-to-date, within 20 days after the end of such calendar
quarter;
(ii) Consolidated Financials of Lessee and each
Affiliate of Lessee, if any, that leases hotel properties from Lessor
or its Affiliates, for each calendar quarter of each Lease Year, and
for each calendar quarter in the Lease Year to date, within 20 days
after the end of such calendar quarter;
(iii) audited Consolidated Financials of Lessee for
each Lease Year, including the auditor's report thereon, within 60 days
after the end of such year;
(iv) audited Consolidated Financials of Lessee and
each Affiliate of Lessee that leases hotel properties from Lessor or
its Affiliates, if any, for each Lease Year, including the auditor's
report thereon, within 60 days after the end of such year. The fees and
expenses of the auditor incurred in connection with conducting such
audits and delivering such reports shall be paid by Lessor;
(v) with reasonable promptness, such other
information respecting the financial condition and affairs of Lessee
(A) as Lessor or the Company may require or may deem desirable in its
discretion to file with or provide to the SEC or any other governmental
agency or any other Person, all in the form, and either audited or
unaudited, as Lessor may request in Lessor's reasonable discretion, and
(B) as may be reasonably necessary to confirm compliance by Lessee and
its Affiliates with the requirements of this Lease;
(vi) on or before the 20th day of each calendar
quarter, a balance sheet, and detailed profit and loss and cash flow
statements showing the financial position of the Facility as at the end
of the preceding calendar quarter, the results of operation of the
Facility for such preceding calendar quarter and the Lease Year-to-date
and the average daily rate, occupancy and revenue-per-available room of
the Facility in such preceding calendar quarter;
(vii) within five (5) days of Lessee's receipt
thereof, any inspection reports received from the franchisor under the
Franchise Agreement; and
(viii) such other information as Lessor may
reasonably request and that Lessee can provide without unreasonable
expense.
(c) At any time and from time to time upon not less than 10
days notice by Lessee, Lessor will furnish to Lessee or to any person designated
by Lessee an estoppel certificate certifying that this Lease is unmodified and
in full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the date to which Rent has been
paid, whether to the knowledge of Lessor there is any existing default or Event
of Default on Lessee's part hereunder, and such other information as may be
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reasonably requested by Lessee. Any such certificate furnished pursuant to this
Section may be relied upon by Lessee, any lender, any underwriter and any
purchaser of the assets of Lessee.
(d) If Company or Lessor proposes to include in any submission
or filing with its lender, stock exchange or the SEC, Consolidated Financials of
Lessee delivered or required to be delivered hereunder and the consent of
Lessee's auditor is required for such inclusion, Lessee shall use commercially
reasonable efforts to cause its auditor to deliver promptly to Lessor the
auditor's consent, in the form required, to the inclusion in the submission or
filing of the Consolidated Financials (including the report of the auditor, if
the Consolidated Financials to be included are audited). Lessee shall reasonably
cooperate with Lessor regarding Lessee's auditor's compliance with such requests
with the purpose of minimizing costs and delays. Lessee shall reasonably
cooperate with all requests made by its auditor, Lessor or the SEC to promptly
provide to the auditor, Lessor or SEC such information or documents, including
consents and representation letters, as may be necessary or desirable in
connection with the preparation, delivery, audit or inclusion in SEC filings,
submissions or other public documents, of information, including financial
information, related to the Leased Property, the operation and financial results
of the Leased Property, and the financial results and condition of the Lessee.
Without limiting the foregoing, the information shall be sufficient to permit
the preparation of a Management's Discussion and Analysis of Results of
Operations and Financial Condition with respect to the Lessee as may be required
to be included in reports and documents filed by the Company with the SEC.
Lessee shall not be obligated to incur material additional expense to prepare
any reports or information not specifically provided for herein that Lessor or
Company may be required or elect to file with the SEC, and such material
additional third-party costs shall be paid or reimbursed by Lessor.
ARTICLE
23
23.1. Regular Meetings; Lessor's Right to Inspect.
(a) Lessee agrees that the regional manager, the general
manager, the director of marketing/sales, and the chief engineer for the
Facility will meet with Lessor and its representatives on a monthly basis at the
Facility throughout each Lease Year in order to discuss all aspects of the
management, maintenance and operation of the Facility. If agreed upon by Lessor
and Lessee, such meetings may be held by conference call.
(b) Lessee shall permit Lessor and its authorized
representatives, which may include auditors, underwriters and rating agencies,
as frequently as reasonably requested by Lessor to (i) inspect the Leased
Property and Lessee's accounts and records pertaining thereto, including general
accounting records, corporate records and agreements relating to the operations
of the Leased Property and Lessee's financial condition, and make copies
thereof, and (ii) conduct audits, all during usual business hours upon
reasonable advance notice, subject only to any business confidentiality
requirements reasonably requested by Lessee. In conducting such inspections
Lessor shall not unreasonably interfere with the conduct of Lessee's business at
the Leased Property.
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(c) Lessee will, on a space available basis, provide customary
gratuitous accommodations to Lessor and its representatives in connection with
all such meetings and inspections.
ARTICLE
24
24.1. No Waiver.
No failure by Lessor or Lessee 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 extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
ARTICLE
25
25.1. Remedies Cumulative.
To the extent permitted by law but subject to Article 39 and
any other provisions of this Lease expressly limiting the rights, powers and
remedies of either Lessor or Lessee, each legal, equitable or contractual right,
power and remedy of Lessor or Lessee now or hereafter provided either in this
Lease 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 Lessor or Lessee of any one or more of such rights,
powers and remedies shall not preclude the simultaneous or subsequent exercise
by Lessor or Lessee of any or all of such other rights, powers and remedies.
ARTICLE
26
26.1. Acceptance of Surrender.
No surrender to Lessor of this Lease 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 Lessor and no act by Lessor or any
representative or agent of Lessor, other than such a written acceptance by
Lessor, shall constitute an acceptance of any such surrender.
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ARTICLE
27
27.1. No Merger of Title.
There shall be no merger of this Lease or of the leasehold
estate created hereby by reason of the fact that the same person or entity may
acquire, own or hold, directly or indirectly: (a) this Lease or the leasehold
estate created hereby or any interest in this Lease or such leasehold estate and
(b) the fee estate in the Leased Property.
ARTICLE
28
28.1. Conveyance by Lessor.
Lessor shall have the unrestricted right to mortgage or
otherwise convey the Leased Property to a Holder. If Lessor conveys the Leased
Property in accordance with the terms hereof other than to a Holder, and the
grantee or transferee of the Leased Property expressly assumes in writing all
obligations of Lessor hereunder arising or accruing from and after the date of
such conveyance or transfer, Lessor shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owner. If Lessee is not reasonably satisfied that the new
owner is a capable, reliable and qualified Person of good reputation and
character, Lessee may terminate this Lease upon 60-days Notice to Lessor given
within 30 days after Lessee receives Notice of such conveyance.
28.2. Lessor May Grant Liens.
(a) Subject to Section 7.2, without the consent of Lessee,
Lessor may from time to time, directly or indirectly, create or otherwise cause
to exist any lien, encumbrance or title retention agreement upon the Leased
Property, or any portion thereof or interest therein, or upon Lessor's interest
in this Lease, whether to secure any borrowing or other means of financing or
refinancing. This Lease and Lessee's interest hereunder shall at all times be
subject and subordinate to the lien and security title of any deeds to secure
debt, deeds of trust, mortgages, or other interests heretofore or hereafter
granted by Lessor or which otherwise encumber or affect the Leased Property and
to any and all advances to be made thereunder and to all renewals,
modifications, consolidations, replacements, substitutions, and extensions
thereof (all of which are herein called the "Mortgage"), provided that the
Mortgage and all security agreements delivered by Lessor in connection therewith
shall be subject to Lessee's rights under this Lease to receive all Gross
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Revenues of the Facility prior to the earlier of the occurrence of an Event of
Default or the date that this Lease is terminated by the Holder of the Mortgage
in the exercise of its remedies thereunder. In confirmation of such
subordination, Lessee shall, at Lessor's request, promptly execute, acknowledge
and deliver any instrument which may be required to evidence subordination to
any Mortgage and attornment to the Holder thereof and its successors and
assigns, provided Lessee receives customary and reasonable non-disturbance
protection while it is not in default hereunder. The Lessee shall comply with
any material covenants with respect to the Lessee contained in such instrument
of subordination. In the event of Lessee's failure to deliver such subordination
and if the Mortgage does not change any term of the Lease, Lessor may, in
addition to any other remedies for breach of covenant hereunder, execute,
acknowledge, and deliver the instrument as the agent or attorney-in-fact of
Lessee, and Lessee hereby irrevocably constitutes Lessor its attorney-in-fact
for such purpose, Lessee acknowledging that the appointment is coupled with an
interest and is irrevocable.
(b) Lessee shall, upon the request of Lessor or any existing
or future Holder, (i) provide Holder with copies of all licenses, permits,
occupancy agreements, operating agreements, leases, contracts and similar
agreements reasonably requested in connection with any existing or proposed
financing of the Leased Property, and (ii) execute, or cause the Manager or any
relevant Affiliate to execute, such estoppel agreements and collateral
assignments with respect to the Facility's liquor license and any of the other
aforementioned agreements as Holder may reasonably request in connection with
any such financing, provided that no such estoppel agreement or collateral
assignment shall in any way affect the Term or affect adversely in any material
respect any rights of Lessee under this Lease.
(c) No act or failure to act on the part of Lessor which would
entitle Lessee under the terms of this Lease, or by law, to be relieved of any
of Lessee's obligations hereunder (including, without limitation, its obligation
to pay Rent) or to terminate this Lease, shall result in a release or
termination of such obligations of Lessee or a termination of this Lease unless:
(i) Lessee shall have first given written notice of Lessor's act or failure to
act to the Holder, specifying the act or failure to act on the part of Lessor
which would give basis to Lessee's rights; and (ii) the Holder, after receipt of
such notice, shall have failed or refused to correct or cure the condition
complained of within a reasonable time thereafter (in no event less than 60
days), which shall include a reasonable time for such Holder to obtain
possession of the Leased Property, if possession is reasonably necessary for the
Holder to correct or cure the condition, or to foreclose such Mortgage, and if
the Holder notifies the Lessee of its intention to take possession of the Leased
Property or to foreclosure such Mortgage, and correct or cure such condition. If
such Holder is prohibited by any process or injunction issued by any court or by
reason of any action by any court having jurisdiction or any bankruptcy, debtor
rehabilitation or insolvency proceedings involving Lessor from commencing or
prosecuting foreclosure or other appropriate proceedings in the nature thereof,
provided, however, that the Lease shall continue to be in full force and effect,
the times for commencing or prosecuting such foreclosure or other proceedings
shall be extended for the period of such prohibition.
(d) Lessee shall deliver by notice delivered in the manner
provided in Article 30 to any Holder who gives Lessee written notice of its
status as a Holder, at such Holder's address stated in the Holder's written
notice or at such other address as the Holder may designate by later written
notice to Lessee, a duplicate copy of any and all notices regarding any default
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which Lessee may from time to time give or serve upon Lessor pursuant to the
provisions of this Lease. Copies of such notices given by Lessee to Lessor shall
be delivered to such Holder simultaneously with delivery to Lessor. No such
notice by Lessee to Lessor hereunder shall be deemed to have been given unless
and until a copy thereof has been mailed to such Holder.
(e) At any time, and from time to time, upon not less than ten
(10) days' notice by a Holder to Lessee, Lessee shall deliver to such Holder an
estoppel certificate certifying as to the information required in paragraph (c)
of Article 22, and such other information as may be reasonably requested by such
Holder. Any such certificate may be relied upon by such Holder.
(f) Lessee shall cooperate in all reasonable respects, and as
generally described in Section 33.2 of this Lease, with any transfer of the
Leased Property to a Holder that succeeds to the interest of Lessor 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 Holder or such Holder's designee necessary or appropriate to operate the
Leased Property). Lessor and Lessee shall cooperate in (i) including in this
Lease by suitable amendment from time to time any provision which may be
requested by any proposed Holder, or may otherwise be reasonably necessary, to
implement the provisions of this Article and (ii) entering into any further
agreement with or at the request of any Holder which may be reasonably requested
or required by such Holder in furtherance or confirmation of the provisions of
this Article; 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 Lessor or Lessee under this Lease.
ARTICLE
29
29.1. Quiet Enjoyment.
So long as Lessee pays all Rent as the same becomes due and
complies with all of the terms of this Lease and performs its obligations
hereunder, in each case within the applicable grace and/or cure periods, if any,
Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for
the Term hereof, free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor and not claiming by, through or under Lessee, but
subject to all liens and encumbrances subject to which the Leased Property was
conveyed to Lessor or hereafter consented to by Lessee in writing or provided
for herein. Lessee shall have the right by separate and independent action to
pursue any claim it may have against Lessor as a result of a breach by Lessor of
the covenant of quiet enjoyment contained in this Section.
ARTICLE
30
30.1. Notices.
All notices, demands, requests, consents, approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and
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personally served or mailed (by express or overnight mail, courier, or
registered or certified mail, return receipt requested and postage prepaid), (i)
if to Lessor at 148 Sheraton Drive, Box A, New Cumberland, Pennsylvania 17070,
Attention: _________________, and (ii) if to Lessee at 148 Sheraton Drive, Box
A, New Cumberland, Pennsylvania 17070, Attention: _______________, or to such
other address or addresses as either party may hereafter designate. Personally
delivered Notices shall be effective upon receipt, and Notice given by mail
shall be deemed received at the time of deposit in the U.S. Mail system or with
a recognized overnight mail courier, but any prescribed period of Notice and any
right or duty to do any act or make any response within any prescribed period or
on a date certain after the service of such Notice given by mail shall be
extended five days.
ARTICLE
31
31.1. Appraisers.
If it becomes necessary to determine the fair market value or
fair market rental of the Leased Property for any purpose of this Lease, then,
except as otherwise expressly provided in this Lease, the party required or
permitted to give Notice of such required determination shall include in the
Notice the name of a person selected to act as appraiser on its behalf. Within
10 days after Notice, Lessor (or Lessee, as the case may be) shall by Notice to
Lessee (or Lessor, as the case may be) appoint a second person as appraiser on
its behalf. The appraisers thus appointed, each of whom must be a member of the
American Institute of Real Estate Appraisers (or any successor organization
thereto) with at least five years experience in the State appraising property
similar to the Leased Property, shall, within 10 days after the date of the
Notice appointing the second appraiser, proceed to appraise the Leased Property
to determine the fair market value or fair market rental thereof as of the
relevant date (giving effect to the impact, if any, of inflation from the date
of their decision to the relevant date); provided, however, that if only one
appraiser shall have been so appointed, then the determination of such appraiser
shall be final and binding upon the parties. If two appraisers are appointed and
if the difference between the amounts so determined does not exceed 5% of the
lesser of such amounts, then the fair market value or fair market rental shall
be an amount equal to 50% of the sum of the amounts so determined. If the
difference between the amounts so determined exceeds 5% of the lesser of such
amounts, then such two appraisers shall have 10 days to appoint a third
appraiser. If no such appraiser shall have been appointed within such 10 days or
within 60 days of the original request for a determination of fair market value
or fair market rental, whichever is earlier, either Lessor or Lessee may apply
to any court having jurisdiction to have such appointment made by such court.
Any appraiser appointed by the original appraisers or by such court shall be
instructed to determine the fair market value or fair market rental within 30
days after appointment of such appraiser. The determination of the appraiser
which differs most in terms of dollar amount from the determinations of the
other two appraisers shall be excluded, and 50% of the sum of the remaining two
determinations shall be final and binding upon Lessor and Lessee as the fair
market value or fair market rental of the Leased Property, as the case may be.
This provision for determining by appraisal shall be specifically enforceable to
the extent such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law. Lessor and Lessee shall each pay the fees and
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expenses of the appraiser appointed by it and each shall pay one-half of the
fees and expenses of the third appraiser and one-half of all other costs and
expenses incurred in connection with each appraisal.
ARTICLE
32
32.1. Lessee's Right to Cure.
Subject to the provisions of Article 39, if Lessor breaches
any covenant to be performed by it under this Lease, Lessee, after Notice to and
demand upon Lessor as provided in Article 39, without waiving or releasing any
obligation hereunder, may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the account and at the
expense of Lessor. All sums so paid by Lessee and all costs and expenses
(including, without limitation, reasonable attorneys' fees) so incurred,
together with interest thereon at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to
Lessee on demand. The rights of Lessee hereunder to cure and to secure payment
from Lessor in accordance with this Article 32 shall survive the termination of
this Lease with respect to the Leased Property.
ARTICLE
33
33.1. Miscellaneous.
Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease is
based upon a rate in excess of the maximum rate permitted by applicable law, the
parties agree that such charges shall be fixed at and limited to the maximum
permissible rate. Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by a written instrument in recordable
form signed by Lessor and Lessee. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The headings in this Lease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Lease shall be governed by and construed in accordance with
the laws of the State, but not including its conflicts of laws rules.
33.2. Transition Procedures.
Upon any expiration or termination of the Term, Lessor and
Lessee shall do the following and, in general, shall cooperate in good faith to
effect an orderly transition of the management or lease of the Facility. The
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provisions of this Section 33.2 shall survive the expiration or termination of
this Lease until they have been fully performed. Nothing contained herein shall
limit Lessor's rights and remedies under this Lease if such termination occurs
as the result of an Event of Default.
(a) Transfer of Franchise Agreement. The Franchise Agreement
shall be assigned, at Lessor's option, effective on the termination date,
without fee, cost, or penalty payable to the Lessee, and without the imposition
by Lessee of a product improvement (or similar) plan, to (i) Lessor, or (ii) a
designee of Lessor of good reputation and with experience in operating hotels.
(b) Transfer of Licenses. Upon the expiration or earlier
termination of the Term, Lessee shall use its best efforts (i) to transfer to
Lessor or Lessor's nominee all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities, that may be necessary for the
operation of the Facility (collectively, "Licenses"), or (ii) if such transfer
is prohibited by law or Lessor otherwise elects, to cooperate with Lessor or
Lessor's nominee in connection with the processing by Lessor or Lessor's nominee
of any applications for all Licenses, including Lessee (or its Affiliate)
continuing to operate the liquor operations under its licenses with Lessor
agreeing to indemnify and hold Lessee (or its Affiliate) harmless as a result
thereof except for the gross negligence or willful misconduct of Lessee;
provided, in either case, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Lessor or Lessor's
nominee.
(c) Leases and Concessions. Lessee shall assign to Lessor or
Lessor's nominee simultaneously with the termination of this Agreement, and the
assignee shall assume, all leases, contracts, concession agreements and
agreements in effect with respect to the Facility then in Lessee's name which
are designated by Lessor.
(d) Books and Records. To the extent that Lessor has not
already received copies thereof, all books and records (including computer and
computer-generated records) for the Facility kept by Lessee pursuant to Section
3.6 (or copies thereof) shall be delivered simultaneously with the termination
of this Agreement to Lessor or Lessor's nominee.
(e) Receivables and Payables, etc. Lessee 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. Lessee
shall be responsible for the payment of Rent, all operating expenses of the
Facility and all other obligations of Lessee accrued under this Lease as of the
termination date, and Lessor shall be responsible for all operating expenses of
the Facility accruing after the termination date.
(f) Final Accounting. Lessee shall, within forty five (45)
days after the expiration or termination of the Term, prepare and deliver to
Lessor a final accounting statement, dated as of the date of the expiration or
termination, as more particularly described in Article 22, along with a
statement of any sums due from Lessee to Lessor pursuant hereto and payment of
such funds.
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(g) Inventory. Lessee shall insure that the Leased Property,
at the date of such termination or expiration, has Inventory of a substantially
equivalent nature and amount as exists at the Leased Property on the
Commencement Date, and Lessor shall acquire such Inventory from Lessee by paying
Lessee the fair market value thereof, calculated on the same basis as the
parties determined the fair market value of the Inventory purchased by Lessee on
the Commencement Date.
(i) Option to Purchase Lessee's Personal Property. Upon the
expiration or termination of the Term, Lessor shall have the option to purchase
Lessee's Personal Property related to the Leased Property at fair market value.
(h) Surrender. Lessee shall peacefully and immediately vacate
and surrender the Leased Property to Lessor or Lessor's designee, shall turn
over all keys to Lessor and Lessor's designee and shall not interfere with
Lessor or any new Lessee or Manager.
33.3. Waiver of Presentment, etc.
Lessee waives all presentments, demands for payment and for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance and waives all notices of the existence,
creation, or incurring of new or additional obligations, except as expressly
granted herein.
33.4. Standard of Discretion.
In any provision of this Lease requiring or permitting the
exercise by Lessor or Lessee of such party's approval, election, decision,
consent, judgment, determination or words of similar import (collectively, an
"Approval"), such Approval may, unless otherwise expressly specified in such
provision, be given or withheld in such party's sole, absolute and unreviewable
discretion. Any Approval which by the terms of this Lease may not be
unreasonably withheld shall also not be unreasonably delayed.
33.5. Action for Damages.
In any suit or other claim brought by either party seeking
damages against the other party for breach of its obligations under this Lease,
the party against whom such claim is made shall be liable to the other party
only for actual damages and not for consequential, punitive or exemplary
damages.
33.6. Lease Assumption in Bankruptcy Proceeding.
If an Event of Default occurs and Lessee has filed or has had
filed against it a petition in bankruptcy or for reorganization or other relief
pursuant to the federal bankruptcy code, Lessee shall promptly move the court
presiding over the proceeding to assume the Lease pursuant to 11 U.S.C. ss.365,
without seeking an extension of the time to file said motion.
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33.7. Intra-Family Transfers.
Lessee acknowledges that Lessor may transfer legal title to
the Leased Property one or more times to Affiliates of the Lessor in which
Lessor or the Company owns a majority interest (each, an "Affiliated Lessor").
Lessee hereby consents to such transfers provided that, in each case, this Lease
is assumed by the Affiliated Lessor in its entirety and without modification,
except to the extent that Lessor, or the Affiliated Lessor that then owns the
Leased Property, specifically retains any obligations accrued through the date
of transfer hereunder. Lessee covenants that in connection with such transfers,
Lessee will execute and deliver to Lessor, the Affiliated Lessor and/or their
representatives appropriate estoppels and other documentation requested by them,
including an amendment to this Lease, for the purposes of reflecting and
acknowledging the Affiliated Lessor's interests as lessor hereunder.
ARTICLE
34
34.1. Memorandum of Lease.
Lessor and Lessee shall promptly upon the request of either
enter into a short form memorandum of this Lease, in form suitable for recording
under the laws of the State in which reference to this Lease, and all options
contained herein, shall be made. Lessee shall pay all costs and expenses of
recording such memorandum of this Lease.
ARTICLE
35
(Intentionally Omitted)
ARTICLE
36
36.1. Lessor's Option to Terminate.
(a) In the event Lessor enters into a bona fide contract to
sell the Leased Property to a non-Affiliate other than Lessee or an Affiliate of
Lessee, Lessor may terminate the Lease by giving not less than 60-days prior
Notice to Lessee of Lessor's election to terminate the Lease upon the closing
under such contract. Effective upon such date, this Lease shall terminate and be
of no further force and effect except as to any obligations of the parties
existing as of such date that survive termination of this Lease and all Rent
including Percentage Rent and Additional Charges shall be adjusted as of the
termination date.
(b) As compensation for the early termination of its leasehold
estate under this Article 36 because of a sale of the Leased Property, Lessor
shall within six months after of the closing of such sale, either (i) pay to
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Lessee the "Termination Fee" (as defined below) or (ii) offer to lease to Lessee
one or more substitute suite hotel facilities pursuant to one or more leases
that would create for the Lessee leasehold estates that have an aggregate fair
market value of no less than the fair market value of the original leasehold
estate (a "Comparable Lease"), such value to be determined as of the closing of
the sale of the Leased Property. Lessee's acceptance of the Comparable Lease
shall not be unreasonably withheld. If Lessee rejects the Comparable Lease,
Lessor shall pay the Termination Fee to Lessee. In the event Lessor and Lessee
are unable to agree upon the fair market value of an original or replacement
leasehold estate, it shall be determined by appraisal using the appraisal
procedure set forth in Article 31.
(c) (i) For the purposes of this Section, fair market value of
the leasehold estate means, as applicable, an amount equal to the price that a
willing buyer not compelled to buy would pay a willing seller not compelled to
sell for Lessee's leasehold estate under this Lease or an offered replacement
leasehold estate. In computing fair market value of a leasehold estate, the
appraiser shall discount all future income and fees to the then present value at
a rate equal to the Prime Rate plus 2% per annum.
(ii) The Termination Fee shall equal the "Net Present
Value" (as defined below) of the "Lessee Leakage" (as defined below) for (a)
the remaining Lease Years of the Term or, (b) if the termination occurs less
than five Lease Years from the end of the Term, the remaining Lease Years
in the Term plus one year (the "Determination Period"). "Lessee Leakage"
for any Lease Year is defined as the net operating income of the Facility,
determined in accordance with GAAP and as if no Management Agreement existed,
less Rent paid and payable hereunder. The "Net Present Value" of the Lessee
Leakage for the Determination Period shall be determined by (A) averaging the
Lessee Leakage actually realized by Lessee for the three most recently ended
Lease Years (or all full Lease Years if less than three full Lease Years have
elapsed since the Commencement Date) (the "Valuation Period"), (B) assuming
that Lessee Leakage in the first Lease Year of the Determination Period is
the average Lessee Leakage (as determined under subsection (A) above) and
that the Lessee Leakage in each subsequent Lease Year in the Determination
Period is the deemed Lessee Leakage for the previous Lease Year, (C)
discounting the deemed Lessee Leakage in each Lease Year of the
Determination Period to then-present value at a rate of twelve percent (12%) per
annum and (D) aggregating the sum of such present values.
(d) In the event that Lessor terminates this Lease upon less
than 60-days written notice pursuant to the provisions of this Article 36 or
pursuant to any other provisions of this Lease except for the provisions
allowing Lessor to terminate this Lease under Articles 14 or 15 or upon the
occurrence of an Event of Default, the parties agree that on and after the
effective date of such termination, hotel personnel employed by Lessee
immediately prior to the effective date of termination will either be employed
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by Lessor or its designee, or Lessor or its designee will take such other action
with respect to their employment, which may include notification of the
prospective termination of their employment, so as, in any case, to insure that
Lessee does not incur any liability pursuant to the WARN Act. In that event,
Lessor hereby agrees to defend, indemnify and hold harmless Lessee from and
against any and all manner of claims, actions, liabilities, costs and expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
relating to or arising from Lessor's breach of this covenant, including, without
limitation, any liability, costs and expenses arising out of asserted or actual
violation of the requirements of the WARN Act. Further, Lessor or its designee
shall assume all COBRA liabilities and COBRA obligations to the Facility's
personnel, which Lessee shall or may incur in connection with such termination
of this Lease, and Lessor hereby agrees to defend, indemnify and hold harmless
Lessee from and against any and all manner of claims, actions, liabilities,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements) relating to or resulting from Lessor's breach of the
foregoing covenant with respect to COBRA matters, including, without limitation,
any liability, costs and expenses arising out of any asserted or actual
violation of the requirements of the COBRA any legislation. Upon Lessor's
written request to Lessee, Lessee shall take all action that is reasonable to
notify, advise and cooperate with Lessor in order to assist Lessor in complying
with the WARN Act or COBRA legislation and to mitigate Lessor's expense or
liability with respect to the WARN Act and COBRA legislation.
ARTICLE
37
37.1. Compliance with Franchise Agreement.
To the extent any of the provisions of the Franchise Agreement
impose a greater obligation on Lessee than the corresponding provisions of the
Lease, then Lessee 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, except to the extent that Lessee is prevented from
complying with the Franchise Agreement because of Lessor's breach of its
obligations to comply with Article 38. It is the intent of the parties hereto
that Lessee shall comply in every respect with the provisions of the Franchise
Agreement so as to avoid any default thereunder during the Term. Lessee shall
not terminate or enter into any modification of the Franchise Agreement without
in each instance first obtaining Lessor's written consent. Lessor and Lessee
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 Lessor or any
designee thereof or any other successor to Lessee upon the termination of this
Lease.
ARTICLE
38
38.1. Capital Expenditures.
(a) Lessor shall be obligated to make available to Lessee an
amount equal to [4][6]% of Room Revenues from the Facility during each Lease
Year ("Capital Expenditures Allowance"). Upon written request by Lessee to
Lessor stating the specific use to be made and subject to the approval thereof
by Lessor, which approval shall not be unreasonably withheld, such funds shall
be made available by Lessor for Capital Expenditures; provided, however, that no
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Capital Expenditures shall be made 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 Lessor to recognize income other than
"rents from real property" as defined in Section 856(d) of the Code. Lessor's
obligation 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. Lessee shall have no interest in
any accrued obligation of Lessor hereunder after the termination of this Lease.
All Capital Improvements shall be owned by Lessor subject to the provisions of
this Lease.
(b) Lessor's obligation with respect to Capital Expenditures
shall be limited to amounts available in the Capital Expenditures Allowance.
ARTICLE
39
39.1. Lessor's Default.
It shall be a breach of this Lease if Lessor fails to observe
or perform any term, covenant or condition of this Lease on its part to be
performed and such failure continues for a period of 30 days after Notice
thereof from Lessee, unless such failure cannot with due diligence be cured
within a period of 30 days, in which case such failure shall not be deemed a
breach if Lessor proceeds within such 30-day period, with due diligence, to cure
the failure and thereafter diligently completes the curing thereof. The time
within which Lessor shall be obligated to cure any such failure also shall be
subject to extension of time due to the occurrence of any Unavoidable Delay. If
Lessor does not cure any such failure within the applicable time period as
aforesaid, Lessee may declare the existence of a "Lessor Default" by a second
Notice to Lessor. Thereafter, Lessee may forthwith cure the same in accordance
with the provisions of Article 32, subject to the provisions of the following
paragraph. Lessee shall have no right to terminate this Lease for any Lessor
Default and no right, for any such Lessor Default, to offset or counterclaim
against any Rent or other charges due hereunder.
If Lessor shall in good faith dispute the occurrence of any
Lessor Default and Lessor, before the expiration of the applicable cure period,
shall give Notice thereof to Lessee, setting forth, in reasonable detail, the
basis therefor, no Lessor Default shall be deemed to have occurred and Lessor
shall have no obligation with respect thereto until final adverse determination
thereof, whether through arbitration or otherwise; provided, however, that in
the event of any such adverse determination, Lessor shall pay to Lessee interest
on any disputed funds at the Base Rate, from the date demand for such funds was
made by Lessee until the date of final adverse determination and, thereafter, at
the Overdue Rate until paid. If Lessee and Lessor shall fail, in good faith, to
resolve any such dispute within ten (10) days after Lessor's Notice of dispute,
either may submit the matter for determination by arbitration, but only if such
matter is required to be submitted to arbitration pursuant to any provision of
this Lease, or otherwise by a court of competent jurisdiction.
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ARTICLE
40
40.1. Arbitration.
Except as set forth in Section 40.2, in each case specified in
this Lease in which it shall become necessary to resort to arbitration, such
arbitration shall be determined as provided in this Section 40.1. 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 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.
40.2. Alternative Arbitration.
In each case specified in this Lease for a matter to be
submitted to arbitration pursuant to the provisions of this Section 40.2, Lessor
shall be entitled to designate any nationally recognized accounting firm with a
hospitality division of which Lessor or an Affiliate of Lessor is not a
significant client to serve as arbitrator of such dispute within 15 days after
written demand for arbitration is received or sent by Lessor. In the event
Lessor fails to make such designation within such 15-day period, Lessee shall be
entitled to designate any nationally recognized accounting firm with a
hospitality division of which Lessee or an Affiliate of Lessee is not a
significant client to serve as arbitrator of such dispute within 15 days after
Lessor fails to timely make such designation. In the event no nationally
recognized accounting firm satisfying such qualifications is available and
willing to serve as arbitrator, the arbitration shall instead be administered as
set forth in Section 40.1.
40.3. Arbitration Procedures.
In any arbitration commenced pursuant to Sections 40.1 or
40.2, 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. Upon
the failure of either party (the "non-complying party") to comply with his
decision, the arbitrator shall be empowered, at the request of the other party,
to order such compliance by the non-complying party and to supervise or arrange
for the supervision of the non-complying party's obligation to comply with the
arbitrator's decision, all at the expense of the non-complying party. 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 90 days of the filing of such dispute. The fees and expenses
of the arbitrator shall be shared equally by Lessor and Lessee except as
otherwise specified above in this Section 40.3. Unless otherwise agreed in
writing by the parties or required by the arbitrator or AAA, if applicable,
arbitration proceedings hereunder shall be conducted in the State.
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 right to examine all books and records of Lessee and Lessor
regarding the Facility during the arbitration.
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[Signature Page follows]
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IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized representatives as of the date first above written.
LESSOR:
[HERSHA HOSPITALITY LIMITED PARTNERSHIP, a Virginia
limited partnership
By: HERSHA HOSPITALITY TRUST, a Maryland real
estate investment trust, its General
Partner]
By: ___________________________________
Name:______________________________
Title:_____________________________
LESSEE:
HERSHA HOSPITALITY MANAGEMENT, L.P., a
Pennsylvania limited partnership
By: ________________, a Pennsylvania corporation,
its General Partner
By:_____________________________________
Name:_______________________________
Title:______________________________
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Exhibit A
PROPERTY DESCRIPTION
A-1
<PAGE>
Exhibit B
OTHER PROPERTIES
The following hotels (excluding the Leased Property):
B-1
<PAGE>
Exhibit C
PERCENTAGE RENT PROVISIONS
_______________ Hotel
[INITIAL FIXED RENT: $__________ ]
BASE RENT: $__________
PERCENTAGE RENT:
FIRST TIER
ROOM REVENUE PERCENTAGE: __%
FIRST ANNUAL ROOM
REVENUES BREAK POINT: $_________
SECOND TIER
ROOM REVENUE PERCENTAGE: __%
SECOND ANNUAL ROOM
REVENUES BREAK POINT: $_________
THIRD TIER
ROOM REVENUE PERCENTAGE: __%
OTHER REVENUE PERCENTAGE: __%
C-1
Exhibit 10.19
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is entered as of the 3rd day
of June, 1998 (the "Effective Date") by and between (i) HERSHA HOSPITALITY
LIMITED PARTNERSHIP, a Virginia limited partnership (the "Partnership"), and
(ii) the individuals listed on Exhibit A hereto (the "Hersha Partners").
THE PARTIES HERETO ENTER THIS AGREEMENT on the basis of the following
facts, understandings and intentions:
A. Prior hereto, the Hersha Partners have been actively engaged in
various aspects of hotel acquisition, development, management and operation,
including, without limitation, the holding, development, operation and/or
management of three Holiday Inn Express hotels located in Hershey, PA, New
Columbia, PA and Harrisburg, PA; two Holiday Inn hotels located in Harrisburg,
PA and Milesburg, PA; two Comfort Inn hotels located in Harrisburg, PA and
Denver, PA; two Hampton Inn hotels located in Carlisle, PA and Selinsgrove, PA;
and one Clarion Suites hotel located in Philadelphia, PA (the "Initial Hotels").
B. The Hersha Partners plan to continue to actively engage in various
aspects of hotel acquisition, development, management and operation.
C. Hersha Hospitality Trust, a Maryland real estate investment trust
and the general partner of the Partnership (the "REIT"), has undertaken, or will
concurrently with the public offering of shares in the REIT (the "Offering")
undertake, a series of transactions involving the Partnership and the Initial
Hotels (the "Reorganization").
D. As part of the Reorganization, the Partnership will acquire equity
interests in the Initial Hotels.
E. The REIT's primary objective is to maximize shareholder value
through its general partnership interest in the Partnership by participating in
increasing room revenues from hotels owned by the Partnership through percentage
leases and by acquiring operating hotels that meet the Partnership's investment
criteria.
F. The Hersha Partners and the Partnership have determined that, in
connection with the Reorganization and the Offering, it is desirable to set
forth in this Agreement certain covenants and agreements with respect to the
development and acquisition of Hotel Properties (as hereinafter defined) of the
Hersha Partners.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
of the parties, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
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<PAGE>
1. Definitions. The following terms as used in this Agreement shall
have the following meanings (applicable to both the singular and plural forms
of the terms defined):
a. "Acquisition Agreement" shall mean a Purchase and Sale
Agreement or Contribution Agreement reasonably acceptable to the parties hereto.
b. "Affiliate" means (i) any person directly or indirectly
owning, controlling or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled or held, with power to vote, by such other person, (iii) any person
directly or indirectly controlling, controlled by or under common control with
such other person, (iv) any executive officer, director, trustee, member,
manager or general partner of such other person and (v) any legal entity for
which such person acts as an executive officer, director, trustee or general
partner. The term "person" means and includes any natural person, corporation,
partnership, association, limited liability company or any other legal entity.
An indirect relationship shall include circumstances in which a person's spouse,
children, parents, siblings or mothers-, fathers-, sisters- or brothers-in-law
is or has been associated with a person.
c. "Disclosure Notice" shall have the meaning given that term in
Section 4.
d. "Fair Market Value" shall mean the fair market value of the
subject Hotel Property, following exercise of the Option and delivery by the
Partnership to the Hersha Partners of the Option Notice, determined as follows:
(1) Valuation. Subject to Section 3.C., the parties
shall meet at a mutually agreeable time and place to present such evidence as
either party desires in an effort to mutually and in good faith attempt to
arrive at a mutually acceptable Fair Market Value, provided any final
determination of the Fair Market Value must be approved by a majority of the
Board of Trustees of the REIT, which majority must include a majority of the
Independent Trustees. If the parties are unable to so agree on a mutually
acceptable Fair Market Value within thirty (30) days of the receipt by the
Hersha Partners of an Option Notice, then either party, upon written notice
to the other, shall cause the matter to be submitted to appraisal, as
follows:
(a) Two Appraisers. Within fifteen (15) days
after giving written notice to the other party of its intention to have the
matter submitted to appraisal, each party, at its own cost and by giving
notice to the other party, shall appoint a real estate appraiser, with a
membership in the American Institute of Real Estate Appraisers or the Society
of Real Estate Appraisers and at least five (5) years' full-time commercial
appraisal experience in the hotel and lodging industry, to appraise and
determine the Fair Market Value. If, in the time provided, only one (1)
party shall give notice of appointment of an appraiser, the single appraiser
appointed shall determine the Fair Market Value. If two (2)
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<PAGE>
appraisers are appointed by the parties, the two (2) appraisers shall
independently, and without consultation, prepare a written appraisal of the Fair
Market Value within sixty (60) days. Each appraiser shall seal its respective
appraisal after completion. After both appraisals are completed, the resulting
estimates of the Fair Market Value shall be opened by the Partnership and the
Hersha Partners and compared. If the value of the appraisals differ by no more
than five percent (5%) of the value of the higher appraisal, then the Fair
Market Value shall be the average of the two (2) appraisals.
(b) Three Appraisers. If the values of the
appraisals differ by more than five percent (5%) of the value of the higher
appraisal, the two (2) appraisers shall designate in writing a third appraiser
meeting the qualifications set forth in subsection (a) above. The third
appraiser, however selected, shall be a person who has not previously acted
in any capacity for either party. The third appraiser shall make an
appraisal of the Fair Market Value within forty-five (45) days after
selection and without consultation with the first two (2) appraisers. The
Fair Market Value shall be the value selected by one of the two (2) appraisers
that is closest, on a dollar basis, to the Fair Market Value selected by the
third appraiser. The appraisal shall be concluded within one hundred five
(105) days of the matter being submitted to the appraisers.
(2) Costs. Each party shall pay the fees and expenses of
their own appraiser, and fifty percent (50%) of the fees and expenses of the
third appraiser.
e. "Hersha Affiliates" means the Hersha Partners and their
Affiliates.
f. "Hotel Construction" means the construction, renovation or
repair of improvements on Hotel Property by the Hersha Affiliates.
g. "Hotel Property" means any Property that is used in whole or
in part for hotel purposes, including, without limitation, motels, motor inns,
extended-stay hotels and the like, whether in fee or leasehold, that is acquired
or developed by Hersha within 15 miles of any of the Initial Hotels or any hotel
subsequently acquired by the Partnership, including the Hampton Inn, Danville,
Pennsylvania, the Harrisburg Inn, Harrisburg, Pennsylvania and the land owned by
Hersha Affiliates in Carlisle, Pennsylvania, together with all improvements and
fixtures now or hereafter located thereon, all rights, privileges and easements
appurtenant thereto, and all tangible and intangible personal property owned by
Hersha Affiliates and used in connection therewith.
h. "Independent Trustee" shall have the meaning ascribed to it in
the REIT's Declaration of Trust, as amended.
i. "Minimum Option Price" shall mean a sum equal to the
following: (i) any and all hard and soft development and or acquisition costs
actually paid to third parties by the Hersha Affiliates that were necessary
and/or appropriate for the acquisition of the Hotel Property and/or Hotel
-3-
<PAGE>
Construction of the subject Hotel Property, (ii) all independent third party
interest expenses incurred by or in connection with the acquisition or
development of the subject Hotel Property that, in accordance with the Internal
Revenue Code of 1986, as amended, and the rules and regulations promulgated in
connection therewith, are properly capitalized, (iii) to the extent not provided
for in (i) and (ii) above, the cash contribution of and unpaid advances by the
owners of the subject Hotel Property, including any cash contribution of and
advances by the Hersha Affiliates, and (iv) a cumulative, non-compounded return
on the cash investment or advances (less any interest actually paid with respect
to such advances) of the owners of the subject Hotel Property from the date such
cash is invested or advanced, together with interest thereon equal to the prime
rate plus five percent (5%). For purposes of this section, the "prime rate"
shall be the prime rate as reported in The Wall Street Journal, Eastern Edition,
from time to time. The Minimum Option Price shall be calculated by the Hersha
Affiliates and set forth in a certificate delivered to the Partnership and
certified as true and correct by the Hersha Affiliates upon the written request
of the Partnership from time to time. The Minimum Option Price shall not include
any finder's fee, brokerage fee, development fee, management fee or other
compensation paid to the Hersha Affiliates.
j. "Option" and "Option Notice" shall have the meanings given
such terms in Section 3 hereof.
k. "Property" means any real property or any interest therein.
l. "Units" shall mean units of limited partnership interest in
the Partnership.
2. Term of Agreement. The rights granted to the Partnership hereunder, and
the restrictions imposed on the Hersha Affiliates, shall commence as of the
Effective Date and shall terminate one (1) year after the later of (a) the date
upon which Mr. Hasu P. Shah ceases to be a trustee, officer, partner or employee
of the REIT, (b) the date on which Mr. Hasu P. Shah ceases to be an employee,
officer, trustee or director of a consultant to the REIT, (c) the date on which
Mr. Hasu P. Shah and the Hersha Affiliates cease to own, in the aggregate,
assuming a complete conversion of all Units into shares of beneficial interest
in the REIT, greater than 50% of shares of beneficial interest in the REIT, or
(d) the date on which the REIT's Board of Trustees has less than three members
that are Hersha Affiliates.
3. Option to Purchase the Hotel Property. The Partnership shall have the
right (the "Option"), by giving written notice (the "Option Notice") to the
Hersha Affiliates at any time on or before the date that is two years following
the later of (i) with respect to a Hotel Property developed by the Hersha
Affiliates (a) the date a certificate of occupancy or similar governmental
approval permitting the subject Hotel Property to be operated is obtained with
respect to any Hotel Property (the "Certificate of Occupancy"), (b) the actual
date of opening to the public or (c) the receipt of the Disclosure Notice and
(ii) with respect to any Hotel Property acquired by the Hersha Affiliates (a)
the date of such acquisition or (b) the receipt of the Disclosure Notice (the
foregoing being the "Option Period"), to elect to acquire the applicable Hotel
Property on all of the following terms and conditions:
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<PAGE>
a. Conditions. If the Partnership fails to deliver an Option
Notice within the Option Period or fails to prepare and execute an Acquisition
Agreement with respect to the Hotel Property as required by the following
sentence, then the Option shall lapse. Upon delivery of an Option Notice, the
Partnership shall prepare and the parties shall execute an Acquisition Agreement
containing commercially reasonable terms within ten (10) business days of the
receipt by the Hersha Affiliates of the Option Notice.
b. Purchase Price.
(1) The purchase price of the subject Hotel Property
pursuant to the Option shall be the greater of the Fair Market Value or the
Minimum Option Price, except in the case of the Hampton Inn, Danville,
Pennsylvania, in which case if the Option is exercised by the Partnership, the
Partnership and the Hersha Affiliate that owns the hotel will use a purchase
price methodology similar to the methodology used for the Holiday Inn Express
hotels in Hershey, Pennsylvania and New Columbia, Pennsylvania, the Hampton
Inn hotel in Carlisle, Pennsylvania and the Comfort Inn hotel in Harrisburg,
Pennsylvania and fix the rent until the hotel has two years of operating
history. In addition, if the Option is exercised by the Partnership with
respect to the Hampton Inn, Danville, Pennsylvania, it will issue units of
limited partnership interest in the Partnership ("Units") valued at $6.00 per
Unit as consideration for the purchase of the hotel. With respect to each
Hotel Property other than the Hampton Inn, Danville, Pennsylvania, if the
Minimum Option Price exceeds the Fair Market Value, the Partnership shall
have the right to terminate the Acquisition Agreement within ten (10) days
following receipt by the Partnership of the determination of Fair Market Value.
(2) In the event the Partnership is exercising the Option
in connection with an offering of securities and the Hotel Property shall be
owned by the Partnership, the Hersha Affiliates shall have the option to
receive part or all of the purchase price in Units, provided, however, that
the right to receive Units under this Section 3(b)(1) is subject to (i) the
REIT's compliance with federal and state securities laws, and (ii) the REIT's
maintenance of its status as a Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended, and all regulations thereunder. The value
of the Units received shall be determined by assigning the offering price of one
share of the security offered as set out in the related registration
statement filed with the Securities and Exchange Commission or if none, the
related offering document.
c. Disclosure. During the Option Period with respect to each
Hotel Property, the Hersha Affiliates shall deliver to the Partnership (i) from
time to time, upon the Partnership's written request, any and all documents,
correspondence and reports bearing on any Hotel Property, including, without
limitation, information and documents bearing on contracts, litigation and such
other matters bearing on or pertaining to the Hotel Property; (ii) within five
days of the delivery of any Option Notice, any notices of non-compliance with
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<PAGE>
applicable laws bearing on the Hotel Property; and (iii) upon request by the
Partnership, quarterly financial information with respect to the Hotel Property
showing hotel revenues and hotel operating expenses.
4. Notification to Independent Trustees. If the Hersha Affiliates desire
to develop or acquire a Hotel Property, the Hersha Affiliates shall be obligated
to describe fully the proposed activity in a written notice (the "Disclosure
Notice") to the Partnership and the Independent Trustees. A Disclosure Notice
shall only pertain to a specific proposed project or acquisition and the
referenced proposed project or acquisition shall be described therein with
specificity as to timing, location, scope and the extent of involvement by Mr.
Shah financially and in terms of his time commitment. The Hersha Affiliates
shall also notify the Independent Trustees of the date a Certificate of
Occupancy is issued with respect to a Hotel Property.
5. No Additional Fees. The purchase price shall be the sole compensation
to the Hersha Affiliates with regards to a Hotel Property. The Hersha Affiliates
shall not receive any brokerage commissions or other fees with regards to any
Hotel Property purchased by the Partnership.
6. Miscellaneous.
a. Complete Agreement; Construction. This Agreement, and the
other agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter thereof and
shall supersede all previous negotiations, commitments and writings with respect
to such subject matter.
b. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the jurisdiction of the Commonwealth of
Virginia without regard to the principles of conflicts of laws thereof.
c. Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be deemed duly given upon actual
receipt and shall be delivered (i) in person, (ii) by registered or certified
mail (air mail if addressed to an address outside of the country in which
mailed), postage prepaid, return receipt requested, or (iii) by facsimile or
other generally accepted means of electronic transmission (provided that a copy
of any notice delivered pursuant to this clause (iii) shall also be sent
pursuant to clause (ii), addressed as follows (or to such other addresses as may
be specified by like notice to the other parties):
To the Hersha Affiliates: c/o Mr. Hasu P. Shah
148 Sheraton Drive
Box A
New Cumberland, PA 17070
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<PAGE>
To the Partnership: Hersha Hospitality Limited Partnership
148 Sheraton Drive
Box A
New Cumberland, PA 17070
Attention: Mr. Hasu P. Shah
cc: Independent Trustees
d. Amendments. No amendment, modification or supplement to this
Agreement shall be binding on any of the parties hereto unless it is in writing
and signed by the parties in interest at the time of the modification, and
further provided any such modification is approved by a majority of the
Independent Trustees.
e. Successors and Assigns. Neither this Agreement nor any rights
or obligations hereunder shall be assignable by a party to this Agreement
without the prior, express written consent of the other party. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties to this Agreement and their respective successors and permitted
assigns.
f. No Third-Party Beneficiaries. This Agreement is solely for the
benefit of the parties to this Agreement and should not be deemed to confer upon
third parties any remedy, claim, liability, reimbursement, claims or action or
other right in excess of those existing without reference to this Agreement.
g. Titles and Headings. Titles and headings to paragraphs and
sections in this Agreement are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
h. Maximum Legal Enforceability; Time of Essence. Any provision
of this Agreement that is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party to this Agreement,
each party hereto acknowledges that damages would not be an adequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable. Time shall be of the
essence as to each and every provision of this Agreement.
i. Further Assurances. The parties to this Agreement will execute
and deliver or cause the execution and delivery of such further instruments and
documents and will take such other actions as any other party to the Agreement
may reasonably request in order to effectuate the purpose of this Agreement and
to carry out the terms hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
HASU P. SHAH
/s/ HASU P. SHAH
-----------------------------------
JAY H. SHAH
/s/ JAY H. SHAH
-----------------------------------
NEIL H. SHAH
/s/ NEIL H. SHAH
-----------------------------------
BHARAT C. MEHTA
/s/ BHARAT C. MEHTA
-----------------------------------
KANTI D. PATEL
/s/ KANTI D. PATEL
-----------------------------------
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<PAGE>
RAJENDRA O. GANDHI
/s/ RAJENDRA O. GANDHI
-----------------------------------
KIRAN P. PATEL
/s/ KIRAN P. PATEL
-----------------------------------
DAVID L. DESFOR
/s/ DAVID L. DESFOR
-----------------------------------
MADHUSUDAN I. PATNI
/s/ MADHUSUDAN I. PATNI
-----------------------------------
MANAHAR GANDHI
/s/ MANAHAR GANDHI
-----------------------------------
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<PAGE>
HERSHA HOSPITALITY LIMITED PARTNERSHIP
By: Hersha Hospitality Trust
Its General Partner
By: /s/ HASU P. SHAH
-----------------
Its: President
---------
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<PAGE>
EXHIBIT A
Hersha Partners
Hasu P. Shah
Jay H. Shah
Neil H. Shah
Bharat C. Mehta
Kanti D. Patel
Rajendra O. Gandhi
Kiran P. Patel
David L. Desfor
Madhusudan I. Patni
Manahar Gandhi
-11-
Exhibit 10.20
FORM OF
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made
effective as of the ___ day of _______, 1998 by and between Hersha Hospitality
Trust, a Maryland real estate investment trust (the "Company"), and Hersha
Hospitality Management, L.P., a Pennsylvania limited partnership (the
"Provider").
RECITALS
A. The Company is a publicly-traded real estate investment trust.
B. As a publicly-traded company, the Company needs certain accounting and
administrative services to be performed in order to comply with the various
federal regulatory requirements.
C. The Company desires that the Provider provide certain services with
respect to the Company's accounting and administrative requirements.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Appointment and Term. The Company hereby appoints the Provider
to render accounting and administrative services for the Company as herein
contemplated. The term of this Agreement shall begin on the date hereof and
shall continue until terminated by either party by thirty (30) days' written
notice.
2. Obligations. The Provider shall have the obligation to:
(i) provide accounting services, including the
preparation and submittal of all reports required by the United States
Securities and Exchange Commission and [the American Stock Exchange];
(ii) prepare and tally proxy statements;
(iii) prepare the Company's monthly income
statements;
(iv) prepare all obligations, bills and checks of
the Company;
(v) provide administrative services, including
preparing and announcing press releases and handling investor relation
services, such as meetings with analysts and reporters; and
<PAGE>
(vi) negotiate with financial institutions for
financial services and other items such as debt terms and treasury
duties.
3. Fee. For services to be performed under this Agreement, the
Company shall pay the Provider a fee in the amount of Fifty-five Thousand
Dollars ($55,000) per year (which shall be designated as an annual salary for
the Chief Financial Officer of the Provider) plus $10,000 per year for each
hotel owned by the Company, which shall be payable monthly in equal installments
by the tenth day following the month in which such services are performed. With
respect to additional hotels acquired by the Company subsequent to the date of
the Agreement, the Company shall pay the applicable fee pro rata based upon when
such hotel is purchased.
4. Burden and Benefit. The covenants and agreements contained
herein shall be binding upon and inure to the benefit of the successors and
assigns of the respective parties hereto. Neither party may assign this
Agreement without the consent of the other party.
5. Severability of Provisions. Each provision of this Agreement
shall be considered severable, and if for any reason any provision that is not
essential to the effectuation of the basic purposes of the Agreement is
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those provisions of this
Agreement that are valid.
6. No Continuing Waiver. The waiver of either party of any
breach of this Agreement shall not operate or be construed to be a waiver of any
subsequent breach.
7. Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Pennsylvania, without
regard to principles of conflicts of laws.
8. Binding Agreement. This Agreement shall be binding on the
parties hereto, and their heirs, executors, personal representatives, successors
and assigns.
9. Headings. All section headings in this Agreement are for
convenience of reference only and are not intended to qualify the meaning of any
section.
10. Terminology. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders, the singular shall include the plural, and vice versa as the
context may require.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
WITNESS: COMPANY:
HERSHA HOSPITALITY TRUST
By: _____________________________________
Name: Hasu P. Shah
Title: President
PROVIDER:
HERSHA HOSPITALITY MANAGEMENT, L.P.
By: _____________________, its General Partner
By: ____________________________________
Name:
Title: President
3
Exhibit 10.21
FORM OF
HERSHA HOSPITALITY TRUST
WARRANT AGREEMENT
____________, 1998
Anderson & Strudwick, Incorporated
707 E. Main Street, 20th Floor
Richmond, VA 23219
Ladies and Gentlemen:
Hersha Hospitality Trust, a Maryland real estate investment trust (the
"Company"), agrees to issue and sell to you warrants (the "Warrants") to
purchase the number of common shares of beneficial interest (the "Common
Shares"), of the Company set forth herein, subject to the terms and conditions
contained herein.
1. Issuance of Warrants; Exercise Price. The Warrants, which shall be
in the form attached hereto as Exhibit A, shall be issued to you concurrently
with the execution hereof in consideration of the payment by you to the Company
of the sum of $0.001 cash per Common Share subject to the Warrants, the receipt
and sufficiency of which are hereby acknowledged. The Warrants shall provide
that you and such other holder or holders of the Warrants shall have the right
to purchase an aggregate of 250,000 Common Shares for an exercise price equal to
$9.90 per share (the "Exercise Price") or $2,475,000 in the aggregate. The
number, character and Exercise Price of such Common Shares are subject to
adjustment as hereinafter provided, and the term "Common Shares" shall mean,
unless the context otherwise requires, the shares and other securities and
property receivable upon exercise of the Warrants. The term "Exercise Price"
shall mean, unless the context otherwise requires, the price per share of the
Common Shares purchasable under the Warrants as set forth in this Section 1, as
adjusted from time to time pursuant to Section 5.
2. Notices of Record Date; Etc.. In the event of (i) any taking by the
Company of a record date with respect to the holders of any class of securities
of the Company for purposes of determining which of such holders are entitled to
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<PAGE>
dividends or other distributions (other than regular quarterly dividends or
distributions), or any right to subscribe for, purchase or otherwise acquire
shares of any class or any other securities or property, or to receive any other
right, (ii) any capital reorganization of the Company, or reclassification or
recapitalization of capital shares of the Company or any transfer in one or more
related transactions of all or a majority of the assets or revenue or income
generating capacity of the Company to, or consolidation or merger of the Company
with or into, any other entity or person, or (iii) any voluntary or involuntary
dissolution or winding up of the Company, then and in each such event the
Company will mail or cause to be mailed to each holder of a Warrant at the time
outstanding a notice specifying, as the case may be, (A) the date on which any
such 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 (B) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place and the time, if any is to be fixed,
as of which the holders of record of Common Shares (or any other class of shares
or securities of the Company, or another issuer pursuant to Section 5,
receivable upon the exercise of the Warrants) shall be entitled to exchange
their Common Shares (or such other shares or securities) for securities or other
property deliverable upon such event. Any such notice shall be deposited in the
United States mail, postage prepaid, at least ten (10) days prior to the date
therein specified, and the holder(s) of the Warrant(s) may exercise the
Warrant(s) and participate in such event as a registered holder of Common
Shares, upon exercise of the Warrant(s) so held, within the ten (10) day period
from the date of mailing of such notice.
3. No Impairment. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Company (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, the Common
Shares issuable from time to time upon exercise of the Warrants, (b) will not
increase the par value of any shares receivable upon exercise of the Warrants
above the amount payable in respect thereof upon such exercise, and (c) 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 shares upon
the exercise of the Warrants, or any of them.
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<PAGE>
4. Exercise of Warrants. At any time and from time to time on and after
_______________, 1999 and expiring on ______________, 2003 at 5:00 p.m.,
Richmond, Virginia time, Warrants may be exercised as to all or any portion of
the whole number of Common Shares covered by the Warrants by the holder thereof
by surrender of the Warrants, accompanied by a subscription for shares to be
purchased in the form attached hereto as Exhibit B and by a check payable to the
order of the Company in the amount required for purchase of the shares as to
which the Warrant is being exercised, delivered to the Company at its principal
office at 148 Sheraton Drive, Box A, New Cumberland, Pennsylvania 17070,
Attention: Chief Executive Officer. Upon the exercise of a Warrant in whole or
in part, the Company will within five (5) days thereafter, at its expense
(including the payment of any applicable issue or transfer taxes), cause to be
issued in the name of and delivered to the Warrant holder a certificate or
certificates for the number of fully paid and non-assessable Common Shares to
which such holder is entitled upon exercise of the Warrant. In the event such
holder is entitled to a fractional share, in lieu thereof such holder shall be
paid a cash amount equal to such fraction, multiplied by the Current Value of
one full Common Share on the date of exercise. Certificates for Common Shares
issuable by reason of the exercise of the Warrant or Warrants shall be dated and
shall be effective as of the date of the surrendering of the Warrant for
exercise, notwithstanding any delays in the actual execution, issuance or
delivery of the certificates for the shares so purchased. In the event a Warrant
or Warrants is exercised as to less than the aggregate amount of all Common
Shares issuable upon exercise of all Warrants held by such person, the Company
shall issue a new Warrant to the holder of the Warrant so exercised covering the
aggregate number of Common Shares as to which Warrants remain unexercised.
For purposes of this section, Current Value is defined (i) in
the case for which a public market exists for the Common Shares at the time of
such exercise, at a price per share equal to (A) the average of the means
between the closing bid and asked prices of the Common Shares in the
over-the-counter market for 20 consecutive business days commencing 30 business
days before the date of such notice, (B) if the Common Shares are quoted on
Nasdaq, at the average of the means of the daily closing bid and asked prices of
the Common Shares for 20 consecutive business days commencing 30 business days
before the date of such notice, or (C) if the Common Shares are listed on any
national securities exchange or the Nasdaq National Market, at the average of
the daily closing prices of the Common Shares for 20 consecutive business days
3
<PAGE>
commencing 30 business days before the date of such notice, and (ii) in the case
no public market exists at the time of such exercise, at the Appraised Value.
For the purposes of this Agreement, "Appraised Value" is the value determined in
accordance with the following procedures. For a period of five (5) days after
the date of an event (a "Valuation Event") requiring determination of Current
Value at a time when no public market exists for the Common Shares (the
"Negotiation Period"), each party to this Agreement agrees to negotiate in good
faith to reach agreement upon the Appraised Value of the securities or property
at issue, as of the date of the Valuation Event, which will be the fair market
value of such securities or property, without premium for control or discount
for minority interests, illiquidity or restrictions on transfer. In the event
that the parties are unable to agree upon the Appraised Value of such securities
or other property by the end of the Negotiation Period, then the Appraised Value
of such securities or property will be determined for purposes of this Agreement
by a recognized appraisal or investment banking firm mutually agreeable to the
holders of the Warrants and the Company (the "Appraiser"). If the holders of the
Warrants and the Company cannot agree on an Appraiser within two (2) business
days after the end of the Negotiation Period, the Company, on the one hand, and
the holders of the Warrants, on the other hand, will each select an Appraiser
within ten (10) business days after the end of the Negotiation Period and those
Appraisers will determine the fair market value of such securities or property,
without premium for control or discount for minority interests. Such independent
Appraiser(s) will be directed to determine fair market value of such securities
or property as soon as practicable, but in no event later than thirty (30) days
from the date of its selection. The determination by Appraiser(s) of the fair
market value will be conclusive and binding on all parties to this Agreement. If
there are two Appraisers, and they do not agree as to fair market value, then
fair market value shall be determined to be the average of the fair market
values as determined by each Appraiser. Appraised Value of each Common Share at
a time when (i) the Company is not a reporting company under the Securities
Exchange Act of 1934 and (ii) the Common Shares are not traded in the organized
securities markets, will, in all cases, be calculated by determining the
Appraised Value of the entire Company taken as a whole and dividing that value
by the number of Common Shares then outstanding, without premium for control or
discount for minority interests, illiquidity or restrictions on transfer. The
costs of the Appraiser(s) will be borne by the Company. In no event will the
Appraised Value of the Common Shares be less than the per share consideration
4
<PAGE>
received or receivable with respect to the Common Shares or other securities or
property of the same class in connection with a pending transaction involving a
sale, merger, recapitalization, reorganization, consolidation, or share
exchange, dissolution of the Company, sale or transfer of all or a majority of
its assets or revenue or income generating capacity, or similar transaction.
5. Protection Against Dilution. The Exercise Price for the Common
Shares and number of Common Shares issuable upon exercise of the Warrants is
subject to adjustment from time to time as follows:
(a) Dividends, Subdivisions, Reclassifications, Etc.. In case
at any time or from time to time after the date of execution of this Agreement,
the Company shall (i) take a record of the holders of Common Shares for the
purpose of entitling them to receive a dividend or a distribution on Common
Shares payable in Common Shares or other class of securities, (ii) subdivide or
reclassify its outstanding Common Shares into a greater number of shares, or
(iii) combine or reclassify its outstanding Common Shares into a smaller number
of shares, then, and in each such case, the Exercise Price in effect at the time
of the record date for such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be adjusted in such a
manner that the Exercise Price for the shares issuable upon exercise of the
Warrants immediately after such event shall bear the same ratio to the Exercise
Price in effect immediately prior to any such event as the total number of
Common Shares outstanding immediately prior to such event shall bear to the
total number of Common Shares outstanding immediately after such event.
(b) Adjustment of Number of Shares Purchasable. When any
adjustment is required to be made in the Exercise Price under this Section 5,
(i) the number of Common Shares issuable upon exercise of the Warrants shall be
changed (upward to the nearest full share) to the number of shares determined by
dividing (x) an amount equal to the number of shares issuable pursuant to the
exercise of the Warrants immediately prior to the adjustment, multiplied by the
Exercise Price in effect immediately prior to the adjustment, by (y) the
Exercise Price in effect immediately after such adjustment, and (ii) upon
exercise of the Warrant, the holder will be entitled to receive the number of
shares or other securities referred to in Section 5(a) that such holder would
have received had the Warrant been exercised prior to the events referred to in
Section 5(a).
(c) Adjustment for Reorganization, Consolidation, Merger,
Etc.. In case of any reorganization or consolidation of the Company with, or any
5
<PAGE>
merger of the Company with or into, another entity (other than a consolidation
or merger in which the Company is the surviving corporation) or in case of any
sale or transfer to another entity of the majority of assets of the Company, the
entity resulting from such reorganization or consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of Warrants) and shall assume the obligations of the Company hereunder (by
written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
the holder shall be entitled to receive the shares or other securities or
property that such holder would have been entitled to upon consummation if such
holder had exercised the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 5.
(d) Certificate as to Adjustments. In the event of adjustment
as herein provided in paragraphs of this Section 5, the Company shall promptly
mail to each Warrant holder a certificate setting forth the Exercise Price and
number of Common Shares issuable upon exercise after such adjustment and setting
forth a brief statement of facts requiring such adjustment. Such certificate
shall also set forth the kind and amount of shares or other securities or
property into which the Warrants shall be exercisable after any adjustment of
the Exercise Price as provided in this Agreement.
(e) Minimum Adjustment. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of less
than five cents ($0.05) and any adjustment of less than five cents ($0.05) of
any Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Company shall have made all
necessary adjustments (to the nearest cent) not theretofore made to the Exercise
Price up to and including the date upon which such Warrant is exercised.
6. Registration Rights.
(a) Shelf Registration of the Common Stock. Until
_______________, 2003, the Company agrees to file with the Securities and
Exchange Commission (the "Commission") at the Company's expense a shelf
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registration statement under Rule 415 of the Securities Act (a "Registration
Statement"), or any similar rule that may be adopted by the Commission, covering
the resale of the Warrants and all of the Common Shares that may be issued upon
exercise of the Warrants ("Warrant Shares") in the event that holders of at
least 50,000 Warrants (or Warrant Shares) request such registration; provided
however, that only the first such registration shall be at the Company's
expense. The holders of Warrants and/or Warrant Shares may also request
"piggyback" registration of their Warrants and Warrant Shares at the Company's
expense for a period ending ________________, 2005. Upon any of such requests,
the Company will:
(i) provide written notice (the "Notice") of
such request within 10 days of the receipt of such request to each holder of
Warrants and/or Warrant Shares not a party to the request;
(ii) use its best efforts to have such Registration
Statement declared effective and to keep it effective for a period of 180 days
(the "Effective Period");
(iii) give each holder of Warrants and/or Warrant
Shares, their underwriters, if any, and their counsel and accountants a
reasonable opportunity to participate in the preparation of the
Registration Statement and give such persons reasonable access to its
books, records, officers and independent public accountants;
(iv) furnish to each holder of Warrants and/or
Warrant Shares such numbers of copies of prospectuses, and supplements or
amendments thereto, and such other documents as such holder reasonably requests;
(v) register or qualify the securities covered
by the Registration Statement under the securities or blue sky laws of such
jurisdictions within the United States as any holder of Warrants and/or Warrant
Shares shall reasonably request, and do such other reasonable acts and things
as may be required of it to enable such holders to consummate the sale or other
disposition in such jurisdictions of the Warrants and/or Warrant Shares;
provided, however, that the Company shall not be required to (i) qualify as a
foreign corporation or consent to a general or unlimited service or process
in any jurisdictions in which it would not otherwise be required to be
qualified or so consent or (ii) qualify as a dealer in securities;
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<PAGE>
(vi) furnish, at the request of the holders of
Warrants and/or Warrant Shares, on the date Redemption Shares are delivered to
the Underwriters for sale pursuant to such registration, or, if such Warrants
and/or Warrant Shares are not being sold through underwriters, on the date the
Registration Statement with respect to such Warrants and/or Warrant Shares
becomes effective, (A) a securities opinion of counsel representing the
Company for the purposes of such registration covering such legal matters
as are customarily included in such opinions and (B) letters of the firm of
independent public accountants that certified the financial statements
included in the Registration Statement, addressed to the underwriters,
covering substantially the same matters as are customarily covered in
accountants' letters delivered to underwriters in underwritten public
offerings of securities and such other financial matters as such holders (or the
underwriters, if any) may reasonably request;
(vii) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission;
(vii) enter into and perform an underwriting
agreement with the managing underwriter, if any, selected as provided herein,
containing customary (A) terms of offer and sale of the securities, payment
provisions, underwriting discounts and commissions and (B) representations,
warranties, covenants, indemnities, terms and conditions; and
(ix) keep the holders of the Warrants and/or
Warrant Shares advised as to the initiation and progress of the registration.
The Company further agrees to supplement or make amendments to each
Registration Statement, if required by the rules, regulations or instructions
applicable to the registration form utilized by the Company or by the Securities
Act or rules and regulations thereunder for such Registration Statement.
Notwithstanding the foregoing, if for any reason the effectiveness of a
Registration Statement is delayed or suspended or it ceases to be available for
sales of Warrants and/or Warrant Shares thereunder, the Effective Period shall
be extended by the aggregate number of days of such delay, suspension or
unavailability.
(b) Listing on Securities Exchange. If the Company shall list
or maintain the listing of any Common Shares on any securities exchange or
national market system, it will at its expense and as necessary to permit the
registration and sale of the Warrants and/or Warrant Shares hereunder, list
thereon, maintain and, when necessary, increase such listing to include such
Warrants and/or Warrant Shares.
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(c) Registration Not Required. Notwithstanding the foregoing,
the Company shall not be required to file or maintain the effectiveness of a
registration statement relating to Warrants and/or Warrant Shares after the
first date upon which, in the opinion of counsel to the Company, all of the
Warrants and/or Warrant Shares covered thereby could be sold by the holders
thereof in any period of three months pursuant to Rule 144 under the Securities
Act, or any successor rule thereto.
(d) Allocation of Expenses. Subject to the limitation
described in Section 6(a) above, the Company shall pay all expenses in
connection with the Registration Statement, including without limitation (i) all
expenses incident to filing with the National Association of Securities Dealers,
Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting and legal
fees and expenses, except to the extent holders of Warrants and/or Warrant
Shares elect to engage accountants or attorneys in addition to the accountants
and attorneys engaged by the Company, (v) accounting expenses incident to or
required by any such registration or qualification and (vi) expenses of
complying with the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification; provided, however, the
Company shall not be liable for (A) any discounts or commissions to any
underwriter or broker attributable to the sale of Warrants and/or Warrant
Shares, or (B) any fees or expenses incurred by holders of Warrants and/or
Warrant Shares in connection with such registration that, according to the
written instructions of any regulatory authority, the Company is not permitted
to pay.
(e) Indemnification.
(i) In connection with the Registration
Statement, the Company agrees to indemnify holders of Warrants and/or Warrant
Shares within the meaning of Section 15 of the Securities Act, against all
losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation) caused by any untrue, or alleged untrue, statement of
a material fact contained in the Registration Statement, preliminary
prospectus or prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or caused by any omission
or alleged omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses are caused
by any untrue statement, alleged untrue statement, omission, or alleged omission
based upon information furnished to the Company by the
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holders of Warrants and/or Warrant Shares expressly for use therein. The Company
and each officer, director and controlling person of the Company shall be
indemnified by each holder of Warrants and/or Warrant Shares covered by the
Registration Statement for all such losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation) caused by any such
untrue, or alleged untrue, statement or any such omission, or alleged omission,
based upon information furnished to the Company by the holders of Warrants
and/or Warrant Shares expressly for use therein in a writing signed by the
holder.
(ii) Promptly upon receipt by a party indemnified
under this Section 6(e) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be sought
against any indemnifying party under this Section 6(e), such indemnified
party shall notify the Company in writing of the commencement of such action,
but the failure to so notify the Company shall not relieve it of any
liability that it may have to any indemnified party otherwise than under
this Section 6(e) unless such failure shall materially adversely affect the
defense of such action. In case notice of commencement of any such action shall
be given to the Company as above provided, the Company shall be entitled to
participate in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of such action
at its own expense, with counsel chosen by it and reasonably satisfactory
to such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the Company
agrees to pay the same, (ii) the Company fails to assume the defense of such
action with counsel reasonably satisfactory to the indemnified party or (iii)
the named parties to any such action (including any impleaded parties) have
been advised by such counsel that representation of such indemnified
party and the Company by the same counsel would be inappropriate under
applicable standards of professional conduct (in which case the Company shall
not have the right to assume the defense of such action on behalf of such
indemnified party). No indemnifying party shall be liable for any settlement
entered into without its consent.
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(f) Contribution.
(i) If for any reason the indemnification
provisions contemplated by Section 6(e) are either unavailable or insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages
or liabilities referred to therein, then the party that would otherwise be
required to provide indemnification or the indemnifying party (in either
case, for purposes of this Section 6(f), the "Indemnifying Party") in
respect of such losses, claims, damages or liabilities, shall contribute to the
amount paid or payable by the party that would otherwise be entitled to
indemnification or the indemnified party (in either case, for purposes of
this Section 6(f), the "Indemnified Party") as a result of such losses,
claims, damages, liabilities or expense, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact related to information supplied by the Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party. In no
event shall any holder of Warrants and/or Warrant Shares covered by the
Registration Statement be required to contribute an amount greater than the
dollar amount of the proceeds received by such holder from the sale of Warrants
and/or Warrant Shares pursuant to the registration giving rise to the liability.
(ii) The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 6(f) were
determined by pro rata allocation (even if the holders or any underwriters
or all of them were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
or entity determined to have committed a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(iii) The contribution provided for in this Section
6(f) shall survive the termination of this Agreement and shall remain in
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full force and effect regardless of any investigation made by or on behalf of
any Indemnified Party.
7. Restrictive Legend. Executed copies of this Agreement shall be filed
in the principal office of the Company. Instruments evidencing all or part of
the Warrants shall contain the legend shown on Exhibit A until _______________,
1999, after which time such legend may be removed at the request of the holder
thereof.
8. Successors and Assigns; Binding Effect. This Agreement shall be
binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
9. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on three
(3) days' written notice to the Company designate or substitute another address
where notice is to be given. Notice shall be deemed given and received after a
certified or registered letter, properly addressed with postage prepaid, is
deposited in the U.S. mail.
10. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the remainder of this
Agreement.
11. Assignment; Replacement of Warrants. The Warrants may be sold,
transferred, assigned, pledged or hypothecated by you prior to ______________,
1999 only to bona fide officers of Anderson & Strudwick, Incorporated, who in
turn shall be subject to the same restriction. If the Warrant or Warrants are
assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor.
12. Rights of Shareholders. Until exercised, the Warrants shall
not entitle the holders thereof to any of the rights of a shareholder of the
Company.
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13. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia without giving effect
to the principles of choice of laws thereof.
14. Definition. All references to the word "you" in this Agreement
shall be deemed to apply with equal effect to any persons or entities to whom
Warrants have been transferred in accordance with the terms hereof, and, where
appropriate, to any persons or entities holding Common Shares issuable upon
exercise of Warrants.
15. Headings. The headings herein are for purposes of reference only
and shall not limit or otherwise affect the meaning of any of the provisions
hereof.
Very truly yours,
HERSHA HOSPITALITY TRUST
By: _____________________________
Hasu P. Shah
Chief Executive Officer
Accepted as of the ____ day of _____________, 1998.
ANDERSON & STRUDWICK, INCORPORATED
By: _________________________________
L. McCarthy Downs, III
Senior Vice President
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EXHIBIT A
No. _________
250,000 Shares
HERSHA HOSPITALITY TRUST
COMMON SHARES PURCHASE WARRANT
THIS IS TO CERTIFY that ANDERSON & STRUDWICK, INCORPORATED or its
assigns as permitted in that certain Warrant Agreement (the "Warrant Agreement")
dated ________________, 1998 between the Company (as hereafter defined) and
Anderson & Strudwick, Incorporated is entitled to purchase at any time or from
time to time on or after ______________, 1999 until 5:00 p.m., Richmond,
Virginia time on ______________, 2003, 250,000 shares of Common Shares of Hersha
Hospitality Trust, a ______________________ (the "Company"), for an exercise
price per share as set forth in the Warrant Agreement referred to herein. This
Warrant is issued pursuant to the Warrant Agreement, and all rights of the
holder of this Warrant are further governed by, and subject to the terms and
provisions of such Warrant Agreement, copies of which are available upon request
to the Company. The holder of this Warrant and the shares issuable upon the
exercise hereof shall be entitled to the benefits, rights and privileges and
subject to the obligations, duties and liabilities provided in the Warrant
Agreement.
UNTIL ________________, 1999, NEITHER ANDERSON & STRUDWICK,
INCORPORATED NOR ANY ASSIGNEE OF ALL OR A PORTION OF THE RIGHTS PURSUANT TO THIS
WARRANT MAY SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE ANY OF ITS RIGHTS
PURSUANT TO THIS WARRANT OTHER THAN TO BONA FIDE OFFICERS OF ANDERSON &
STRUDWICK, INCORPORATED.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Company at Hersha Hospitality
Trust, 148 Sheraton Drive, Box A, New Cumberland, Pennsylvania 17070, Attention:
Chief Executive Officer, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder hereof as the owner hereof
for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its seal to be hereunto affixed by its proper officers thereunto duly
authorized.
HERSHA HOSPITALITY TRUST
By: ____________________(SEAL)
Hasu P. Shah
Chief Executive Officer
ATTEST:
__________________________
Secretary
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION
To Hersha Hospitality Trust:
The undersigned, the holder of Warrant Number , hereby irrevocably
elects to exercise the purchase right represented by such Warrant, and to
purchase thereunder * Common Shares of Hersha Hospitality Trust and herewith
makes a payment in cash or by check of $ thereof and requests that the
certificate or certificates for such shares be issued in the name of and
delivered to the undersigned. The undersigned acknowledges and agrees that the
Common Shares to be received by the undersigned are subject to the restrictions
on transfer set forth in the Warrant.
________________________________________
(Signature)
________________________________________
________________________________________
(Address)
Dated: _______________
*Insert here the number of shares set forth on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment (which
adjustment will be made in the issuance of such Common Shares, other shares,
securities, property, or cash) for additional Common Shares or any other shares
or other securities or property or cash that, pursuant to the adjustment
provisions of the Warrant, is deliverable upon exercise.
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ________________the right represented by Warrant Number to
purchase Common Shares of Hersha Hospitality Trust to which the attached
Warrant related, and appoints _______________________ as Attorney-in-Fact to
transfer such right on the books of Hersha Hospitality Trust with the full
power of substitution in the premises.
<PAGE>
The undersigned represents and warrants that the transfer of the
attached Warrant is permitted by the terms of the Warrant Agreement pursuant to
which the attached Warrant has been issued, and the transferee hereof, by
acceptance of this Assignment, agrees to be bound by the terms of the Warrant
Agreement with the same force and effect as if a signatory thereto.
________________________________________
(Signature)
________________________________________
________________________________________
(Address)
Dated: _____________________
Exhibit 10.22
HERSHA HOSPITALITY TRUST
WARRANT AGREEMENT
June 3, 1998
2744 Associates, L.P.
c/o Shreenathji Enterprises Limited
148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070
Ladies and Gentlemen:
Hersha Hospitality Limited Partnership (the "Partnership"), hereby
agrees to issue and sell to you warrants (the "Warrants") to purchase the number
of units of limited partnership interest ("Units") in the Partnership set forth
herein, subject to the terms and conditions contained herein.
1. Issuance of Warrants; Exercise Price. The Warrants, which shall be
in the form attached hereto as Exhibit A, shall be issued to you concurrently
with the execution hereof in consideration of the payment by you to the
Partnership of the sum of $0.001 cash per Unit subject to the Warrants, the
receipt and sufficiency of which are hereby acknowledged. The Warrants shall
provide that you and such other holder or holders of the Warrants shall have the
right to purchase an aggregate of 250,000 Units for an exercise price equal to
$9.90 per Unit (the "Exercise Price") or $2,475,000 in the aggregate. The
number, character and Exercise Price of such Units are subject to adjustment as
hereinafter provided, and the term "Units" shall mean, unless the context
otherwise requires, the Units and other securities and property receivable upon
exercise of the Warrants. The term "Exercise Price" shall mean, unless the
context otherwise requires, the price per Unit of the Units purchasable under
the Warrants as set forth in this Section 1, as adjusted from time to time
pursuant to Section 5.
2. Notices of Record Date; Etc.. In the event of (i) any taking by the
Partnership of a record date with respect to the holders of any class of
securities or the Partnership for purposes of determining which of such holders
are entitled to dividends or other distributions (other than regular quarterly
distributions), or any right to subscribe for, purchase or otherwise acquire
Units or any other securities or property, or to receive any other right, (ii)
any capital reorganization of the Partnership, or reclassification or
recapitalization of ownership interests in the Partnership or any transfer in
one or more related transactions of all or a majority of the assets or revenue
or income generating capacity of the Partnership to, or consolidation or merger
of the Partnership with or into, any other entity or person, or (iii) any
voluntary or involuntary dissolution or winding up of the Partnership, then and
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in each such event the Partnership will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (A) the date on which any such record is to be taken for the purpose of such
distribution or right, and stating the amount and character of such distribution
or right; or (B) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place and the time, if any is to be fixed,
as of which the holders of record of Units (or any other class of securities of
the Partnership, or another issuer pursuant to Section 5, receivable upon the
exercise of the Warrants) shall be entitled to exchange their Units (or such
other securities) for securities or other property deliverable upon such event.
Any such notice shall be deposited in the United States mail, postage prepaid,
at least ten (10) days prior to the date therein specified, and the holders of
the Warrants may exercise the Warrants and participate in such event as a
registered holder of Units, upon exercise of the Warrants so held, within the
ten (10) day period from the date of mailing of such notice.
3. No Impairment. The Partnership shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Partnership (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, the Units
issuable from time to time upon exercise of the Warrants , (b) will not increase
the par value of any Units receivable upon exercise of the Warrants above the
amount payable in respect thereof upon such exercise, and (c) will take all such
action as may be necessary or appropriate in order that the Partnership may
validly and legally issue fully paid and non-assessable Units upon the exercise
of the Warrants.
4. Exercise of Warrants. At any time and from time to time on and after
the date of this Agreement, and expiring at 5:00 p.m., Richmond, Virginia time,
on the fifth anniversary of the closing of the initial public offering of Hersha
Hospitality Trust (the "Company") and subject to the conditions herein, Warrants
may be exercised as to all or any portion of the number of Units covered by the
Warrants by the holder thereof by surrender of the Warrants, accompanied by a
subscription for Units to be purchased in the form attached hereto as Exhibit B
and by a check payable to the order of the Partnership in the amount required
for purchase of the Units as to which the Warrants are being exercised,
delivered to the Partnership at its principal office at 148 Sheraton Drive, Box
A, New Cumberland, Pennsylvania 17070, Attention: President; provided however,
that no Warrant holder may exercise Warrants at such time as the Warrant holder
does not qualify as an "accredited investor" as that term is defined in Rule 501
under the Securities Act of 1993, as amended. Upon the exercise of a Warrant in
whole or in part, the Partnership will within five (5) days thereafter, at its
expense (including the payment of any applicable issue or transfer taxes), cause
to be issued in the name of and delivered to the Warrant holder the number of
Units to which such holder is entitled upon exercise of the Warrant. In the
event such holder is entitled to a fractional amount of Units, in lieu thereof
such holder shall be paid a cash amount equal to such fraction, multiplied by
the Current Value of one full Unit on the date of exercise. The issuance of
Units upon exercise of the Warrants shall be effective as of the date of the
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<PAGE>
surrendering of the Warrant for exercise, notwithstanding any delays in the
actual issuance or delivery of the Units so purchased. In the event Warrants are
exercised as to less than the aggregate amount of all Units issuable upon
exercise of all Warrants held by such person, the Partnership shall issue new
Warrants to the holder of the Warrants so exercised covering the aggregate
number of Units as to which Warrants remain unexercised.
For purposes of this section, "Current Value" of a Unit is
defined (i) in the case for which a public market exists for the Company's
common shares of beneficial interest, par value $.01 per share, (the "Common
Shares") at the time of such exercise, at a price per Unit equal to (A) the
average of the means between the closing bid and asked prices of the Common
Shares in the over-the-counter market for 20 consecutive business days
commencing 30 business days before the date of such notice, (B) if the Common
Shares are quoted on Nasdaq, at the average of the means of the daily closing
bid and asked prices of the Common Shares for 20 consecutive business days
commencing 30 business days before the date of such notice, or (C) if the Common
Shares are listed on any national securities exchange or the Nasdaq National
Market, at the average of the daily closing prices of the Common Shares for 20
consecutive business days commencing 30 business days before the date of such
notice, and (ii) in the case no public market for the Common Shares exists at
the time of such exercise, at the Appraised Value of the Units issuable upon
exercise of the Warrant. For the purposes of this Agreement, "Appraised Value"
is the value determined in accordance with the following procedures. For a
period of five (5) days after the date of an event (a "Valuation Event")
requiring determination of Current Value at a time when no public market exists
for the Common Shares (the "Negotiation Period"), each party to this Agreement
agrees to negotiate in good faith to reach agreement upon the Appraised Value of
the Units or property at issue, as of the date of the Valuation Event, which
will be the fair market value of such Units or property, without premium for
control or discount for minority interests, illiquidity or restrictions on
transfer. In the event that the parties are unable to agree upon the Appraised
Value of such Units or other property by the end of the Negotiation Period, then
the Appraised Value of such Units or property will be determined for purposes of
this Agreement by a recognized appraisal or investment banking firm mutually
agreeable to the holders of the Warrants and the Partnership (the "Appraiser").
If the holders of the Warrants and the Partnership cannot agree on an Appraiser
within two (2) business days after the end of the Negotiation Period, the
Partnership, on the one hand, and the holders of the Warrants, on the other
hand, will each select an Appraiser within ten (10) business days after the end
of the Negotiation Period and those Appraisers will determine the fair market
value of such Units or property, without premium for control or discount for
minority interests. Such independent Appraiser(s) will be directed to determine
fair market value of such Units or property as soon as practicable, but in no
event later than thirty (30) days from the date of its selection. The
determination by Appraiser(s) of the fair market value will be conclusive and
binding on all parties to this Agreement. If there are two Appraisers, and they
do not agree as to fair market value, then fair market value shall be determined
to be the average of the fair market values as determined by each Appraiser.
Appraised Value of each Unit at a time when (i) the Company is not a reporting
Company under the Securities Exchange Act of 1934 and (ii) the Common Shares are
not traded in the organized securities markets, will, in all cases, be
calculated by determining the Appraised Value of the entire Partnership taken as
a whole and dividing that value by the number of Units then outstanding, without
premium for control or discount for minority interests, illiquidity or
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<PAGE>
restrictions on transfer. The costs of the Appraiser(s) will be borne by the
Partnership. In no event will the Appraised Value of the Units be less than the
per share consideration received or receivable with respect to the Units or
other securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Partnership, sale or
transfer of all or a majority of its assets or revenue or income generating
capacity, or similar transaction.
5. Protection Against Dilution. The Exercise Price for the Units and
number of Units issuable upon exercise of the Warrants is subject to adjustment
from time to time as follows:
(a) Distributions, Subdivisions, Reclassifications, Etc.. In
case at any time or from time to time after the date of execution of this
Agreement, the Partnership shall (i) take a record of the holders of Units for
the purpose of entitling them to receive a distribution on Units payable in
Units or other class of securities, (ii) subdivide or reclassify its outstanding
Units into a greater number, or (iii) combine or reclassify its outstanding
Units into a smaller number, then, and in each such case, the Exercise Price in
effect at the time of the record date for such distribution or the effective
date of such subdivision, combination or reclassification shall be adjusted in
such a manner that the Exercise Price for the Units issuable upon exercise of
the Warrants immediately after such event shall bear the same ratio to the
Exercise Price in effect immediately prior to any such event as the total number
of Units outstanding immediately prior to such event shall bear to the total
number of Units outstanding immediately after such event.
(b) Adjustment of Number of Units Purchasable. When any
adjustment is required to be made in the Exercise Price under this Section 5,
(i) the number of Units issuable upon exercise of the Warrants shall be changed
(upward to the nearest full Unit) to the number of Units determined by dividing
(x) an amount equal to the number of Units issuable pursuant to the exercise of
the Warrants immediately prior to the adjustment, multiplied by the Exercise
Price in effect immediately prior to the adjustment, by (y) the Exercise Price
in effect immediately after such adjustment, and (ii) upon exercise of the
Warrant, the holder will be entitled to receive the number of Units or other
securities referred to in Section 5(a) that such holder would have received had
the Warrants been exercised prior to the events referred to in Section 5(a).
(c) Adjustment for Reorganization, Consolidation, Merger,
Etc.. In case of any reorganization or consolidation of the Partnership with, or
any merger of the Partnership with or into, another entity (other than a
consolidation or merger in which the Partnership is the surviving corporation)
or in case of any sale or transfer to another entity of the majority of assets
of the Partnership, the entity resulting from such reorganization or
consolidation or surviving such merger or to which such sale or transfer shall
be made, as the case may be, shall make suitable provision (which shall be fair
and equitable to the holders of Warrants) and shall assume the obligations of
the Partnership hereunder (by written instrument executed and mailed to each
holder of the Warrants then outstanding) pursuant to which, upon exercise of the
Warrants, at any time after the consummation of such reorganization,
consolidation, merger or conveyance, the holder shall be entitled to receive the
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<PAGE>
Units or other securities or property that such holder would have been entitled
to upon consummation if such holder had exercised the Warrants immediately prior
thereto, all subject to further adjustment as provided in this Section 5.
(d) Certificate as to Adjustments. In the event of adjustment
as herein provided in this Section 5, the Partnership shall promptly mail to
each Warrant holder a certificate setting forth the Exercise Price and number of
Units issuable upon exercise after such adjustment and setting forth a brief
statement of facts requiring such adjustment. Such certificate shall also set
forth the kind and amount of Units or other securities or property into which
the Warrants shall be exercisable after any adjustment of the Exercise Price as
provided in this Agreement.
(e) Minimum Adjustment. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of less
than five cents ($0.05) and any adjustment of less than five cents ($0.05) of
any Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Partnership shall have made
all necessary adjustments (to the nearest cent) not theretofore made to the
Exercise Price up to and including the date upon which such Warrant is
exercised.
6. Registration Rights. The holders of Units issued upon exercise of
the Warrants will be entitled to the registration rights set forth in the
Partnership's limited partnership agreement, as amended.
7. Restrictive Legend. Executed copies of this Agreement shall be filed
in the principal office of the Partnership. Instruments evidencing all or part
of the Warrants shall contain the legend shown on Exhibit A.
9. Successors and Assigns; Binding Effect. This Agreement shall be
binding upon and inure to the benefit of you and the Partnership and their
respective successors and permitted assigns.
10. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Partnership, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Partnership, provided that any holder may at any time on
three (3) days' written notice to the Partnership, designate or substitute
another address where notice is to be given. Notice shall be deemed given and
received after a certified or registered letter, properly addressed with postage
prepaid, is deposited in the U.S. mail.
11. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the remainder of this
Agreement.
5
<PAGE>
12. Assignment; Replacement of Warrants. If a Warrant or Warrants are
assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of Units not assigned, and the assignee shall be entitled to receive new
Warrants covering the number of Units so assigned. Upon receipt of evidence
reasonably satisfactory to the Partnership of the loss, theft, destruction or
mutilation of any Warrants and appropriate bond or indemnification protection,
the Partnership shall issue a new Warrant of like tenor.
13. Rights of Holders. Until exercised, the Warrants shall not entitle
the holders thereof to any of the rights of a limited partner of the
Partnership.
14. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia without giving effect
to the principles of choice of laws thereof.
15. Definition. All references to the word "you" in this Agreement
shall be deemed to apply with equal effect to any persons or entities to whom
Warrants have been transferred in accordance with the terms hereof, and, where
appropriate, to any persons or entities holding Units issuable upon exercise of
Warrants.
16. Headings. The headings herein are for purposes of reference only
and shall not limit or otherwise affect the meaning of any of the provisions
hereof.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
6
<PAGE>
Very truly yours,
HERSHA HOSPITALITY LIMITED PARTNERSHIP
By: Hersha Hospitality Trust, as general partner
By: /s/ HASU P. SHAH
------------------------------------
Hasu P. Shah
Chairman and Chief Executive Officer
Accepted as of the 3rd day of June, 1998.
2744 ASSOCIATES, L.P.
By: Shreenathji Enterprises Limited, as
general partner
By: /s/ HASU P. SHAH
-------------------------------
Hasu P. Shah
President
7
<PAGE>
EXHIBIT A
No. _________
250,000 Shares
HERSHA HOSPITALITY LIMITED PARTNERSHIP
UNITS PURCHASE WARRANT
THIS IS TO CERTIFY that 2744 Associates, L.P. or its assigns as
permitted in that certain Warrant Agreement (the "Warrant Agreement") dated June
3, 1998 (the "Warrant Date") between the Partnership (as hereafter defined) and
2744 Associates, L.P. is entitled to purchase at any time or from time to time
on or after the Warrant Date until 5:00 p.m., Richmond, Virginia time, on the
fifth anniversary of the closing of the initial public offering of Hersha
Hospitality Trust, 250,000 Units of limited partnership interest ("Units") of
Hersha Hospitality Limited Partnership, a Virginia limited partnership (the
"Partnership"), for an exercise price per share as set forth in the Warrant
Agreement referred to herein. This Warrant is issued pursuant to the Warrant
Agreement, and all rights of the holder of this Warrant are further governed by,
and subject to the terms and provisions of such Warrant Agreement, copies of
which are available upon request to the Partnership. The holder of this Warrant
and the Units issuable upon the exercise hereof shall be entitled to the
benefits, rights and privileges and subject to the obligations, duties and
liabilities provided in the Warrant Agreement.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAW. ACCORDINGLY, THE WARRANTS REPRESENTED BY THIS CERTIFICATE MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP
THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT OR ANY APPLICABLE STATE
SECURITIES LAW.
The partnership is authorized to issue different classes of partnership
interests. The partnership will furnish Warrant holders, without charge, upon
request in writing, a statement of the designations, relative rights,
preferences and limitations applicable to each class of partnership interests in
the partnership.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Partnership c/o Hersha
Hospitality Trust, 148 Sheraton Drive, Box A, New Cumberland, Pennsylvania
17070, Attention: President, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Partnership, the Partnership may treat the registered holder hereof as the owner
hereof for all purposes.
<PAGE>
IN WITNESS WHEREOF, the Partnership has caused this Warrant to be
executed and its seal to be hereunto affixed by its proper officers thereunto
duly authorized.
HERSHA HOSPITALITY LIMITED PARTNERSHIP
By: Hersha Hospitality Trust, as general partner
By: (SEAL)
----------------------------------------------
Hasu P. Shah
Chairman and Chief Executive Officer
ATTEST:
Secretary:
-------------------------
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION
To Hersha Hospitality Limited Partnership:
The undersigned, the holder of Warrant Number ________, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant, and to purchase thereunder _______________* units of limited
partnership interest ("Units") in Hersha Hospitality Limited Partnership and
herewith makes a payment in cash or by check of $________________ thereof and
requests that the certificate or certificates for such Units be issued in the
name of and delivered to the undersigned. The undersigned acknowledges and
agrees that the Units to be received by the undersigned are subject to the
restrictions on transfer set forth in the Warrant.
(Signature)
(Address)
Dated: _________________________
*Insert here the number of Units set forth on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment (which
adjustment will be made in the issuance of such Units, other securities,
property, or cash) for additional Units or any other securities or property or
cash that, pursuant to the adjustment provisions of the Warrant, is deliverable
upon exercise.
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _______________________ the right represented by Warrant Number ________to
purchase _______________________________ units of limited partnership interest
("Units") of Hersha Hospitality Limited Partnership to which the attached
Warrant related, and appoints _______________________ as
Attorney-in-Fact to transfer such right on the books of Hersha Hospitality
Limited Partnership with the full power of substitution in the premises.
<PAGE>
The undersigned represents and warrants that the transfer of the
attached Warrant is permitted by the terms of the Warrant Agreement pursuant to
which the attached Warrant has been issued, and the transferee hereof, by
acceptance of this Assignment, agrees to be bound by the terms of the Warrant
Agreement with the same force and effect as if a signatory thereto.
(Signature)
(Address)
Dated: __________________________
Exhibit 10.23
HERSHA HOSPITALITY TRUST
OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.01. Administrator..................................................1
1.02. Affiliate......................................................1
1.03. Agreement......................................................1
1.04. Board..........................................................1
1.05. Code...........................................................1
1.06. Committee......................................................1
1.07. Common Shares..................................................1
1.08. Company........................................................2
1.09. Exchange Act...................................................2
1.10. Fair Market Value..............................................2
1.11. Option.........................................................3
1.12. Participant....................................................3
1.13. Plan...........................................................3
ARTICLE II PURPOSES...........................................................3
ARTICLE III ADMINISTRATION....................................................4
ARTICLE IV ELIGIBILITY........................................................5
ARTICLE V SHARES SUBJECT TO PLAN
5.01. Shares Issued..................................................5
5.02. Aggregate Limit................................................5
5.03. Reallocation of Shares.........................................6
ARTICLE VI OPTIONS............................................................6
6.01. Award..........................................................6
6.02. Option Price...................................................6
6.03. Maximum Option Period..........................................6
6.04. Nontransferability.............................................6
6.05. Transferable Options...........................................7
6.06. Employee Status................................................7
6.07. Exercise.......................................................7
6.08. Payment........................................................8
6.09. Shareholder Rights.............................................8
6.10. Disposition of Shares..........................................9
i
<PAGE>
ARTICLE VII ADJUSTMENT UPON CHANGE IN COMMON SHARES...........................9
ARTICLE VIII COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES...........10
ARTICLE IX GENERAL PROVISIONS
9.01. Effect on Employment and Service..............................11
9.02. Unfunded Plan.................................................11
9.03. Rules of Construction.........................................11
ARTICLE X AMENDMENT..........................................................12
ARTICLE XI DURATION OF PLAN..................................................12
ARTICLE XII EFFECTIVE DATE OF PLAN...........................................12
ii
<PAGE>
ARTICLE I
DEFINITIONS
1.01. Administrator
Administrator means (i) while the Company is a Non-Public Company
(as defined in Section 1.18), the Board, and (ii) while the Company is a
Public Company (as defined in Section 1.18), the Committee and any
delegate of the Committee that is appointed in accordance with Article III.
1.02. Affiliate
Affiliate means any "subsidiary" or "parent" corporation (within
the meaning of Section 424 of the Code) of the Company.
1.03. Agreement
Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of an Option.
1.04. Board
Board means the Board of Trustees of the Company.
1.05. Code
Code means the Internal Revenue Code of 1986, and any amendments
thereto.
1.06. Committee
Committee means the Compensation Committee of the Board.
1.07. Common Shares
Common Shares means the common shares of the Company.
1
<PAGE>
1.08. Company
Company means Hersha Hospitality Trust.
1.09. Exchange Act
Exchange Act means the Securities Exchange Act of 1934, as amended.
1.10. Fair Market Value
Fair Market Value means, on any given date, the current fair market
value of a Common Share as determined pursuant to subsection (a), (b) or (c)
below.
(a) While the Company is a Non-Public Company, Fair Market Value shall
be determined by the Committee using any reasonable method in good faith.
(b) While the Company is a Public Company, Fair Market Value shall be
determined as follows: if the Common Shares are not listed on an established
stock exchange, Fair Market Value shall be the average of the final bid and
asked quotations on the over-the-counter market in which the Common Shares are
traded or, if applicable, the reported "closing" price of a Common Share in the
New York over-the-counter market as reported by the National Association of
Securities Dealers, Inc. If the Common Shares are listed on an established stock
exchange or exchanges, Fair Market Value shall be deemed to be the highest
closing price of a Common Share reported on that stock exchange or exchanges. In
any case, if no sale of Common Shares is made on any stock exchange or
over-the-counter market on that date, then Fair Market Value shall be determined
as of the next preceding day on which there was a sale. For purposes of this
definition, the term "Public Company" means an entity that has sold securities
pursuant to an effective registration statement on Form S-11 filed pursuant to
the Securities Act of 1933, as amended, and the term "Non-Public Company" means
2
<PAGE>
an entity that has never sold securities pursuant to an effective registration
statement on Form S-11 filed pursuant to the Securities Act of 1933, as amended.
(c) Notwithstanding the foregoing, Fair Market Value on the
effective date of the registration statement relating to the initial public
offering of the Company shall be the initial public offering price of the
Common Shares.
1.11. Option
Option means a share option that entitles the holder to purchase from
the Company a stated number of Common Shares at the price set forth in an
Agreement.
1.12. Participant
Participant means an employee of the Company or an Affiliate,
including an employee who is a member of the Board, who satisfies the
requirements of Article IV and is selected by the Administrator to receive
an Option.
1.13. Plan
Plan means the Hersha Hospitality Trust Option Plan.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company and its Affiliates in
recruiting and retaining individuals with ability and initiative by enabling
such persons to participate in the future success of the Company and its
Affiliates and to associate their interests with those of the Company and its
shareholders. The Plan is intended to permit the grant of both Options
qualifying under Section 422 of the Code ("incentive share options") and Options
not so qualifying. No Option that is intended to be an incentive share option
shall be invalid for failure to qualify as an incentive share option. The
proceeds received by the Company from the sale of Common Shares pursuant to this
Plan shall be used for general corporate purposes.
3
<PAGE>
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator. The Administrator
shall have authority to grant Options upon such terms (not inconsistent with the
provisions of this Plan), as the Administrator may consider appropriate. Such
terms may include conditions (in addition to those contained in this Plan), on
the exercisability of all or any part of an Option. Notwithstanding any such
conditions, the Administrator may, in its discretion, accelerate the time at
which any Option may be exercised. In addition, the Administrator shall have
complete authority to interpret all provisions of this Plan; to prescribe the
form of Agreements; to adopt, amend, and rescind rules and regulations
pertaining to the administration of the Plan; and to make all other
determinations necessary or advisable for the administration of this Plan. The
express grant in the Plan of any specific power to the Administrator shall not
be construed as limiting any power or authority of the Administrator. Any
decision made, or action taken, by the Administrator or in connection with the
administration of this Plan shall be final and conclusive. Neither the
Administrator nor any member of the Committee shall be liable for any act done
in good faith with respect to this Plan or any Agreement or Option. All expenses
of administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more officers
of the Company all or part of the Committee's authority and duties with respect
to grants and awards to individuals who are not subject to the reporting and
4
<PAGE>
other provisions of Section 16 of the Exchange Act. The Committee may revoke or
amend the terms of a delegation at any time but such action shall not invalidate
any prior actions of the Committee's delegate or delegates that were consistent
with the terms of the Plan.
ARTICLE IV
ELIGIBILITY
Any employee of the Company or an Affiliate (including a corporation
that becomes an Affiliate after the adoption of this Plan), is eligible to
participate in this Plan if the Administrator, in its sole discretion,
determines that such person has contributed significantly or can be expected to
contribute significantly to the profits or growth of the Company or an
Affiliate. Trustees of the Company who are employees of the Company or an
Affiliate may be selected to participate in this Plan.
ARTICLE V
SHARES SUBJECT TO PLAN
5.01. Shares Issued
Upon the exercise of any Option, the Company may deliver to the
Participant (or the Participant's broker if the Participant so directs)
Common Shares from its authorized but unissued Common Shares.
5.02. Aggregate Limit
The maximum aggregate number of Common Shares that may be issued
under this Plan pursuant to the exercise of Options is 650,000 shares,
subject to adjustment as provided in Article VII.
5
<PAGE>
5.03. Reallocation of Shares
If an Option is terminated, in whole or in part, for any reason other
than its exercise, the number of Common Shares allocated to the Option or
portion thereof may be reallocated to other Options to be granted under this
Plan.
ARTICLE VI
OPTIONS
6.01. Award
In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom an Option is to be granted and will
specify the number of Common Shares covered by such awards; provided,
however, that no individual may be granted Options in any calendar year
covering more than [________] Common Shares.
6.02. Option Price
The price per share for Common Shares purchased on the exercise of an
Option shall be determined by the Administrator on the date of grant, but
shall not be less than the Fair Market Value on the date the Option is
granted.
6.03. Maximum Option Period
The maximum period in which an Option may be exercised shall be
determined by the Administrator on the date of grant, except that no Option
shall be exercisable after the expiration of five years from the date such
Option was granted.
6.04. Nontransferability
Except as provided in Section 6.05, each Option granted under this Plan
shall be nontransferable except by will or by the laws of descent and
distribution. During the lifetime of the Participant to whom the Option is
granted, the Option may be exercised only by the Participant. No right or
interest of a Participant in any
6
<PAGE>
Option shall be liable for, or subject to, any lien, obligation, or liability of
such Participant.
6.05. Transferable Options
Section 6.04 to the contrary notwithstanding, if the Agreement
provides, an Option that is not an incentive share option may be transferred by
a Participant to the Participant's children, grandchildren, spouse, one or more
trusts for the benefit of such family members or a partnership in which such
family members are the only partners, on such terms and conditions as may be
permitted under Securities and Exchange Commission Rule 16b-3 as in effect from
time to time. The holder of an Option transferred pursuant to this section shall
be bound by the same terms and conditions that governed the Option during the
period that it was held by the Participant; provided, however, that such
transferee may not transfer the Option except by will or the laws of descent and
distribution.
6.06. Employee Status
For purposes of determining the applicability of Section 422 of the
Code (relating to incentive share options), or in the event that the terms of
any Option provide that it may be exercised only during employment or within
a specified period of time after termination of employment, the
Administrator may decide to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not
be deemed interruptions of continuous employment.
6.07. Exercise
An Option granted under this Plan will be exercisable only if (i) the
Company obtains a per share closing price on the Common Shares of $9.00 or
higher for 20 consecutive trading days; and (ii) the closing price on the Common
7
<PAGE>
Shares for the prior trading day was $9.00 or higher. Subject to the preceding
sentence and the other provisions of this Plan and the applicable Agreement, an
Option may be exercised in whole at any time or in part from time to time at
such times and in compliance with such requirements as the Administrator shall
determine; provided, however, that incentive share options (granted under the
Plan and all plans of the Company and its Affiliates) may not be first
exercisable in a calendar year for shares having a Fair Market Value (determined
as of the date an Option is granted) exceeding the amount prescribed by the Code
(currently $100,000). An Option granted under this Plan may be exercised with
respect to any number of whole shares less than the full number for which the
Option could be exercised. A partial exercise of an Option shall not affect the
right to exercise the Option from time to time in accordance with this Plan and
the applicable Agreement with respect to the remaining shares subject to the
Option.
6.08. Payment
Unless otherwise provided by the Agreement, payment of the Option price
shall be made in cash or a cash equivalent acceptable to the Administrator, or
by the surrender to the Company or attestation of ownership of Common Shares. If
Common Shares are used to pay all or part of the Option price, the sum of the
cash and cash equivalent and the Fair Market Value (determined as of the day
preceding the date of exercise) of the shares that are surrendered or that are
the subject of attestation must not be less than the Option price of the shares
for which the Option is being exercised.
6.09. Shareholder Rights
No Participant shall have any rights as a shareholder with
respect to shares subject to his Option until the date of exercise of such
Option.
8
<PAGE>
6.10. Disposition of Shares
A Participant shall notify the Company of any sale or other disposition
of Common Shares acquired pursuant to an Option that was an incentive share
option if such sale or disposition occurs (i) within two years of the grant of
an Option or (ii) within one year of the issuance of the Common Shares to the
Participant. Such notice shall be in writing and directed to the Secretary of
the Company.
ARTICLE VII
ADJUSTMENT UPON CHANGE IN COMMON SHARES
The maximum number of shares as to which Options may be granted under
this Plan, the terms of outstanding Options and the per individual limitations
on the number of shares for which Options may be granted shall be adjusted as
the Committee shall determine to be equitably required in the event that (i) the
Company (a) effects one or more share dividends, share split-ups, subdivisions
or consolidations of shares or (b) engages in a transaction to which Section 424
of the Code applies or (ii) there occurs any other event which, in the judgment
of the Committee necessitates such action. Any determination made under this
Article VII by the Committee shall be final and conclusive.
The issuance by the Company of shares of any class, or securities
convertible into shares of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the maximum number
of shares as to which Options may be granted, the per individual limitations on
the number of shares for which Options may be granted or the terms of
outstanding Options.
9
<PAGE>
The Committee may grant Options in substitution for stock options or
similar awards held by an individual who becomes an employee of the Company or
an Affiliate in connection with a transaction described in the first paragraph
of this Article XII. Notwithstanding any provision of the Plan (other than the
limitation of Section 5.02), the terms of such substituted Option grants shall
be as the Committee, in its discretion, determines is appropriate.
ARTICLE VIII
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Option shall be exercisable, no Common Shares shall be issued, no
certificates for Common Shares shall be delivered, and no payment shall be made
under this Plan except in compliance with all applicable federal and state laws
and regulations (including, without limitation, withholding tax requirements),
any listing agreement to which the Company is a party, and the rules of all
domestic stock exchanges on which the Company's shares may be listed. The
Company shall have the right to rely on an opinion of its counsel as to such
compliance. Any share certificate issued to evidence Common Shares for which an
Option is exercised may bear such legends and statements as the Administrator
may deem advisable to assure compliance with federal and state laws and
regulations. No Option shall be exercisable, no certificate for shares shall be
delivered, and no payment shall be made under this Plan until the Company has
obtained such consent or approval as the Administrator may deem advisable from
regulatory bodies having jurisdiction over such matters.
10
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
9.01. Effect on Employment and Service
Neither the adoption of this Plan, its operation, nor any documents
describing or referring to this Plan (or any part thereof), shall confer upon
any individual any right to continue in the employ or service of the Company
or an Affiliate or in any way affect any right and power of the Company or an
Affiliate to terminate the employment or service of any individual at any time
with or without assigning a reason therefor.
9.02. Unfunded Plan
The Plan, insofar as it provides for grants, shall be unfunded, and the
Company shall not be required to segregate any assets that may at any time be
represented by grants under this Plan. Any liability of the Company to any
person with respect to any grant under this Plan shall be based solely upon any
contractual obligations that may be created pursuant to this Plan. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
9.03. Rules of Construction
Headings are given to the articles and sections of this Plan solely as
a convenience to facilitate reference. The reference to any statute, regulation,
or other provision of law shall be construed to refer to any amendment to or
successor of such provision of law.
11
<PAGE>
ARTICLE X
AMENDMENT
The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if the amendment increases the aggregate number of Common Shares that
may be issued under the Plan. No amendment shall, without a Participant's
consent, adversely affect any rights of such Participant under any Option
outstanding at the time such amendment is made.
ARTICLE XI
DURATION OF PLAN
No Option may be granted under this Plan more than ten years after
the earlier of the date that the Plan is adopted by the Board or is approved by
the Company's shareholders as provided in Article XII. Options granted
before that date shall remain valid in accordance with their terms.
ARTICLE XII
EFFECTIVE DATE OF PLAN
Options may be granted under this Plan upon its adoption by the Board,
provided that no Option shall be effective or exercisable unless this Plan is
approved by a majority of the votes cast by the Company's shareholders, voting
either in person or by proxy, at a duly held shareholders' meeting at which a
quorum is present.
Exhibit 10.24
HERSHA HOSPITALITY
NON-EMPLOYEE TRUSTEES' OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.01. Administrator.................................................1
1.02. Affiliate.....................................................1
1.03. Board.........................................................1
1.04. Code..........................................................1
1.05. Common Shares.................................................1
1.06. Company.......................................................1
1.07. Disabled......................................................1
1.08. Exchange Act..................................................1
1.09. Fair Market Value.............................................2
1.10. First Award Date..............................................3
1.11. Option........................................................3
1.12. Participant...................................................3
1.13. Plan..........................................................3
1.14. Trustee.......................................................3
ARTICLE II PURPOSES..........................................................3
ARTICLE III ADMINISTRATION...................................................4
ARTICLE IV SHARES SUBJECT TO PLAN
4.01. Aggregate Limit...............................................4
4.02. Reallocation of Shares........................................4
ARTICLE V OPTIONS............................................................5
5.01. Grants........................................................5
5.02. Option Price and Payment......................................5
5.03. Exercise......................................................5
5.04. Maximum Option Period.........................................6
5.05. Limited Transferability.......................................7
5.06. Shareholder Rights............................................7
5.07. Shares Subject to Options.....................................7
ARTICLE VI ADJUSTMENT UPON CHANGE IN COMMON SHARES...........................8
i
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ARTICLE VII COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES............8
ARTICLE VIII GENERAL PROVISIONS
8.01. Unfunded Plan.................................................9
8.02. Rules of Construction.........................................9
8.03. Notice.......................................................10
8.04. Section 16 - Award Approvals.................................10
ARTICLE IX AMENDMENT........................................................10
ARTICLE X DURATION OF PLAN..................................................10
ARTICLE XI EFFECTIVE DATE OF PLAN...........................................11
ii
<PAGE>
ARTICLE I
DEFINITIONS
1.01. Administrator
Administrator means the Trustee or Trustees who are appointed by the Board
to administer the Plan, none of whom may be Participants.
1.02. Affiliate
Affiliate means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company, including an entity that
becomes an Affiliate after the adoption of this Plan.
1.03. Board
Board means the Board of Trustees of the Company.
1.04. Code
Code means the Internal Revenue Code of 1986, as amended.
1.05. Common Shares
Common Shares means the common shares of the Company.
1.06. Company
Company means Hersha Hospitality Trust.
1.07. Disabled
Disabled means permanently and totally disabled within the meaning of
Code Section 22(e)(3).
1.08. Exchange Act
Exchange Act means the Securities Exchange Act of 1934, as amended and
as in effect from time to time.
1
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1.09. Fair Market Value
Fair Market Value means, on any given date, the current fair market
value of a Common Share as determined pursuant to subsection (a), (b) or (c)
below.
(a) While the Company is a Non-Public Company, Fair Market Value shall
be determined by the Administrator using any reasonable method in good faith.
(b) While the Company is a Public Company, Fair Market Value shall be
determined as follows: if the Common Shares are not listed on an established
stock exchange, the Fair Market Value shall be the reported "closing" price of a
Common Share in the New York over-the-counter market as reported by the National
Association of Securities Dealers, Inc. If the Common Shares are listed on an
established stock exchange or exchanges, Fair Market Value shall be deemed to be
the highest closing price of a Common Share reported on that stock exchange or
exchanges or, if no sale of Common Shares shall be made on any stock exchange on
that day, then the next preceding day on which there was a sale. For purposes of
this definition, the term "Public Company" means an entity that has sold
securities pursuant to an effective registration statement on Form S-11 filed
pursuant to the Securities Act of 1933, as amended and the term "Non-Public
Company" means an entity that has never sold securities pursuant to an effective
registration statement on Form S-11 filed pursuant to the Securities Act of
1933, as amended.
(c) Notwithstanding the foregoing, Fair Market Value on the First Award
Date shall be the initial public offering price of the Common Shares.
2
<PAGE>
1.10. First Award Date
First Award Date means the date that the registration statement relating to
the Company's initial public offering of Common Shares is declared effective by
the Securities and Exchange Commission.
1.11. Option
Option means an option that entitles the holder to purchase Common
Shares from the Company on the terms set forth in Article V of this Plan.
1.12. Participant
Participant means a Trustee (i) who is an "Independent Trustee" as that
term is used in the registration statement relating to the Company's initial
public offering of Common Shares and (ii) who is a member of the Board on the
First Award Date.
1.13. Plan
Plan means the Hersha Hospitality Non-Employee Trustees' Option Plan.
1.14. Trustee
Trustee means a member of the Board of Trustees of the Company.
ARTICLE II
PURPOSES
The Plan is intended (i) to assist the Company in recruiting and
retaining independent Trustees and (ii) to promote a greater identity of
interest between Participants and shareholders by enabling Participants to
participate in the Company's future success.
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ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator. The Administrator
shall have authority to grant Options upon such terms (not inconsistent with the
provisions of the Plan) as the Administrator may consider appropriate. In
addition, the Administrator shall have complete authority to interpret all
provisions of the Plan; to adopt, amend, and rescind rules and regulations
pertaining to the administration of the Plan; and to make all other
determinations necessary or advisable for the administration of the Plan. The
express grant in the Plan of any specific power to the Administrator shall not
be construed as limiting any power or authority of the Administrator. Any
decision made, or action taken, by the Administrator or in connection with the
administration of the Plan shall be final and conclusive. No Trustee serving as
Administrator shall be liable for any act done in good faith with respect to the
Plan. All expenses of administering the Plan shall be borne by the Company.
ARTICLE IV
SHARES SUBJECT TO PLAN
4.01. Aggregate Limit
The maximum aggregate number of Common Shares that may be issued under this
Plan is [_______] Common Shares, subject to adjustment as provided in Article
VI.
4.02. Reallocation of Shares
If an Option is terminated, in whole or in part, for any reason other
than its exercise, the number of Common Shares allocated to that Option or
portion thereof may be reallocated to other Options to be granted under this
Plan.
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ARTICLE V
OPTIONS
5.01. Grants
Each Participant shall be granted an Option for 10,000 Common Shares on
the First Award Date.
5.02. Option Price and Payment
The price per share for Common Shares purchased on the exercise of an
Option shall be the Fair Market Value on the date that the Option is granted.
Payment of the Option price shall be made in cash, cash equivalent acceptable to
the Administrator, by the surrender to the Company or attestation of ownership
of Common Shares or a combination thereof. If Common Shares are used in payment
of the Option price, the Common Shares that are surrendered or that are the
subject of attestation must have an aggregate Fair Market Value (determined as
of the day preceding the exercise date) that, together with any cash or cash
equivalent paid, is not less than the Option price for the number of Common
Shares for which the Option is being exercised.
5.03. Exercise
(a) Subject to the provisions of Article VII and Sections 5.03(b) and
5.03(c), an Option granted under Section 5.01 shall be exercisable with respect
to three thousand three hundred thirty-three (3,333) Common Shares on each of
the first and second anniversaries of the date on which such Option was granted,
provided that the Participant is a member of the Board on the applicable
anniversary, and with respect to an additional three thousand three hundred
thirty-four (3,334) Common Shares subject to such Option on the third
anniversary of the date such Option was granted, provided that the Participant
is a member of the Board on that date. Except as provided in Section 5.03(b), a
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Participant shall forfeit his or her Option to the extent it is not exercisable
under the preceding sentence when he or she ceases to serve on the Board.
(b) An Option held by a Participant who ceases to serve on the Board on
account of his or her death or becoming Disabled will become exercisable, in
whole or in part, as of the date such Participant ceases to serve on the Board.
To the extent that an Option has become exercisable in accordance with this
Section 5.03(b) or Section 5.03(a), as applicable, it may be exercised whether
or not the Participant is a member of the Board on the date or dates of
exercise. An Option may be exercised with respect to any number of whole Common
Shares less than the full number for which the Option could be exercised. A
partial exercise of an Option shall not affect the right to exercise the Option
from time to time in accordance with this Plan with respect to the remaining
Common Shares subject to the Option. All Options shall be evidenced by
agreements that shall be subject to the applicable provisions of this Plan and
to such other provisions as the Administrator may adopt.
(c) Notwithstanding Section 5.03(a) or 5.03(b), an Option granted under
this Plan will be exercisable only if (i) the Company obtains a per share
closing price on the Common Shares of $9.00 for twenty (20) consecutive trading
days and (ii) the closing price per share for the prior trading day was $9.00 or
higher.
5.04. Maximum Option Period
The period during which an Option may be exercised shall be ten years
from the date of grant. In the event of the Participant's death, the Option may
be exercised by the Participant's estate, or by such person or persons who
succeed to the Participant's rights by will or the laws of descent and
distribution or to whom the Option is transferred pursuant to Section 5.05,
following the Participant's death until the expiration of the Option period.
Participant's estate or such person or persons may exercise the Option with
respect to all or part of the number of Common Shares for which Participant
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could have exercised the Option on the date of his or her death.
5.05. Limited Transferability
If requested by a Participant and agreed to by the Administrator, an
Option granted under this Plan may be transferred by a Participant to the
Participant's children, grandchildren, spouse, one or more trusts for the
benefit of such family members or partnerships in which such family members are
the only partners (each person or entity, a "Permitted Transferee"), on such
terms and conditions as may be permitted under Securities and Exchange
Commission Rule 16b-3 as in effect from time to time. The holder of an Option
transferred pursuant to this Section shall be bound by the same terms and
conditions that governed the Option during the period that it was held by the
Participant; provided, however, that a Permitted Transferee may not transfer the
Option except by will or the laws of descent and distribution. Except for other
transfers expressly permitted under this Section 5.05, an Option granted under
this Plan may be transferred only by will or by the laws of descent and
distribution. No right or interest of a Participant in any Option shall be
liable for, or subject to, any lien, obligation, or liability of such
Participant.
5.06. Shareholder Rights
No Participant shall have any rights as a shareholder with respect to
Common Shares subject to his or her Option until the date of exercise of such
Option.
5.07. Shares Subject to Options
Upon the exercise of any Option, the Company may deliver to the
Participant (or the Participant's broker if the Participant so directs), Common
Shares from its previously authorized but unissued Common Shares.
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ARTICLE VI
ADJUSTMENT UPON CHANGE IN COMMON SHARES
The maximum number of shares as to which Options may be granted under
this Plan and the terms of outstanding Options shall be revised as the
Administrator shall determine to be equitably required in the event that (i) the
Company (a) effects one or more share dividends, share split-ups, subdivisions
or consolidation of shares or (b) engages in a transaction to which Section 424
of the Code applies or (ii) there occurs any other event which, in the judgment
of the Administrator, necessitates such action. Any determination made under
this Article VII by the Administrator shall be final and conclusive.
The issuance by the Company of shares of any class, or securities
convertible into shares of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
that will be issued as of any date of grant specified in this Plan.
ARTICLE VII
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Common Shares shall be issued and no certificates for Common Shares
shall be delivered under the Plan except in compliance with all applicable
federal and state laws and regulations (including, without limitation,
withholding tax requirements), any listing agreement to which the Company is a
party, and the rules of all domestic stock exchanges on which the Company's
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Common Shares may be listed. The Company shall have the right to rely on an
opinion of its counsel as to such compliance. Any certificate issued to evidence
Common Shares issued under the Plan may bear such legends and statements as the
Administrator may deem advisable to assure compliance with federal and state
laws and regulations. No Common Shares shall be issued and no certificate for
Common Shares shall be delivered under the Plan until the Company has obtained
such consent or approval as the Administrator may deem advisable from regulatory
bodies having jurisdiction over such matters.
ARTICLE VIII
GENERAL PROVISIONS
8.01. Unfunded Plan
The Plan, insofar as it provides for awards, shall be unfunded, and the
Company shall not be required to segregate any assets that may at any time be
represented by awards under the Plan. Any liability of the Company to any person
with respect to any award to be made under the Plan shall be based solely upon
any contractual obligations that may be created pursuant to the Plan. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
8.02. Rules of Construction
Headings are given to the articles and sections of the Plan solely as a
convenience to facilitate reference. The reference to any statute, regulation,
or other provision of law shall be construed to refer to any amendment to or
successor of such provision of law.
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8.03. Notice
Unless specifically required by the terms of this Plan, notice to the
Company's shareholders, the Participants, or any other person or entity of an
action by the Board or the Administrator with respect to the Plan is not
required before or after such action occurs.
8.04. Section 16 - Award Approvals
Notwithstanding any other provision of this Plan, all awards granted
under this Plan shall be subject to Board, shareholder or other approval
sufficient to provide exempt status for such awards under Section 16 of the
Exchange Act as that Section and the Rules thereunder are in effect from time to
time.
ARTICLE IX
AMENDMENT
The Board may amend from time to time or terminate the Plan at any
time; provided, however, that no amendment may become effective until
shareholder approval is obtained if the amendment increases the aggregate number
of Common Shares that may be issued under the Plan. No amendment shall, without
a Participant's consent, adversely affect any rights of such Participant under
any Options granted under this Plan outstanding at the time such amendment is
made.
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ARTICLE X
DURATION OF PLAN
No Options may be granted under the Plan more than ten years after the
date the Board approved the Plan. Options granted during the term of the Plan
shall remain in effect in accordance with their terms notwithstanding the
expiration or earlier termination of the Plan.
ARTICLE XI
EFFECTIVE DATE OF PLAN
Options may be granted under this Plan upon its adoption by the Board,
but no Option will be effective or exercisable unless this Plan is approved by
shareholders (at a duly held shareholders' meeting at which a quorum is present)
by a majority of the votes cast by the Company's shareholders, voting either in
person or by proxy, or by unanimous consent of the Company's shareholders.
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Exhibit 23.2
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the heading "Experts" and
"Selected Financial Information" and to the use of our report dated May 27,
1998, on our audit of Hersha Hospitality Trust, our report dated May 27, 1998,
on our audit of Hersha Hospitality Management, L.P., and our report dated March
21, 1998, on our audit of the Combined Selling Entities - Initial Hotels in this
Registration Statement and related prospectus of Hersha Hospitality Trust.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
July ___, 1998
