SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 20, 1999
APPLE SUITES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 333-77055 54-1938865
(State of (Commission (IRS Employer
incorporation File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code.
(804)643-1761
<PAGE>
APPLE SUITES, INC.
FORM 8-K
Index
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Item 2. Acquisition or Disposition of Assets 1
Item 7. Financial Statements and Exhibits
a. Financial Statements
Atlanta - Galleria/Cumberland; Dallas - Addison; Dallas - Irving/
Las Colinas; North Dallas - Plano; Richmond - West End
Independent Auditors Report 29
Combined Balance Sheets - December 31, 1998 and December 31, 1997 30
Combined Statements of Shareholders' Equity - Years ended December 32
31, 1997 and December 31, 1998
Combined Income Statements - Years ended December 31, 1998 and 33
December 31, 1997
Combined Statements of Cash Flows - Years ended December 31, 1998 and 34
December 31, 1997
Notes to the Combined Financial Statements - December 31, 1998 and 35
December 31, 1997
* * *
Combined Balance Sheet - June 30, 1999 (unaudited) 39
Combined Statement of Shareholders' Equity - For the Period January 41
1, 1999 through June 30, 1999 (unaudited)
Combined Income Statement - For the Period January 1, 1999 through 42
June 30, 1999 (unaudited)
Combined Statement of Cash Flows - For the Period January 1, 1999 43
through June 30, 1999 (unaudited)
Notes to the Combined Financial Statements - For the Period January 44
1, 1999 through June 30, 1999 (unaudited)
* * *
Apple Suites, Inc. - Pro Forma Condensed Consolidated Balance Sheet 48
as of June 30, 1999 (unaudited)
Apple Suites, Inc. - Pro Form Condensed Consolidated Statement of 50
Operations for the Year Ended December 31, 1998 and the Six Months
Ended June 30, 1999 (unaudited)
Apple Suites Management, Inc. - Pro Forma Condensed Consolidated 53
Statement of Operations for the Year Ended December 31, 1998 and the
Six Months Ended June 30, 1999 (unaudited)
</TABLE>
(i)
<PAGE>
b. Exhibits
4.1 Note dated September 20, 1999 in the principal amount
of $ 26,625,000 made payable by Apple Suites, Inc. to
the order of Promus Hotels, Inc.
4.2 Fee and Leasehold Deed of Trust, Assignment of Lease
and Rents and Security Agreement dated September 20,
1999 from Apple Suites, Inc. and Apple Suites
Management, Inc. for the benefit of Promus Hotels,
Inc. pertaining to the Richmond-West End hotel.
4.3 Fee and Leasehold Deed of Trust, Assignment of Leases
and Rents and Security Agreement dated September 20,
1999 from Apple Suites REIT Limited Partnership and
Apple Suites Services Limited Partnership for the
benefit of Promus Hotels, Inc. pertaining to the
Dallas-Addison hotel.
4.4 Fee and Leasehold Deed of Trust, Assignment of Leases
and Rents and Security Agreement dated September 20,
1999 from Apple Suites REIT Limited Partnership and
Apple Suites Services Limited Partnership for the
benefit of Promus Hotels, Inc. pertaining to the
Dallas-Irving/Las Colinas hotel.
4.5 Fee and Leasehold Deed of Trust, Assignment of Leases
and Rents and Security Agreement dated September 20,
1999 from Apple Suites REIT Limited Partnership and
Apple Suites Services Limited Partnership for the
benefit of Promus Hotels, Inc. pertaining to the
North Dallas-Plano hotel.
10.1 Indemnity dated September 20, 1999 from Apple Suites,
Inc. to Promus Hotels, Inc. pertaining to the
Richmond-West End hotel.
10.2 Indemnity dated September 20, 1999 from Apple Suites,
Inc. to Promus Hotels, Inc. pertaining to the
Dallas-Addison hotel.
10.3 Indemnity dated September 20, 1999 from Apple Suites,
Inc. to Promus Hotels, Inc. pertaining to the
Dallas-Irving/Las Colinas hotel.
10.4 Indemnity dated September 20, 1999 from Apple Suites,
Inc. to Promus Hotels, Inc. pertaining to the to the
North Dallas-Plano hotel.
10.5 Master Hotel Lease Agreement dated September 20, 1999
between Apple Suites, Inc. (as lessor) and Apple
Suites Management, Inc. (as lessee).
10.6 Master Hotel Lease Agreement dated September 20, 1999
between Apple Suites REIT Limited Partnership (as
lessor) and Apple Suites Services Limited Partnership
(as lessee).
10.7 Homewood Suites License Agreement dated September 20,
1999 between Promus Hotels, Inc. and Apple Suites
Management, Inc. pertaining to the Richmond-West
End hotel.
10.8 Homewood Suites License Agreement dated September 20,
1999 between Promus Hotels, Inc. and Apple Suites
Services Limited Partnership pertaining to the
Dallas-Addison hotel.
(ii)
<PAGE>
10.9 Homewood Suites License Agreement dated September 20,
1999 between Promus Hotels, Inc. and Apple Suites
Services Limited Partnership pertaining to the
Dallas-Irving/Las Colinas hotel.
10.10 Homewood Suites License Agreement dated September 20,
1999 between Promus Hotels, Inc. and Apple Suites
Services Limited Partnership pertaining to the North
Dallas-Plano hotel.
10.11 Management Agreement dated September 20, 1999 between
Apple Suites Management, Inc. and Promus Hotels, Inc.
pertaining to the Richmond-West End hotel.
10.12 Management Agreement dated September 20, 1999 between
Apple Suites Services Limited Partnership and Promus
Hotels, Inc. pertaining to the Dallas-Addison hotel.
10.13 Management Agreement dated September 20, 1999 between
Apple Suites Services Limited Partnership and Promus
Hotels, Inc. pertaining to the Dallas-Irving/Las
Colinas hotel.
10.14 Management Agreement dated September 20, 1999 between
Apple Suites Services Limited Partnership and Promus
Hotels, Inc. pertaining to the North Dallas-Plano
hotel.
10.15 Comfort Letter dated September 20, 1999 among Promus
Hotels, Inc., Apple Suites, Inc. and Apple Suites
Management, Inc. pertaining to the Richmond-West
End hotel.
10.16 Comfort Letter dated September 20, 1999 among Promus
Hotels, Inc., Apple Suites REIT Limited Partnership
and Apple Suites Services Limited Partnership
pertaining to the Dallas-Addison hotel.
10.17 Comfort Letter dated September 20, 1999 among Promus
Hotels, Inc., Apple Suites REIT Limited Partnership
and Apple Suites Services Limited Partnership
pertaining to the Dallas-Irving/Las Colinas hotel.
10.18 Comfort Letter dated September 20, 1999 among Promus
Hotels, Inc., Apple Suites REIT Limited Partnership
and Apple Suites Services Limited Partnership
pertaining to the North Dallas-Plano hotel.
10.19 Promissory Note dated September 17, 1999 in the
amount of $215,550 made payable by Apple Suites
Management, Inc. and Apple Suites Services Limited
Partnership to the order of Apple Suites, Inc.
10.20 Promissory Note dated September 17, 1999 in the
amount of $47,800 made payable by Apple Suites
Management, Inc. and Apple Suites Services Limited
Partnership to the order of Apple Suites, Inc.
10.21 Articles of Incorporation of Apple Suites General,
Inc.
10.22 Bylaws of Apple Suites General, Inc.
(iii)
<PAGE>
10.23 Articles of Incorporation of Apple Suites LP, Inc.
10.24 Bylaws of Apple Suites LP, Inc.
10.25 Certificate of Limited Partnership of Apple Suites
REIT Limited Partnership.
10.26 Agreement of Limited Partnership of Apple Suites REIT
Limited Partnership.
24 Consent of Independent Auditors
(iv)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
We (Apple Suites, Inc.) have purchased, either directly or through our
subsidiaries, five existing Homewood Suites(R) hotels. Homewood Suites(R) is a
registered service mark of Promus Hotels, Inc. The five hotels were purchased
from Promus Hotels, Inc. or its affiliates. The total purchase price for the
five hotels was $45,300,000. We used proceeds from our offering of common shares
to pay twenty-five percent of this total, or $11,325,000, at closing in cash.
The balance of 75%, or $33,975,000, is being financed by Promus Hotels, Inc. as
short-term or "bridge financing," as described below.
We have paid a real estate commission of $906,000 to Apple Suites
Realty Group, Inc., as our real estate broker. This amount equals two percent
(2%) of the total purchase price for the hotels.
OVERVIEW OF HOTELS
We have closed on our purchases of the following hotels:
<TABLE>
<CAPTION>
Name and Total Date of Purchase Financed
Location of Hotel Suites Purchase Price Portion
- ----------------- ------ -------- ----- -------
<S> <C> <C> <C> <C>
Atlanta-Galleria/Cumberland 124 10/5/99 $ 9,800,000 $ 7,350,000
Atlanta, Georgia
Dallas-Addison 120 9/20/99 $ 9,500,000 $ 7,125,000
Addison, Texas
Dallas-Irving/Las Colinas 136 9/20/99 $ 11,200,000 $ 8,400,000
Irving, Texas
North Dallas-Plano 99 9/20/99 $ 5,400,000 $ 4,050,000
Plano, Texas
Richmond-West End 123 9/20/99 $ 9,400,000 $ 7,050,000
Glen Allen, Virginia
</TABLE>
We directly acquired the hotels in Atlanta, Georgia and Glen Allen,
Virginia. Those two hotels have been leased to Apple Suites Management, Inc.
under a master hotel lease agreement dated as of September 20, 1999. This
agreement is among the material contracts described below.
The three hotels in Texas were acquired by one of our subsidiaries,
Apple Suites REIT Limited Partnership, a Virginia limited partnership, based on
business and tax planning considerations. We have two wholly-owned subsidiaries
that serve as the sole general partner and sole limited partner of this limited
partnership. The sole general partner is Apple Suites General, Inc., a Virginia
corporation. It holds a one percent partnership interest. The sole limited
partner is Apple Suites LP, Inc., a Virginia corporation. It holds a ninety-nine
percent partnership interest. Glade M. Knight is the sole director of these two
corporate partners.
1
<PAGE>
Under a master hotel lease agreement dated as of September 20, 1999,
the three hotels in Texas have been leased to Apple Suites Services Limited
Partnership, a Virginia limited partnership. This limited partnership is a
subsidiary of Apple Suites Management, Inc. Two direct wholly-owned subsidiaries
of Apple Suites Management, Inc. serve as the sole general partner and sole
limited partner of the limited partnership. The sole general partner is Apple
Suites Services General, Inc., a Virginia corporation. It holds a one percent
partnership interest. The sole limited partner is Apple Suites Services Limited,
Inc., a Virginia corporation. It holds a ninety-nine percent partnership
interest. Glade M. Knight is the sole director of these two corporate partners.
The ownership and leasing structure is depicted in the chart below:
[Graphic Omitted]
2
<PAGE>
HOTEL SUPPLIES AND FRANCHISE FEES
We have provided the lessees of the hotels (Apple Suites Management,
Inc. and Apple Suites Services Limited Partnership) with funds for the purchase
of certain hotel supplies, such as sheets, towels and so forth. The lessees are
obligated to repay us under two promissory notes made in the principal amounts
of $47,800 (for the hotels in Texas and Virginia, as a group) and $12,400 (for
the hotel in Atlanta). These promissory notes are substantially similar. Each
promissory note provides for an annual interest rate of nine percent (9%), which
would increase to twelve percent (12%) if a default occurs, and repayment in
sixty-one (61) monthly installments. The first installment consists of interest
only. The respective due dates for the first installment, subject to a five-day
grace period, are October 1, 1999 and November 1, 1999. The remaining
installments consist of principal and interest on an amortized basis. The final
maturity dates are October 1, 2004 and November 1, 2004, respectively.
We have also provided the lessees of the hotels with funds for the
payment of hotel franchise fees to Promus Hotels, Inc. The lessees are obligated
to repay us under two promissory notes made in the principal amounts of $215,550
(for the hotels in Texas and Virginia, as a group) and $55,800 (for the hotel
in Atlanta). These promissory notes are substantially similar to the ones
described above, except that these promissory notes provide for repayment in one
hundred twenty-one (121) monthly installments and have final maturity dates of
October 1, 2009 and November 1, 2009, respectively.
DESCRIPTION OF FINANCING
As indicated above, Promus Hotels, Inc. is financing 75% of the
purchase price of the five hotels. We have executed two promissory notes payable
to Promus Hotels, Inc. to evidence our debt. To secure the debt, each hotel is
subject to a mortgage created by a deed of trust. The deeds of trust are among
the material contracts described below.
The principal amounts of the two promissory notes are $26,625,000
(which represents the aggregate financing for the hotels in Texas and Virginia)
and $7,350,000 (which represents the financing for the hotel in Atlanta). In
other respects, the two promissory notes are substantially similar. The
promissory notes provide for, among other things, the following:
o monthly interest payments, based on an annual interest rate of
eight and one-half percent (8.5%)
o monthly principal payments, to the extent of the net equity
proceeds from our offering of common shares
o our delivery of monthly notices to specify such net equity proceeds
o our right to prepay the notes, in whole or in part, without premium
or penalty
o a late payment premium of four percent (4%) for any payment not
made within 10 days of its due date
o initial payment dates, subject to a 10-day grace period, of October
1, 1999 (for the $26,625,000 note) and November 1, 1999 (for the
$7,350,000 note)
o final maturity dates of October 1, 2000 (for the $26,625,000 note)
and November 1, 2000 (for the $7,350,000 note)
3
<PAGE>
Revenue from the operation of the hotels will be used to pay interest.
As indicated above, the "net equity proceeds" from our offering of common shares
will be used to pay principal. The phrase "net equity proceeds" means the total
proceeds from our offering of common shares, as reduced by selling commissions,
a marketing expense allowance, closing costs, various fees and charges (legal,
accounting, etc.), a working capital reserve and a reserve for renovations,
repairs and replacements of capital improvements.
We expect to make monthly payments of principal. There can be no
assurance, however, that the net equity proceeds from our offering of common
shares will be sufficient to pay the principal under the promissory notes on or
before the required due dates. If no payments of principal are made prior to the
maturity of the promissory notes, a principal payment of $33,975,000 would be
due at maturity, together with a monthly interest payment of $240,656.25. In the
event of default under the promissory notes, various remedies are available to
Promus Hotels, Inc. under the deeds of trust, as described below.
We consider the financing from Promus Hotels, Inc. to be "bridge
financing" because of its short-term nature (i.e., one year). Thus, despite the
temporary use of bridge financing, over the long-term we will seek to hold our
properties on an all-cash basis, as indicated in the prospectus.
LICENSING AND MANAGEMENT
We expect that all five of the hotels will continue to operate as
Homewood Suites(R) franchises, which are licensed by Promus Hotels, Inc. To help
achieve that result, Promus Hotels, Inc. has executed separate license
agreements, dated as of September 20, 1999 with the respect to the hotels in
Texas and Virginia, and dated as of October 5, 1999 with respect to the hotel in
Atlanta. Promus Hotels, Inc. is managing each of the five hotels under
management agreements dated as of September 20, 1999 with respect to the hotels
in Texas and Virginia, and dated as of October 5, 1999 with respect to the hotel
in Atlanta. These license and management agreements are among the material
contracts described below.
POTENTIAL ECONOMIC RISK AND BENEFIT TO GLADE M. KNIGHT
Because we are prohibited under federal tax laws from directly
operating our extended-stay hotels, we have entered into leases for the five
hotels we have purchased. The hotels are leased to Apple Suites Management, Inc.
or its indirectly wholly-owned subsidiary, Apple Suites Services Limited
Partnership. Our president and chief executive officer, Glade M. Knight, is the
sole shareholder of Apple Suites Management, Inc. and, as a result, the indirect
owner of Apple Suites Services Limited Partnership.
The master hotel lease agreements have been structured to minimize, to
the extent possible, the economic benefit to Apple Suites Management, Inc. and
to maximize the rental income we receive from the hotels. However, revenues from
operating the hotels may exceed payment obligations of the lessees under the
master hotel lease agreements and the license and management agreements. To the
extent that Apple Suites Management, Inc. has any remaining income after those
payment obligations are met, it will realize an economic benefit. Because this
4
<PAGE>
potential economic benefit depends, in part, on future hotel revenues, the
extent of this potential economic benefit cannot be determined at this time.
Apple Suites Management, Inc. has agreed that it will retain its net
income, if any, rather than distribute such income to Glade M. Knight. This
agreement will remain in effect for the duration of the master hotel lease
agreements, to help ensure that Apple Suites Management will be able to make its
rent payments.
If the cash flow from the operations of the hotels and the retained
earnings of Apple Suites Management, Inc. are insufficient to make the rental
payments due under the master lease agreements, Apple Suites Management, Inc.
can receive additional funding from two funding commitments in the aggregate
amount of $2 million. The funding commitments have been made by Glade M. Knight
and Apple Suites Realty Group, Inc., which is wholly-owned by Mr. Knight. These
funding commitments are payable on demand by Apple Suites Management, Inc. Under
each funding commitment, Apple Suites Management, Inc. can make one or more
demands for funding, subject to the following: (1) the aggregate payments under
the funding commitments shall not exceed $2 million; (2) the demands for payment
shall be limited, in amount and frequency, to those demands that are reasonably
necessary to satisfy any capitalization or net worth requirements of Apple
Suites Management, Inc., or payment obligations under the master hotel lease
agreements. Apple Suites Management, Inc. is not required to repay the funds it
receives under the funding commitments.
SUMMARY OF MATERIAL CONTRACTS
DEEDS OF TRUST
Each hotel is encumbered by a mortgage on its real property, and a
security interest in its personal property, together with an assignment of hotel
rents and revenues, all in favor of Promus Hotels, Inc. These encumbrances
secure the payment of principal and interest under the promissory notes we have
made to Promus Hotels, Inc.
These encumbrances are created by five separate deeds of trust. For the
four hotels in Texas and Virginia, these deeds of trust are each named a "Fee
and Leasehold Deed of Trust, Assignment of Leases and Rents and Security
Agreement." For the hotel in Atlanta, the deed of trust is named a "Fee and
Leasehold Deed to Secure Debt, Assignment of Leases and Rents and Security
Agreement."
We are subject to various requirements under the deeds of trust. For
instance, we must maintain adequate insurance on the hotels and we must not
grant any further assignments of rents or leases with respect to the hotels.
Each deed of trust defines certain events of default. For each deed of
trust, those events include, among others, any default under the promissory
notes, any default under any other deed of trust and any sale of the secured
property without the prior consent of Promus Hotels, Inc. Upon any event of
default, various remedies are available to Promus Hotels, Inc. Those
5
<PAGE>
remedies include, for example (1) declaring the entire principal balance under
the promissory notes, and all accrued and unpaid interest, to be due and payable
immediately; (2) taking possession of the secured property, including the
hotels; and (3) collecting hotel rents and revenues, or foreclosing on the
hotels, to satisfy unpaid amounts under the promissory notes. Each deed of trust
requires us to pay any costs that may be incurred in exercising such remedies.
In addition, our hotels in Texas and Virginia are each subject to a
second mortgage and security interest, under terms and conditions that are
substantially similar to the ones described above. These additional encumbrances
provide further security for the payment of principal and interest under our
promissory note to Promus Hotels, Inc. with respect to the hotel in Atlanta.
ENVIRONMENTAL INDEMNITIES
Each hotel is subject to a separate indemnity. The indemnities protect
Promus Hotels, Inc. in the event that we undertake any corrective work to remove
or eliminate hazardous materials from the hotel properties. Hazardous materials
are defined in the indemnities to include, for example, asbestos and other toxic
materials. We are not aware of any hazardous materials at the hotel properties,
but there can be no assurance that such materials are not present.
Under the indemnities, we have agreed to indemnify and protect Promus
Hotels, Inc. from any losses that it may incur because of (1) the nonperformance
or delayed performance and completion of corrective work; or (2) the enforcement
of the indemnities. Our indemnities with respect to the hotels in Texas and
Virginia generally will terminate upon payment in full under the promissory note
we have made to Promus Hotels, Inc. in the principal amount of $26,625,000. Our
indemnity with respect to the hotel in Atlanta generally will terminate upon
payment in full under the promissory note we have made to Promus Hotels, Inc. in
the principal amount of $7,350,000. However, in each case, our indemnities will
continue with respect to those litigation or administrative claims, if any, that
involve indemnified losses and that are pending at the date of full payment. In
addition, for a period of 4 years after the date of such full payment, we will
be obligated to pay any enforcement costs for subsequent litigation or
administrative claims.
MASTER HOTEL LEASE AGREEMENTS
We have leased our hotels in Atlanta, Georgia and Richmond, Virginia to
Apple Suites Management, Inc. under a master hotel lease agreement dated as of
September 20, 1999. We have leased our hotels in Texas to Apple Suites Services
Limited Partnership, a subsidiary of Apple Suites Management, Inc., under
another master hotel lease agreement dated as of September 20, 1999. These two
master hotel lease agreements are substantially similar. To simplify the
following discussion, the term "Apple Suites Management" will mean the lessee,
whether it is Apple Suites Management, Inc. or Apple Suites Services Limited
Partnership.
The master hotel lease agreements have an initial term of ten years and
an optional five-year extension, provided that Apple Suites Management is not in
default either at the time of the exercise of the option or at the end of the
original term of the lease. The first five-year extension would be upon the same
terms, conditions and rentals as in the initial term. Apple Suites
6
<PAGE>
Management has the option to extend the lease for an additional five years
following the end of the first five-year extension, provided it is not in
default either at the time of the exercise of the option or at the end of the
original term of the first five-year extension. If this second option is
exercised, we and Apple Suites Management must negotiate in good faith to adjust
the rental payments for the additional five-year term to a market rate for
similar hotel properties at that time. If no agreement can be reached on rental
terms for this second five-year extension, a panel of three persons who have
generally recognized expertise in evaluating hotel REIT leases and who are not
affiliates of us or Apple Suites Management will determine such rental terms.
We may terminate the master hotel leases if (1) we sell the hotels to a
third party; (2) there is a change of control of Apple Suites Management; or (3)
the Internal Revenue Code is amended to permit us to operate the hotels directly
or otherwise render the use of a lease by a hotel REIT obsolete. If we terminate
the master hotel lease we must compensate Apple Suites Management by either
paying the fair market value of the lease as of such termination, or offering to
lease one or more substitute hotel facilities.
Each master hotel lease agreement provides that Apple Suites Management
will pay us a base rent, percentage rent and certain additional charges. Base
rent is payable in advance in equal monthly installments. In addition, for each
calendar quarter during the term of the leases, Apple Suites Management will pay
percentage rent based on a percentage of gross revenues (less sales and room
taxes), referred to as "suite revenue," derived in connection with the rental of
suites at the hotels. The percentage rent is equal to (a) 17% of all
year-to-date suite revenue, up to the applicable quarterly suite revenue
breakpoint (as shown below); plus (b) 55% of the year-to-date suite revenue in
excess of the applicable quarterly suite revenue breakpoint, less both base
rents and the percentage rent paid year to date. The base rent and the
percentage rent will be adjusted each year beginning on January 1, 2001, based
on the most recently published Consumer Price Index. The base rents and
quarterly suite revenue breakpoints for each of the five hotels over the next
ten years are describe in the following table:
Name of Hotel Base Rent
------------- ---------
Atlanta-Galleria/Cumberland $661,320
Dallas-Addison $638,220
Dallas-Irving/Las Colinas $824,340
North Dallas-Plano $501,930
Richmond-West End $674,190
7
<PAGE>
QUARTERLY SUITE REVENUE BREAKPOINTS
HOMEWOOD SUITES(R) ATLANTA - GALLERIA/CUMBERLAND
ATLANTA, GEORGIA
- ---------------- ---------------- --------------- ------------- ---------------
QUARTERS 1999 2000 2001 2002
-------- ---- ---- ---- ----
1st Quarter $285,570 $265,530 $270,540 $275,550
2nd Quarter $571,140 $531,060 $541,080 $551,100
3rd Quarter $856,710 $796,590 $811,620 $826,650
4th Quarter $1,142,280 $1,062,120 $1,082,160 $1,102,200
- ---------------- ---------------- --------------- ------------- ---------------
<TABLE>
<CAPTION>
- ---------------- ------------ ------------- -------------- ------------- ----------- ------------
QUARTERS 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $280,560 $285,570 $290,580 $295,590 $300,600 $305,610
2nd Quarter $561,120 $571,140 $581,160 $591,180 $601,200 $611,220
3rd Quarter $841,680 $856,710 $871,740 $886,770 $901,800 $916,830
4th Quarter $1,122,240 $1,142,280 $1,162,320 $1,182,360 $1,202,400 $1,222,440
- ---------------- ----------- -------------- -------------- ------------- ----------- ------------
</TABLE>
HOMEWOOD SUITES(R) DALLAS - ADDISON
ADDISON, TEXAS
- ------------------- -------------- -------------- --------------- --------------
QUARTERS 1999 2000 2001 2002
-------- ---- ---- ---- ----
1st Quarter $275,595 $256,255 $261,090 $265,925
2nd Quarter $551,190 $512,510 $522,180 $531,850
3rd Quarter $826,785 $768,765 $783,270 $797,775
4th Quarter $1,102,380 $1,025,020 $1,044,360 $1,063,700
- ------------------- -------------- -------------- --------------- --------------
<TABLE>
<CAPTION>
- ---------------- ------------- ------------- -------------- ------------- ----------- -----------
QUARTERS 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $270,760 $275,595 $280,430 $285,265 $290,100 $294,935
2nd Quarter $541,520 $551,190 $560,860 $570,530 $580,200 $589,870
3rd Quarter $812,280 $826,785 $841,290 $855,795 $870,300 $884,805
4th Quarter $1,083,040 $1,102,380 $1,121,720 $1,141,060 $1,160,400 $1,179,740
- ---------------- ------------- ------------- -------------- ------------- ----------- -----------
</TABLE>
8
<PAGE>
HOMEWOOD SUITES(R) DALLAS - IRVING/LAS COLINAS
IRVING, TEXAS
- ------------------- -------------- -------------- --------------- --------------
QUARTERS 1999 2000 2001 2002
-------- ---- ---- ---- ----
1st Quarter $355,965 $330,985 $337,230 $343,475
2nd Quarter $711,930 $661,970 $674,460 $686,950
3rd Quarter $1,067,895 $992,955 $1,011,690 $1,030,425
4th Quarter $1,423,860 $1,323,940 $1,348,920 $1,373,900
- ------------------- -------------- -------------- --------------- --------------
<TABLE>
<CAPTION>
- ---------------- ----------- ------------- -------------- ------------- -------------------------
QUARTERS 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $349,720 $355,965 $362,210 $368,455 $374,700 $380,945
2nd Quarter $699,440 $711,930 $724,420 $736,910 $749,400 $761,890
3rd Quarter $1,049,160 $1,067,895 $1,086,630 $1,105,365 $1,124,100 $1,142,835
4th Quarter $1,398,880 $1,423,860 $1,448,840 $1,473,820 $1,498,800 $1,523,780
- ---------------- ----------- ------------- -------------- ------------- -------------------------
</TABLE>
HOMEWOOD SUITES(R) NORTH DALLAS - PLANO
PLANO, TEXAS
- ------------------- -------------- -------------- --------------- --------------
QUARTERS 1999 2000 2001 2002
-------- ---- ---- ---- ----
1st Quarter $216,742 $201,533 $205,335 $209,138
2nd Quarter $433,485 $403,065 $410,670 $418,275
3rd Quarter $650,228 $604,598 $616,005 $627,413
4th Quarter $866,970 $806,130 $821,340 $836,550
- ------------------- -------------- -------------- --------------- --------------
<TABLE>
<CAPTION>
- ---------------- ------------ ------------- -------------- ------------- ------------- ----------
QUARTERS 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $212,940 $216,742 $220,545 $224,348 $228,150 $231,953
2nd Quarter $425,880 $433,485 $441,090 $448,695 $456,300 $463,905
3rd Quarter $638,820 $650,228 $661,635 $673,043 $684,450 $695,858
4th Quarter $851,760 $866,970 $882,180 $897,390 $912,600 $927,810
- ---------------- ------------ ------------- -------------- ------------- ------------- ----------
</TABLE>
9
<PAGE>
HOMEWOOD SUITES(R) RICHMOND - WEST END
GLEN ALLEN, VIRGINIA
- ------------------- ---------------- --------------- ------------- -------------
QUARTERS 1999 2000 2001 2002
-------- ---- ---- ---- ----
1st Quarter $291,128 $270,698 $275,805 $280,913
2nd Quarter $582,255 $541,395 $551,610 $561,825
3rd Quarter $873,383 $812,093 $872,415 $842,738
4th Quarter $1,164,510 $1,082,790 $1,103,220 $1,123,650
- ------------------- ---------------- --------------- ------------- -------------
<TABLE>
<CAPTION>
- --------------- --------------- -------------- -------------- ------------- ------------- ---------
QUARTERS 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $286,020 $291,128 $296,235 $301,343 $306,450 $311,558
2nd Quarter $572,040 $582,255 $592,470 $602,685 $612,900 $623,115
3rd Quarter $858,060 $873,383 $888,705 $904,028 $919,350 $934,673
4th Quarter $1,144,080 $1,164,510 $1,184,940 $1,205,370 $1,225,800 $1,246,230
- --------------- --------------- -------------- -------------- ------------- ------------ ----------
</TABLE>
10
<PAGE>
Under the master hotel lease agreements, Apple Suites Management is
responsible for paying all taxes, other than real estate and personal property
taxes, imposed with respect to the hotels or any business conducted by it at the
hotels. In addition, Apple Suites Management is responsible for obtaining and
maintaining utility services to the hotels and paying all charges for
electricity, gas, oil, water, sewer and other utilities used in the hotels
during the term of the master hotel lease. Apple Suites Management is also
responsible for paying all premiums for personal property insurance,
comprehensive general liability insurance, worker's compensation insurance,
vehicle liability insurance, hazard insurance and any other insurance that we
may reasonably request for the hotels and their operations. We are required to
maintain building insurance (including earthquake and flood insurance),
insurance for loss or damage to the steam boilers and similar apparatus and loss
of income insurance.
Pursuant to the master hotel lease agreements, Apple Suites Management
is required to maintain the hotels in good order and repair (except for ordinary
wear and tear). However, we are required to maintain any underground utilities
and the structural elements of the hotels (including the exterior walls and
roof). In addition, pursuant to the license agreements and management agreements
(as described below), we are required to maintain, and to upgrade, the hotels
under the standards specified under those agreements in order to operate the
hotels as Homewood Suites(R) hotels. We are also obligated to pay for a reserve
for periodic repair, replacement or refurbishing of furniture, fixtures and
equipment. Our payments must equal up to 5% of our gross revenues (less sales
and room taxes) from the rental of suites at the hotels.
HOTEL LICENSE AGREEMENTS
Each hotel is licensed to operate as a Homewood Suites(R) hotel under a
separate Homewood Suites(R) "License Agreement." The license agreements are
substantially similar. Under each license agreement, the licensor is Promus
Hotels, Inc. and the licensee is the lessee of the hotel. To simplify the
following discussion, the term "Apple Suites Management" will mean the
licensee/lessee, whether it is Apple Suites Management, Inc. or its indirect
wholly-owned subsidiary, Apple Suites Services Limited Partnership.
Under the license agreements, Promus Hotels, Inc. grants Apple Suites
Management the right to operate the hotel using the Homewood Suites(R) "System."
The "System" includes the service mark "Homewood Suites(R)" and other associated
service marks and similar property rights, access to a reservation system,
distribution of advertising, access to a "Standards Manual," and access to other
training, information, programs and policies comprising the Homewood Suites(R)
hotel business.
In exchange for the license to use the Homewood Suites(R) System, Apple
Suites Management agrees to numerous requirements and restrictions applicable to
its operation of the hotel. Apple Suites Management is also required to pay
royalties and other fees, also described below.
11
<PAGE>
Apple Suites Management will be subject to various operational
requirements pursuant to the license agreements and a "Standards Manual." The
Standards Manual may be changed at any time by Promus Hotels, Inc. As described
below, Promus Hotels, Inc. will act as the manager of the hotels under separate
management agreements. As a practical matter, many of the requirements in the
license agreements and Standards Manual will be the responsibility of Promus
Hotels, Inc. However, certain requirements will remain the practical
responsibility of Apple Suites Management. Furthermore, the failure of Promus
Hotels, Inc. to comply with the management agreements will not, of itself,
relieve Apple Suites Management from the obligations imposed upon it under the
license agreements. In such event, Apple Suites Management's only remedy may be
to seek damages for breach of the management agreements.
The hotels must be operated 24 hours a day in strict compliance with
detailed policies, procedures and requirements established by Promus Hotels,
Inc. These requirements cover matters such as the types of services and products
that may be offered at the hotel, the style and type of signage, the appearance
and condition of the hotel, the use of the reservations system for guests,
adherence to a 100% Satisfaction Guarantee rule of operation, required insurance
coverage and other requirements. The requirements are designed to insure that
each hotel meets uniform guidelines for all Homewood Suites(R) Hotels, wherever
located.
Under the license agreements, Apple Suites Management is granted the
right to use the Homewood Suites(R) System only during the term of the license
agreements, and it obtains no other ownership interest in or rights to such
System. The term of each license agreement is 20 years, but the agreement is
subject to early termination for various reasons, including default by Apple
Suites Management or its seeking of bankruptcy protection. If a license
agreement is terminated for any reason, the hotel must immediately cease to
identify itself as a Homewood Suites(R) Hotel.
Apple Suites Management is required to pay to Promus Hotels, Inc. the
following monthly amounts: (1) A royalty fee equal to 4% of the gross suites
revenues (less sales and room taxes) received from rental of suites at the
hotel; (2) a marketing contribution equal to 4% of gross suites revenues; (3)
any amounts due Promus Hotels, Inc. for goods or services provided by Promus
Hotels, Inc. to Apple Suites Management; and (4) the amount of sales, gross
receipts or similar taxes imposed on Promus Hotels, Inc. as a result of the
payments described in clauses (1), (2), and (3) of this sentence.
Apple Suites Management is required to prepare and deliver to Promus
Hotels, Inc. daily, monthly and other reports which, among other things, certify
gross revenues from operation of the hotel. The 4% marketing contribution is
subject to change by Promus Hotels, Inc. from time to time. Furthermore, there
is no assurance that the marketing contribution from a hotel will be used to
fund advertising or marketing with respect to the hotel actually making the
contribution.
Under the license agreements, Promus Hotels, Inc. may from time to time
require Apple Suites Management to upgrade hotel facilities to meet the then
current standards specified in the Standards Manual. We expect to pay the costs
of any such required upgrades from the proceeds of our ongoing offering of
common shares, although there can be no assurance that such proceeds will be
sufficient for this purpose.
12
<PAGE>
HOTEL MANAGEMENT AGREEMENTS
Apple Suites Management, Inc. has agreed to have Promus Hotels, Inc.
manage our hotel in Richmond, Virginia, under a management agreement dated as of
September 20, 1999, and our hotel in Atlanta, under a separate management
agreement dated as of October 5, 1999. Apple Suites Services Limited
Partnership, a subsidiary of Apple Suites Management, Inc., has agreed to have
Promus Hotels, Inc. manage our three hotels in Texas under separate management
agreements dated as of September 20, 1999. The management agreements are
substantially similar. To simplify the following discussion, the term "Apple
Suites Management" will mean the lessee of the hotel, whether it is Apple Suites
Management, Inc. or Apple Suites Services Limited Partnership.
Under the management agreements, Promus Hotels, Inc. will direct the
operation of the hotels in conformity with the management agreements described
herein and the hotel license agreements described above. Promus Hotels, Inc.
will be responsible for directing the day-to-day activities of the hotels and
establishing policies and procedures relating to the management and operation of
the hotels.
As part of its responsibilities for directing the day-to-day activities
of the hotels, Promus Hotels, Inc. will hire, supervise and determine the
compensation and terms of employment of all hotel personnel. Promus Hotels, Inc.
also will determine the terms for admittance, room rates and all use of hotel
rooms. Promus Hotels, Inc. will select and purchase all operating equipment and
supplies for the hotels. Promus Hotels, Inc. will be responsible for (1)
advertising and promoting the hotels in coordination with the requirements of
the license agreements described above; and (2) obtaining and maintaining any
permits and licenses required to operate the hotels.
Each year Promus Hotels, Inc. will submit a proposed operating budget
for each hotel to Apple Suites Management for its approval. Each budget will
include a business plan describing the business objectives and strategies for
each hotel for the period covered by the budget. In addition, Promus Hotels,
Inc. will submit a recommended capital budget to Apple Suites Management for its
approval. The capital budget will apply to furnishings, equipment and ordinary
hotel capital replacements needed to operate the hotels in accordance with the
hotel license agreements. At a minimum, each year's budget for capital
improvements will provide for capital expenditures that are required to meet the
minimum standards of the hotel license agreement, subject to the following
limits: (1) three percent (3%) of adjusted gross revenues for the first full
year after the commencement of the management agreement; (2) four percent (4%)
of adjusted gross revenues for the second full year after the commencement of
the management agreement; and (3) five percent (5%) of adjusted gross revenues
for each year thereafter.
In exchange for performing the services described above, Promus Hotels,
Inc. will receive a management fee, payable monthly. The management fee will be
equal to 4% of adjusted gross revenues. Adjusted gross revenues are defined
generally as all revenues derived from the hotels, as reduced by (1) refunds;
(2) sales and other similar taxes; (3) proceeds from the sale or other
disposition of the hotels, furnishings and other capital assets; (4) fire and
extended coverage insurance proceeds; (5) credits or refunds made to customers;
13
<PAGE>
(6) condemnation awards; (7) proceeds of financing or refinancing of the hotels;
(8) interest on bank accounts; and (9) gratuities or service charges added to a
customer's bill.
Prior to the second anniversary of the management agreement, a portion
of the management fee equal to 1% of adjusted gross revenues will be
subordinated to payment of a basic return to Apple Suites Management. The basic
return is generally equal to 11% of the purchase price for each hotel (and
related acquisition costs).
Each management agreement has a 15-year term. However, Apple Suites
Management may terminate the agreement after its tenth anniversary. If it does
so Promus Hotels, Inc. will be entitled to a termination fee. The termination
fee if Apple Suites Management terminates the management agreement after the
tenth anniversary is based on a formula generally equal to the aggregate
management fees earned during the preceding 24 months divided by two. In
addition, if the hotel license agreement with respect to a particular hotel is
terminated, Promus Hotels, Inc. may terminate the corresponding management
agreement. If Promus Hotels, Inc. terminates the management agreement it will be
entitled to a termination fee equal to (1) $733,000 if the termination occurs
within two years of the effective date of the management agreement; or (2) an
amount based on a formula that takes into account the management fees earned
over the preceding 24 month period.
Beginning in the first full calendar year of operations, Apple Suites
Management may terminate a management agreement if Promus Hotels, Inc. fails to
achieve, in any two consecutive calendar years, a gross operating profit which
is at least equal to 85% of the annual budgeted gross operating profit. Promas
Hotels, Inc. can avoid termination by making a cash payment to Apple Suites
Management that equals the shortfall for the second such year (with the
shortfall being the difference between the gross operating profits achieved and
85% of the budgeted gross operating profit for the second such year). Generally,
gross operating profit is defined as the amount by which adjusted gross revenues
exceed operating costs.
COMFORT LETTERS
In the master hotel lease agreements, the use of a separate "lessee"
(Apple Suites Management, Inc. or Apple Suites Services Limited Partnership,
depending upon the state in which the hotel is located) is based upon certain
technical tax considerations applicable to real estate investment trusts. In an
effort to minimize operational complexities or problems that may arise from the
lease structure or from the fact that the lessee, rather than Apple Suites,
Inc., is the party to the license agreements and management agreements, we have
entered into a "Comfort Letter" with Promus Hotels, Inc. with respect to each
hotel. The comfort letters grant us certain rights if problems arise under the
license agreements or leases, or if the lease structure is no longer necessary
for tax purposes. The chief provisions of the comfort letters are described
below.
First, as long as we are the owner of the hotel and a given license
agreement is in effect, Promus Hotels, Inc. has agreed to notify us of any
breach of any license agreement or management agreement by the lessee. We will
have 10 days to cure any monetary default and 30 days to cure any non-monetary
default. There is no opportunity to cure defaults not capable of being cured
(such as bankruptcy of the lessee or a transfer in violation of the license
agreement), but in such situation, a default would occur under the lease and we
would be able to terminate the lease.
Second, if there is a default under the lease and we elect to terminate
the lease, we have the right, which may be exercised within 90 days after giving
notice of termination to Promus Hotels, Inc., to enter into a new lease
agreement with a successor lessee. In general, any such successor lessee must be
majority owned and controlled by us or our affiliates (which includes
14
<PAGE>
our directors and executive officers) and must be a person or entity that has
adequate financial resources to perform under the lease, is not the franchisor
or operator of a competing chain of hotels, and enjoys a favorable reputation
for integrity. If we enter into a new lease, the successor lessee will have a
right to enter into a new license agreement and new management agreement with
Promus Hotels, Inc. for the balance of the original terms of those agreements.
However, if we are unable to provide a qualified successor lessee within such
90-day period, the license agreement may be terminated at the option of Promus
Hotels, Inc. and we will be obligated to pay liquidated damages to Promus
Hotels, Inc. In general, liquidated damages are an amount equal to the total
fees payable under the license agreement for the three years prior to
termination. If the hotel has been open for less than three years, the amount is
equal to the greater of: (1) 36 times the monthly average of fees payable for
the period during which the hotel has been open; or (2) 36 times the amount
payable for the last full month of operation prior to termination. If the hotel
is open but has not been in operation for a full month, liquidated damages equal
$3,000 per suite in the hotel. Other liquidated damage provisions apply in the
case of termination of the license agreement before commencement of construction
of the hotel or if construction is complete but the hotel is not yet opened.
Third, the comfort letters provide that if the income tax rules
applicable to real estate investment trusts are amended to permit us to operate
the hotel directly, we may give notice of such tax change to Promus Hotels, Inc.
and of our election to terminate the lease. We then have the right to enter into
a new license agreement and a new management agreement for a term equal to the
balance of the original terms of such agreements.
DESCRIPTION OF PROPERTIES
All five of the hotels are extended-stay hotels, and are part of the
Homewood Suites(R) franchise. We believe that the majority of the guests at the
hotels during the past 12 months have been business travelers. We expect that
this pattern will continue.
Each suite at the Homewood Suites(R) hotels consist of a bedroom and a
living room, with an adjacent kitchen area. The basic suite is known as a
"Homewood Suite," which generally has one double or king-size bed. Larger
suites, known as "Master Suites" or "Extended Double Suites" are also available.
These suites have larger rooms, with either one king-size bed or two smaller
beds. The largest suites contain two separate bedrooms. Wheelchair-accessible
suites are available at each hotel.
The suites have many features and amenities in common. Most suites have
ceiling fans and two color televisions (one in the bedroom and one in the living
room). Some suites have fireplaces. Typical living room furniture includes a
sofa (often a fold-out sleeper sofa), coffee table and work/dining table with
chairs. Some livings rooms contain a recliner and a videocassette player. The
kitchens vary, but generally have a microwave, refrigerator, dishwasher, coffee
maker and stove, together with basic cookware and utensils.
The hotels are marketed, in part, through the Homewood Suites(R) web
site (http://www.homewood-suites.com), which is generally available 24 hours a
day, seven days a
15
<PAGE>
week, around the world. Reservations may be made directly through the web site.
The reservation system and the web site are linked to, and cross-marketed with,
the reservation systems and web sites for other hotel franchises that are owned
and operated by Promus Hotels, Inc. Those other hotels franchises include
Hampton Inns(R), Doubletree Hotels(R) and Embassy Suites(R). Such
cross-marketing may affect occupancy at the Homewood Suites(R) properties by
directing travelers toward, or away from, Homewood Suites(R).
All five of the hotels were actively conducting business at the time of
their acquisition. We believe that the acquisitions were conducted without
materially disrupting any of the daily activities at the hotels. During the past
12 months, each hotel has been covered with property and liability insurance,
and we have arranged to continue such coverage. We believe the hotels are
adequately covered by insurance. More specific property descriptions for each
hotel appear below.
ATLANTA - GALLERIA/CUMBERLAND
ATLANTA, GEORGIA
The Homewood Suites(R) Atlanta - Galleria/Cumberland is located on a
3.7 acre site in Atlanta, Georgia. Its address is 3200 Cobb Parkway, Atlanta,
Georgia 30339. The hotel is located within approximately 17 miles of downtown
Atlanta and 35 miles of the Hartsfield Atlanta International Airport.
The hotel opened in July 1990. It has wood frame construction, with an
exterior of brick veneer and wood siding. The hotel consists of four buildings,
each with two or three stories. The hotel contains 124 suites, which have a
combined area of 85,600 square feet. The following types of suites are
available:
Type of Suite Number Available Square Feet Per Suite
-------------- ---------------- ---------------------
Master Suite 96 700
Homewood Suite 24 600
Two-Bedroom Suite 4 1,000
The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 15 to 20 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 150 spaces. The hotel provides complimentary shuttle service
within a five mile radius.
We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $397,000 on renovations or improvements. We expect that the
principal renovations and improvements will involve exterior painting, carpet
replacement and furniture acquisitions (sofas, recliners and
16
<PAGE>
televisions). We expect to pay for the costs of these renovations and
improvements with proceeds from our ongoing offering of common shares.
During 1999, the average stay at the hotel has been approximately 3.5
nights, and approximately 66% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal. The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:
Average Daily Occupancy Rate (calendar year)
1995 1996 1997 1998 1999 (through July)
---- ---- ---- ---- -------------------
76.7% 71.7% 77.2% 77.4% 80.8%
For January 1, 1999 through September 21, 1999, the average daily rate
per suite was $90.83, and the average daily net revenue per suite was $70.86. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly payments of principal to reduce the accrual of interest. There
can be no assurance, however, the proceeds of the offering will be sufficient to
permit such payments of principal. Assuming that no principal payments are made
until the maturity of the promissory notes, and that the hotel continues to have
the level of net revenue specified above, approximately 19.48% of the hotel's
revenue would be needed to cover its portion of the interest payments.
The hotel's current rate structure is based on length of stay and type
of suite, as summarized below:
Length of Stay
(number of nights) Homewood Master Two Bedroom
------------------ -------- ------ -----------
1 to 4 $119 $129 $179
5 to 11 109 119 169
12 to 29 92 99 159
30 or more 79 89 149
The hotel offers a weekend discount. This discount varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay for five nights or more. The hotel also offers
discounts to guests who stay under certain corporate accounts. These discounts
are often negotiated with the corporate customer and vary from account to
account. During the past 12 months, we estimate that approximately 80% of the
hotel's guests received a corporate discount.
The chief corporate accounts (as designated in the hotel's records)
include Sprint, SITA Group, JD Edwards, Worldspan and Boeing. From January 1,
1999 through July 26, 1999, the
17
<PAGE>
ten biggest corporate accounts were responsible for over 65% of the hotel's
occupancy. There can be no assurance, however, that the hotel will continue to
receive significant occupancy, or any occupancy, from the corporate accounts
identified above. In particular, one of the largest corporate accounts during
1999 was with Boeing, which is scheduled to eliminate its operations in Atlanta
during 2000.
The average effective annual rental per square foot for each of the
last five years is shown in the table below:
1999
1995 1996 1997 1998 (annualized)
---- ---- ---- ---- ------------
$34.44 $34.16 $36.45 $36.57 $37.66
The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $5,355,919 and will be depreciated over a life of
27.5 years using the straight-line method. The basis of the personal property
component of the hotel will be depreciated in accordance with the modified
accelerated cost recovery system of the Internal Revenue Code.
The following table sets forth the 1999 real estate tax information for
the hotel:
Tax Assessed Taxable Tax Amount
Jurisdiction Value Portion (40%) Rate of Tax
------------ -------- ------------- ---- ------
Cobb County $5,217,693 $2,087,077 0.03427 $71,524.14
We estimate that the annual property tax on the expected improvements
will be approximately $5,000 or less.
At least seven competing hotels are located within three miles of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks or trade names.) Three of the competing hotels are
newer than the hotel. The newer competing hotels have franchises with Homestead
Village, Sheraton Suites and Summer Suites. The other competing hotels have
franchises with Courtyard by Marriott, Embassy Suites, Hawthorne Suites and
Residence Inn. We believe that the rates charged by the hotel are generally
competitive with the rates charged by these other hotels. We are aware of one
proposed construction project to build an extended-stay hotel within
approximately one mile of the hotel. We expect this hotel to be franchised with
Hampton Inn Suites.
DALLAS - ADDISON
ADDISON, TEXAS
The Homewood Suites(R) Dallas - Addison is located on a 3.34 acre site
in Addison, Texas. Its address is 4451 Beltline Road, Addison, Texas 75244. The
hotel is located within approximately 15 miles of downtown Dallas and 25 miles
of the Dallas/Fort Worth International Airport.
18
<PAGE>
The hotel opened in July 1990. It has wood frame construction, with an
exterior of brick veneer and stucco. The hotel consists of four buildings, each
with two or three stories. The hotel contains 120 suites, which have a combined
area of 61,440 square feet. The following types of suites are available:
Type of Suite Number Available Square Feet/per Suite
-------------- ---------------- ---------------------
Master Suite 24 590
Homewood Suite 88 460
Two-Bedroom Suite 8 850
The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 25 to 30 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with 136 spaces. The hotel provides complimentary shuttle service
within a 3 mile radius.
We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $360,000 on renovations or improvements. We expect that the
principal renovations and improvements will involve upgrading bathrooms and
kitchens, providing additional signage and replacing exterior doors. We expect
to pay for the costs of these renovations and improvements with proceeds from
our ongoing offering of common shares.
During 1999, the average stay at the hotel has been approximately 3.5
nights, and approximately 55% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal. The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:
Average Daily Occupancy Rate (calendar year)
1995 1996 1997 1998 1999 (through July)
---- ---- ---- ---- -------------------
83.9% 78.4% 78.1% 76.9% 68.3%
For January 1, 1999 through September 21, 1999, the average daily rate
per suite was $99.29, and the average daily net revenue per suite was $80.01. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly payments of principal to reduce the accrual of interest. There
can be no assurance, however, the proceeds of the offering will be sufficient to
permit such payments of principal. Assuming that no principal payments are made
until the
19
<PAGE>
maturity of the promissory notes, and that the hotel continues to have the level
of net revenue specified above, approximately 17.28% of the hotel's revenue
would be needed to cover its portion of the interest payments.
The hotel's current rate structure is based on length of stay and type
of suite, as summarized below:
Length of Stay Master Master
(number of nights) Homewood (king bed) (double bed) Two Bedroom
------------------ -------- ---------- ------------ -----------
1 to 4 $139 $149 $154 $181
5 to 11 109 119 129 169
12 to 29 89 99 119 149
30 or more 79 89 99 139
The hotel offers a weekend discount. This discount varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay for five nights or more. The hotel also offers
discounts to guests who stay under certain corporate accounts. These discounts
are often negotiated with the corporate customer and vary from account to
account. During the past 12 months, we estimate that approximately 75% of the
hotel's guests received a corporate discount.
The chief corporate accounts (as designated in the hotel's records)
include the Internal Revenue Service, MBNA, Mobil/Exxon, Computer Science
Corporation, Lucent Technologies and People Soft. From January 1, 1999 through
August 2, 1999, the ten biggest corporate accounts were responsible for over 22%
of the hotel's occupancy. There can be no assurance, however, that the hotel
will continue to receive significant occupancy, or any occupancy, from the
corporate accounts identified above.
The average effective annual rental per square foot for each of the
last five years is shown in the table below:
1999
1995 1996 1997 1998 (annualized)
---- ---- ---- ---- ------------
$56.35 $55.18 $54.05 $54.25 $46.87
The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $7,363,796 and will be depreciated over a life of
27.5 years using the straight-line method. The basis of the personal property
component of the hotel will be depreciated in accordance with the modified
accelerated cost recovery system of the Internal Revenue Code.
20
<PAGE>
The following table sets forth the 1999 real estate tax information for
the hotel:
Tax Rate
Tax Jurisdiction Assessed Value (per $100) Amount of Tax
---------------- -------------- ---------- -------------
County of Dallas $8,100,000 0.43307 $ 35,078.67
City of Dallas 8,100,000 1.46053 118,302.93
Town of Addison 8,100,000 0.40000 32,400.00
TOTAL $ 185,781.60
We estimate that the annual real estate tax on the expected
improvements will be approximately $8,000 or less.
At least five competing hotels are located within two miles of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks or trade names.) Three of the competing hotels are
newer than the hotel. The newer hotels have franchises with Country Inn Suites,
Hilton Inn and Quality Inns. The other competing hotels have franchises with
Courtyard by Marriott and Residence Inn. We believe that the rates charged by
the hotel are generally competitive with the rates charged by these other
hotels. We are aware of three proposed construction projects to build
extended-stay hotels within approximately three miles of the hotel. We expect
these hotels to be franchised with Marriott (in two cases) and Budget Suites.
DALLAS - IRVING/LAS COLINAS
IRVING, TEXAS
The Homewood Suites(R) Dallas - Irving/Las Colinas is located on a 3.4
acre site in Irving, Texas in the Las Colinas Urban Center. Its address is 4300
Wingren Drive, Irving, Texas 75039. The hotel is located within approximately 11
miles of downtown Dallas and 10 miles of the Dallas/Fort Worth International
Airport.
The hotel opened in January 1990. It has wood frame construction, with
an exterior of brick veneer, stucco, and wood siding. The hotel consists of five
buildings, each with two or three stories. The hotel contains 136 suites, which
have a combined area of 80,144 square feet. The following types of suites are
available:
Type of Suite Number Available Square Feet/per Suite
-------------- ---------------- ---------------------
Master Suite 20 620
Homewood Suite 108 560
Two-Bedroom Suite 8 908
The hotel offers a meeting room that accommodates 25 to 30 people, and
a business center that offers guests the use of a personal computer, a
photocopier and an electric typewriter. Recreational facilities include an
outdoor pool, a whirlpool, a basketball court and an exercise
21
<PAGE>
room. The hotel also contains a guest convenience store and laundry. The hotel
has its own parking lot with 181 spaces. The hotel provides complimentary
shuttle service within a 3 mile radius.
We believe that the hotel has been generally well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $440,000 on renovations or improvements. We expect that the
principal renovations and improvements will involve upgrading bathrooms,
repairing the parking lot and improving the meeting room. We expect to pay for
the costs of these renovations and improvements with proceeds from our ongoing
offering of common shares.
During 1999, the average stay at the hotel has been approximately 10
nights, and approximately 60% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal. The following table shows average daily
occupancy rates, expressed as a percentage, for each of the last five years:
Average Daily Occupancy Rate (calendar year)
1995 1996 1997 1998 1999 (through July)
---- ---- ---- ---- -------------------
75.2% 75.2% 77.8% 75.8 % 76.0%
For January 1, 1999 through September 21, 1999, the average daily rate
per suite was $99.08, and the average daily net revenue per suite was $79.94. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly payments of principal to reduce the accrual of interest. There
can be no assurance, however, the proceeds of the offering will be sufficient to
permit such payments of principal. Assuming that no principal payments are made
until the maturity of the promissory notes, and that the hotel continues to have
the level of net revenue specified above, approximately 17.99% of the hotel's
revenue would be needed to cover its portion of the interest payments.
The hotel's current rate structure is based on length of stay and type
of suite, as summarized below:
Length of Stay
(number of nights) Homewood Master Two Bedroom
------------------ -------- ------ -----------
1 to 4 $129 $139 $189
5 to 12 109 119 169
13 to 29 99 114 159
30 or more 89 99 149
The hotel offers a weekend discount. This discount varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay
22
<PAGE>
for five nights or more. The hotel also offers discounts to guests who stay
under certain corporate accounts. These discounts are often negotiated with the
corporate customer and vary from account to account. During the past 12 months,
we estimate that approximately 75% of the hotel's guests received a corporate
discount.
The chief corporate accounts (as designated in the hotel's records)
include GTE/Bell Atlantic, Sprint, SAP America, Ernst & Young, Oracle and
Associates of America (a financial services group of Ford Motor Company). From
January 1, 1999 through July 19, 1999, the ten biggest corporate accounts were
responsible for over 47% of the hotel's occupancy. There can be no assurance,
however, that the hotel will continue to receive significant occupancy, or any
occupancy, from the corporate accounts identified above.
The average effective annual rental per square foot for each of the
last five years is shown in the table below:
1999
1995 1996 1997 1998 (annualized)
---- ---- ---- ---- ------------
$42.17 $44.42 $46.85 $47.48 $46.56
The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $8,348,973 and will be depreciated over a life of
27.5 years using the straight-line method. The basis of the personal property
component of the hotel will be depreciated in accordance with the modified
accelerated cost recovery system of the Internal Revenue Code.
The following table sets forth the 1998 real estate tax information for
the hotel:
Tax Rate
Tax Jurisdiction Assessed Value (per $100) Amount of Tax
---------------- -------------- ---------- -------------
County of Dallas $9,519,990 0.43307 $ 41,228.22
City of Irving 9,519,990 0.49300 46,933.55
Irving School District 9,519,990 1.67840 159,783.51
Dallas County Utility District 9,519,990 1.59480 151,824.80
TOTAL $399,770.08
We estimate that the annual real estate tax on the expected
improvements will be approximately $18,000 or less.
At least five competing hotels are located within three miles of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks or trade names.) Three of the competing hotels are
newer than the hotel. The newer hotels have franchises with AmeriSuites,
StudioPlus and Summerfield Suites. The other competing hotels have franchises
with Harvey Hotel Suites and Residence Inn. We believe that the rates charged by
the hotel are
23
<PAGE>
generally competitive with the rates charged by these other hotels. We are aware
of two proposed construction projects to build extended-stay hotels within
approximately five miles of the hotel. We have no definite franchising
information for these hotels.
NORTH DALLAS - PLANO
PLANO, TEXAS
The Homewood Suites(R) Dallas - Plano is located on a 2.67 acre site in
the Preston Park Business Center in southern Collin County, Texas. Its address
is 4705 Old Sheppard Place, Plano, Texas 75093. The hotel is located within
approximately 23 miles of downtown Dallas and 20 miles of the Dallas/Fort Worth
International Airport.
The hotel opened in April 1997. It has wood frame construction, with an
exterior of brick veneer and stucco. The hotel consists of a single four-story
building. The hotel contains 99 suites, which have a combined area of 50,120
square feet. The following types of suites are available:
Type of Suite Number Available Square Feet/per Suite
-------------- ---------------- ---------------------
Extended Double Suite 37 510
Homewood Suite 55 460
Two-Bedroom Suite 7 850
The hotel offers a meeting room that accommodates 20-25 people, and a
business center that offers guests the use of a personal computer, a photocopier
and an electric typewriter. Recreational facilities include an outdoor pool and
whirlpool, an exercise room, and a sports court. The hotel also contains a guest
convenience store and laundry. The hotel has its own parking lot with 123
spaces. The hotel provides complimentary shuttle service within a 5 mile radius.
We believe that the hotel has been generally well maintained and is
generally in very good condition. We do not have any current plans for
significant renovations or improvements at the hotel, although routine
maintenance and upkeep will be required.
During 1999, the average stay at the hotel has been approximately 6.3
nights, and approximately 55% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal. The following table shows average daily
occupancy rates, expressed as a percentage, since the opening of the hotel:
Average Daily Occupancy Rate (calendar year)
1997 1998 1999 (through July)
---- ---- -------------------
64.4% 70.9% 69.3%
24
<PAGE>
For January 1, 1999 through September 21, 1999, the average daily rate
per suite was $88.07, and the average daily net revenue per suite was $65.33. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly payments of principal to reduce the accrual of interest. There
can be no assurance, however, the proceeds of the offering will be sufficient to
permit such payments of principal. Assuming that no principal payments are made
until the maturity of the promissory notes, and that the hotel continues to have
the level of net revenue specified above, approximately 14.58% of the hotel's
revenue would be needed to cover its portion of the interest payments.
The hotel's current rate structure is based on length of stay and type
of suite, as summarized below:
Length of Stay Homewood or
(number of nights) Extended Double Two Bedroom
------------------ ------------------- -----------
1 to 6 $114 $159
7 to 29 79 129
30 or more 59 119
The hotel offers a weekend discount. This discount varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay for five nights or more. The hotel also offers
discounts to guests who stay under certain corporate accounts. These discounts
are often negotiated with the corporate customer and vary from account to
account. During the past 12 months, we estimate that approximately 85% of the
hotel's guests received a corporate discount.
The chief accounts (as designated in the hotel's records) include Dr.
Pepper/7-Up, Arco, Raytheon/E-Systems, Alcatel Netowork Systems, State Farm
Insurance, USA Cycling, Sterling Software, J.C. Penney, Rug Doctor and Eastman
Kodak. From January 1, 1999 through August 12, 1999, the ten biggest corporate
accounts have been responsible for over 39% of the hotel's occupancy. There can
be no assurance, however, that the hotel will continue to receive significant
occupancy, or any occupancy, from the corporate accounts identified above.
The average effective annual rental per square foot since the opening
of the hotel is shown in the table below:
1997 1999
(annualized) 1998 (annualized)
-------------- ----------- ------------
$38.87 $43.99 $41.60
The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $4,762,151 and will be depreciated over a life of
27.5 years using the straight-line method. The
25
<PAGE>
basis of the personal property component of the hotel will be depreciated in
accordance with the modified accelerated cost recovery system of the Internal
Revenue Code.
The following table sets forth the 1998 real estate tax information for
the hotel:
Tax Rate
Tax Jurisdiction Assessed Value (per $100) Amount of Tax
---------------- -------------- ---------- -------------
Collin County $7,124,145 2.35655 $167,884.04
At least nine competing hotels are located within five miles of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks or trade names.) Five of the competing hotels are
newer than the hotel. The newer hotels have franchises with AmeriSuites,
Candlewood Suites, Homegate Suites, Hawthorne Suites and Residence Inn. The
other competing hotels have franchises with Courtyard by Marriott (in two
cases), Hampton Inn Suites and Mainstay Suites. We believe that the rates
charged by the hotel are generally competitive with the rates charged by these
other hotels. We are aware of three proposed construction projects to build
extended-stay hotels within approximately five miles of the hotel. Although we
do not have complete franchising information for these hotels, we expect three
of them to be franchised with Doubletree Suites, Marriott Townplace and Weston
Suites.
RICHMOND - WEST END
GLEN ALLEN, VIRGINIA
The Homewood Suites(R) Richmond - West End is located on a 3.75 acre
site on Innslake Drive in Richmond's Innsbrook Corporate Center. Its address is
4100 Innslake Drive, Glen Allen, Virginia 23060. The hotel is located within
approximately 14 miles of downtown Richmond and 20 miles of the Richmond
International Airport.
The hotel opened in May 1998. It has metal stud frame construction,
with an exterior of brick veneer and stucco. The hotel consists of a single
four-story building. The hotel contains 123 suites, which have a combined area
of 63,600 square feet. The following types of suites are available:
Type of Suite Number Available Square Feet/per Suite
-------------- ---------------- ---------------------
Homewood King Suite 98 500
Homewood Double Suite 18 500
Two-Bedroom Suite 7 800
The hotel offers a meeting room that accommodates up to 80 people, and
a business center that offers guests the use of a personal computer, a
photocopier and an electric typewriter. Recreational facilities include an
outdoor pool, a whirlpool and an exercise room. The hotel also contains a guest
convenience store and laundry. The hotel has its own parking lot with 136
spaces. The hotel provides complimentary shuttle service within a 5 mile radius.
26
<PAGE>
We believe that the hotel has been generally well maintained and is
generally in very good condition. We do not have any current plans for
significant renovations or improvements at the hotel, although routine
maintenance and upkeep will be required.
During 1999, the average stay at the hotel has been approximately 4
nights, and approximately 50% of the guests have stayed for five nights or more.
Occupancy at the hotel is not seasonal. The following table shows average daily
occupancy rates, expressed as a percentage, since the hotel opened:
Average Daily Occupancy Rate (calendar year)
1998 1999 (through July)
---- -------------------
61.7% 77.1%
For January 1, 1999 through September 21, 1999, the average daily rate
per suite was $92.34, and the average daily net revenue per suite was $66.48. As
explained above, revenue from the hotel's operations will be used to pay
interest due under the promissory notes payable to Promus Hotels, Inc. We expect
to make monthly payments of principal to reduce the accrual of interest. There
can be no assurance, however, the proceeds of the offering will be sufficient to
permit such payments of principal. Assuming that no principal payments are made
until the maturity of the promissory notes, and that the hotel continues to have
the level of net revenue specified above, approximately 20.08% of the hotel's
revenue would be needed to cover its portion of the interest payments.
The hotel's current rate structure is based on length of stay and type
of suite, as summarized below:
Length of Stay Homewood Homewood
(number of nights) (king bed) (double bed) Two Bedroom
------------------ ---------- ----------- -----------
1 to 4 $109 $119 $149 - 179
5 to 29 89 99 119
30 to 89 79 89 119
90 or more 69 79 119
The hotel offers a weekend discount. This discount varies by type of
suite and generally reduces the basic rate by 25 to 33%. The weekend discount is
not available to guests who stay for five nights or more. The hotel also offers
discounts to guests who stay under certain corporate accounts. These discounts
are often negotiated with the corporate customer and vary from account to
account. During the past 12 months, we estimate that approximately 50% of the
hotel's guests received a corporate discount.
The chief accounts (as designated in the hotel's records) include
Capital One, Circuit City Stores, First Union Bank, Compulink, Saxon Mortgage,
Virginia Power, Owens & Minor, Target Stores and Richfood Holdings. From January
1, 1999 through July 31, 1999, the ten biggest
27
<PAGE>
corporate accounts were responsible for over 44% of the hotel's occupancy.
Capital One, in particular, was responsible for more than 5,200 nights of
occupancy. There can be no assurance, however, that the hotel will continue to
receive significant occupancy, or any occupancy, from the corporate accounts
identified above.
The average effective annual rental per square foot since the opening
of the hotel is shown in the table below:
1998 1999
(annualized) (annualized)
------------- ------------
$37.80 $44.88
The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $8,523,055 and will be depreciated over a life of
27.5 years using the straight-line method. The basis of the personal property
component of the hotel will be depreciated in accordance with the modified
accelerated cost recovery system of the Internal Revenue Code.
The following table sets forth the 1999 real estate tax information for
the hotel:
Tax Rate
Tax Jurisdiction Assessed Value (per $100) Amount of Tax
---------------- -------------- ---------- -------------
County of Henrico $5,806,300 0.94000 $54,579.22
At least seven competing hotels are located within one mile of the
hotel. (The names of the competing franchises, as listed below, may be
registered as service marks or trade names.) Three of the competing hotels are
newer than the hotel. The newer hotels have franchises with Candlewood Suites
(scheduled to open in October 1999), Comfort Suites and Courtyard by Marriott.
The other competing hotels have franchises with AmeriSuites, Hampton Inn,
Homestead Village and Residence Inn. We believe that the rates charged by the
hotel are generally competitive with the rates charged by these other hotels. We
are aware of three proposed construction projects to build extended-stay hotels
within approximately three miles of the hotel. We expect these hotels to be
franchised with Holiday Inn Express, Hilton Garden Inn and Marriott.
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
L.P. MARTIN & COMPANY
A PROFESSIONAL CORPORATION
MEMBERS CERTIFIED PUBLIC ACCOUNTANTS MEMBERS
VIRGINIA SOCIETY OF 4132 INNSLAKE DRIVE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS GLEN ALLEN, VIRGINIA 23060 CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A. PHONE: (804) 346-2626 ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A. FAX: (804) 346-9311 LEE P. MARTIN, C.P.A. (1948-76)
BERNARD G. KINZIE, C.P.A.
W. BARCLAY BRADSHAW, C.P.A.
</TABLE>
Independent Auditors' Report
Apple Suites, Inc.
Richmond, Virginia
We have audited the accompanying combined balance sheets of the
Homewood Suites Acquisition Hotels (described in Note 1) as of December 31, 1998
and 1997, and the related combined statements of income, shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the management of the hotels. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion. The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 1 to the financial statements and are not
intended to be a complete presentation of the Homewood Suites Acquisition
Hotels.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Homewood Suites Acquisition Hotels as of December 31, 1998 and 1997, and the
combined results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
August 23, 1999 /s/ L.P. Martin & Company, P.C.
29
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 374,092 $ 393,079
Accounts Receivable, Net 714,718 330,540
Prepaids and Other 8,355 15,904
------------ ------------
TOTAL CURRENT ASSETS 1,097,165 739,523
------------ ------------
INVESTMENT IN HOTEL PROPERTIES
Land and Improvements 8,031,122 7,454,360
Buildings and Improvements 29,091,731 22,188,107
Furniture, Fixtures and Equipment 10,822,281 8,417,814
------------ ------------
TOTAL 47,945,134 38,060,281
Less: Accumulated Depreciation (11,098,460) (8,704,166)
------------ ------------
NET INVESTMENT IN HOTEL PROPERTIES 36,846,674 29,356,115
------------ ------------
OTHER ASSETS
Construction in Progress -- 5,994,799
------------ ------------
TOTAL ASSETS $ 37,943,839 $ 36,090,437
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1998
----------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 440,076 $ 845,173
Accrued Taxes 997,897 787,680
Accrued Expenses--Other 252,761 158,670
----------------- ---------------
TOTAL CURRENT LIABILITIES 1,690,734 1,791,523
----------------- ---------------
SHAREHOLDERS' EQUITY
Contributed Capital 11,000,030 12,499,235
Retained Earnings 25,253,075 21,799,679
----------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 36,253,105 34,298,914
----------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $37,943,839 $36,090,437
----------------- ---------------
</TABLE>
31
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Contributed Retained Shareholders'
Capital Earnings Equity
--------------- --------------- ----------------
<S> <C> <C> <C>
Balances, January 1, 1997 $ 5,966,169 $17,961,115 $23,927,284
Net Income -- 3,838,564 3,838,564
Capital Contributions, Net 6,533,066 -- 6,533,066
--------------- --------------- ----------------
Balances, December 31, 1997 12,499,235 21,799,679 34,298,914
Net Income -- 3,453,396 3,453,396
Capital Distributions, Net (1,499,205) -- (1,499,205)
--------------- --------------- ----------------
Balances, December 31, 1998 $11,000,030 $25,253,075 $36,253,105
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1998 1997
------------------ --------------
<S> <C> <C>
GROSS OPERATING REVENUE
Suite Revenue $14,075,852 $10,683,420
Other Customer Revenue 811,817 555,232
------------------ --------------
TOTAL REVENUE 14,887,669 11,238,652
------------------ --------------
EXPENSES
Property and Operating 5,586,712 3,843,073
General and Administrative 348,088 208,174
Advertising and Promotion 648,273 476,762
Utilities 626,269 473,887
Real Estate and Personal Property Taxes, and Property Insurance 1,040,638 789,462
Depreciation Expense 2,394,294 1,487,077
Franchise Fees 563,035 --
Pre-Opening Expenses 226,964 121,653
------------------ --------------
TOTAL EXPENSES 11,434,273 7,400,088
------------------ --------------
NET INCOME $ 3,453,396 $ 3,838,564
------------------ --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income $3,453,396 $3,838,564
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation 2,394,294 1,487,077
Change In:
Accounts Receivable (384,178) (138,055)
Prepaids and Other Current Assets 7,549 (7,691)
Accounts Payable (405,097) 38,368
Accrued Taxes 210,217 195,246
Accrued Expenses--Other 94,091 (1,058)
------------------ -----------------
Net Adjustments 1,916,876 1,573,887
------------------ -----------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 5,370,373 5,412,451
------------------ -----------------
CASH FLOWS TO FINANCING ACTIVITIES
Capital Distributions, Net (5,389,259) (5,266,712)
------------------ -----------------
NET INCREASE (DECREASE) IN CASH (18,987) 145,739
CASH, BEGINNING OF YEAR 393,079 247,340
------------------ -----------------
CASH, END OF YEAR $ 374,092 $ 393,079
================== =================
</TABLE>
SUPPLEMENTAL DISCLOSURES:
NONCASH FINANCING AND INVESTING ACTIVITIES:
December 31, 1997 construction in progress totaling $5,994,799 was
reclassified to investment in hotel properties during 1998.
Investment in hotel properties totaling $3,890,054 in 1998 and $11,799,781
in 1997 was financed with capital contributions.
During 1997, the hotels disposed of fully depreciated furniture, fixtures
and equipment in the amount of $503,106.
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Homewood Suites Acquisition Hotels (the Hotels) consist of the following:
Property Hotel Location Date Opened # of Suites
-------- -------------- ----------- -----------
Atlanta -- Galleria/
Cumberland Atlanta, Georgia 1990 124
Dallas -- Addison Addison, Texas 1990 120
Dallas -- Los Colina Irving, Texas 1990 136
North Dallas -- Plano Plano, Texas April, 1997 99
Richmond -- West End Glen Allen, Virginia May, 1998 123
The Owner purchased the North Dallas-Plano hotel October 1, 1997. The financial
statements include the results of the operations from this date forward.
The Hotels specialize in providing extended stay lodging to business or leisure
travelers. While customers may rent rooms for a night, terms of up to a month or
longer are available. Services offered, which are particularly attractive to the
extended stay traveler, include laundry services, 24 hour on site convenience
stores and grocery shopping services.
The Hotels have been owned and managed by various affiliates of Promus Hotels,
Inc. (the Owner) throughout the financial statement periods. The accompanying
combined financial statements of the Hotels have been presented on a combined
basis because the Owner has a contract pending to sell the five hotels to Apple
Suites, Inc., a real estate investment trust established to acquire equity
interests in hotel properties. The statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission for inclusion in
a filing by Apple Suites, Inc.
The corporate owner pays income taxes on taxable income of the company as a
whole and does not allocate income taxes to individual properties. Accordingly,
the combined financial statements have been presented on a pretax basis.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Property - The Hotel properties are recorded at cost. Depreciation has been
recorded straight-line using the following lives.
Life
------------
Land Improvements 12-15 Years
Buildings and Improvements 30-35 Years
Furniture, Fixtures and Equipment 3-10 Years
(Continued)
35
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES, Continued
Major renewals, betterments and improvements are capitalized while ongoing
maintenance and repairs are expensed as incurred. Building costs include
interest capitalized during the construction period. Construction in progress
represents Hotel properties under construction. At the point construction is
completed and the Hotels are ready to be placed in service, the costs are
reclassified to investment in Hotel properties for financial statement
presentation.
Estimates - The preparation of financial statements in accordance with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosures related thereto. Actual results could differ from
those estimates.
Annually, management of the hotels reviews the carrying value and remaining
depreciable lives of the Hotel properties and related assets. Management does
not believe there are any current indications of impairment. However, it is
possible that estimates of the remaining useful lives will change in the near
term.
Accounts receivable are recorded net of an allowance for doubtful accounts based
on management's historical experience in estimating credit losses. Actual
uncollectible balances written off may be more or less than the allowance
recorded.
Cash - Cash includes all highly liquid investments with a maturity date of three
months or less when purchased.
Advertising - Advertising costs are expensed in the period incurred.
Pre-Opening Costs - Pre-opening costs represent operating expenses incurred
prior to initial opening of the hotels. In 1998, pre-opening expenses of
$226,964 for the Richmond-West End hotel were expensed as incurred. In 1997,
pre-opening expenses of $66,045 for the North Dallas - Plano hotel and
pre-opening expenses of $55,608 for the Richmond - West End hotel were expensed
as incurred.
Inventories - The Hotels maintain supplies of room linens and food and
beverages. However, due to the ongoing routine replacement of these items and
the difficulty in establishing market values, management has chosen to expense
these items at point of purchase.
(Continued)
36
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 -- RELATED PARTY TRANSACTIONS
The Owner allocates a monthly accounting fee of $1,000 to each hotel. These fees
totaled $56,000 in 1998 and $39,000 in 1997. The Owner also chargers each Hotel
a fee for corporate advertising, training and reservations equal to four percent
of net suite revenue. These fees totaled $566,569 in 1998 and $427,337 in 1997.
In 1998, the Owner charged a franchise fee of $563,035 to these hotels, also
computed at four percent of suite revenue. No franchise fee was charged in 1997.
Effective in 1999, the Owner will be charging a "base management fee" of three
percent of suite revenue to each hotel.
The acquisition costs of the properties and related furnishings and equipment
was financed by the owner. For all properties, excluding North Dallas -- Plano
which was a purchased project, the owner allocated interest to each property on
monies advanced to fund the construction costs. The interest costs have been
capitalized and depreciated in accordance with the Hotels' normal depreciation
policy. During 1998, interest capitalized and included in the cost basis of the
Richmond-West End hotel totaled $445,782.
Each Hotel maintains a depository bank account into which customer revenues have
been deposited. The bulk of each Hotel's operating expenditures are paid through
the Owner's corporate accounts. Funds are transferred from the Hotel's
depository bank accounts to the owner periodically. The transfers to the owner
and expenditures made on behalf of the Hotels by the Owner are accounted for
through various intercompany accounts. No interest has been charged on these
intercompany advances from ongoing operations. There is no intention to repay
any advances to or from the owner. Accordingly, the net amounts have been
included in shareholders' equity with 1998 and 1997 intercompany/intracompany
transfers being reflected as net capital contributions or distributions.
NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES
Approximately sixty percent of the Richmond-West End hotel's revenues are from
Capital One Financial Corporation, a non affiliated entity.
The Hotels' depository bank accounts are maintained with two financial
institutions; Bank of America and First Union. A concentration of credit risk
exists to the extent that cash deposits exceed amounts insured by FDIC; $100,000
per financial institution. At December 31, 1998, cash deposits exceeded FDIC
insurable amounts by $150,132 and $170,079, respectively.
(Continued)
37
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES, Continued
The general contractor who constructed the Richmond-West End hotel has filed a
$3,800,000 lien against the property. Management believes that the general
contractor's case is grossly exaggerated and that the matter will be
satisfactorily resolved in a prompt manner. Management also believes that in the
event they are unable to prevail entirely, any aspect of the claim should not
have a material adverse affect on the Hotels' financial position or results of
operations.
38
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1999
ASSETS
CURRENT ASSETS
Cash $ 326,301
Accounts Receivable, Net 727,247
Prepaid and Other 6,050
-----------
TOTAL CURRENT ASSETS 1,059,598
-----------
INVESTMENT IN HOTEL PROPERTIES
Land and Improvements 8,044,305
Buildings and Improvements 29,188,026
Furniture, Fixtures and Equipment 11,401,756
-----------
TOTAL 48,634,087
Less Accumulated Depreciation (12,435,726)
-----------
NET INVESTMENT IN HOTEL PROPERTIES 36,198,361
-----------
TOTAL ASSETS $37,257,959
===========
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Accounts Payable $ 283,849
Accrued Taxes 673,966
Accrued Expenses--Other 298,719
-------------
TOTAL CURRENT LIABILITIES 1,256,534
-------------
SHAREHOLDERS' EQUITY
Contributed Capital 9,074,634
Retained Earnings 26,926,791
-------------
TOTAL SHAREHOLDERS' EQUITY 36,001,425
-------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $37,257,959
=============
</TABLE>
40
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Total
Contributed Retained Shareholders'
Capital Earnings Equity
----------- -------- -------------
<S> <C> <C> <C>
Balances, January 1, 1999 $ 11,000,030 $ 25,253,075 $ 36,253,105
Net Income -- 1,673,716 1,673,716
Capital Distributions, Net (1,925,396) -- (1,925,396)
-------------- ------------- -------------
Balances, June 30, 1999 $ 9,074,634 $ 26,926,791 $ 36,001,425
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED INCOME STATEMENT (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
GROSS OPERATING REVENUE
Suite Revenue $ 7,364,098
Other Customer Revenue 420,072
------------
TOTAL REVENUE 7,784,170
------------
EXPENSES
Property and Operating 2,845,653
General and Administrative 187,738
Advertising and Promotion 329,239
Utilities 265,585
Real Estate and Personal Property, Taxes,
and Property Insurance 616,949
Depreciation Expense 1,337,266
Franchise and Management Fees 528,024
------------
TOTAL EXPENSES 6,110,454
------------
NET INCOME $ 1,673,716
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net Income $ 1,673,716
-----------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 1,337,266
Change in:
Accounts Receivable (12,529)
Prepaids and Other Current Assets 2,305
Accounts Payable (156,227)
Accrued Taxes (323,931)
Accrued Expenses - Other 45,958
-----------
Net Adjustments 892,842
-----------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 2,566,558
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Net Equity Distributions (2,614,349)
-----------
NET DECREASE IN CASH (47,791)
CASH, JANUARY 1, 1999 374,092
-----------
CASH, JUNE 30, 1999 $ 326,301
-----------
SUPPLEMENTAL DISCLOSURES
NONCASH FINANCING AND INVESTING ACTIVITIES
During the period January 1, 1999 through June 30, 1999, additions to
Investment in Hotel Properties totaling $688,953 were financed with capital
contributions.
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
The Homewood Suites Acquisition Hotels (the Hotels) consist of the following:
Property Hotel Location Date Opened # of Suites
-------- -------------- ----------- -----------
Atlanta -- Galleria/
Cumberland Atlanta, Georgia 1990 124
Dallas -- Addison Addison, Texas 1990 120
Dallas -- Los Colina Irving, Texas 1990 136
North Dallas -- Plano Plano, Texas April, 1997 99
Richmond -- West End Glen Allen, Virginia May, 1998 123
The Hotels specialize in providing extended stay lodging to business or leisure
travelers. While customers may rent rooms for a night, terms of up to a month of
longer are available. Services offered, which are particularly attractive to the
extended stay traveler, include laundry services, 24 hour on site convenience
stores and grocery shopping services.
The Hotels have been owned and managed by various affiliates of Promus Hotels,
Inc. (the Owner) throughout the financial statement period. The accompanying
combined financial statements of the Hotels have been presented on a combined
basis because the Owner has a contract pending to sell the five hotels to Apple
Suites, Inc., a real estate investment trust established to acquire equity
interests in hotel properties. The statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission for inclusion in
a filing by Apple Suites, Inc.
The corporate owner pays income taxes on taxable income of the company as a
whole and does not allocate income taxes to individual properties. Accordingly,
the combined financial statements have been presented on a pretax basis.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Property - The Hotel properties are recorded at cost. Depreciation has been
recorded straight-line using the following lives:
Life
------------
Land Improvements 12-15 Years
Buildings and Improvements 30-35 Years
Furniture, Fixtures and Equipment 3-10 Years
(Continued)
44
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES, Continued
Major renewals, betterments and improvements are capitalized while ongoing
maintenance and repairs are expensed as incurred. Building costs include
interest capitalized during the construction period.
Estimates -- The preparation of financial statements in accordance with
generally accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosures related thereto. Actual results could
differ from those estimates.
Annually, management of the hotels reviews the carrying value and remaining
depreciable lives of the Hotel properties and related assets. Management does
not believe there are any current indications of impairment. However, it is
possible that estimates of the remaining useful lives will change in the near
term.
Accounts receivable are recorded net of an allowance for doubtful accounts based
on management's historical experience in estimating credit losses. Actual
uncollectible balances written off may be more or less than the allowance
recorded.
Cash -- Cash includes all highly liquid investments with a maturity date of
three months or less when purchased.
Advertising -- Advertising costs are expensed in the period incurred.
Inventories -- The Hotels maintain supplies of room linens and food and
beverages. However, due to the ongoing routine replacement of these items and
the difficulty in establishing market values, management has chosen to expense
these items at point of purchase.
(Continued)
45
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
NOTE 3 -- RELATED PARTY TRANSACTIONS
During the period January 1, 1999 through June 30, 1999, the following fees were
expensed to the owner.
<TABLE>
<CAPTION>
Fee Type Basis for Determination Total Expense
-------- ----------------------- -------------
<S> <C> <C>
Accounting Fees $1,000 per hotel per month $ 30,000
Corporate Advertising, Training
and Reservations 4% of net suite revenue 294,568
Franchise Fees 4% of net suite revenue 294,568
Management Fees 3% of net suite revenue 233,456
</TABLE>
The acquisition costs of the properties and related furnishings and equipment
was financed by the owner. For all properties, excluding North Dallas--Plano
which was a purchased project, the owner allocated interest to each property on
monies advanced to fund the construction costs. The interest costs have been
capitalized and depreciated in accordance with the Hotels' normal depreciation
policy.
Each Hotel maintains a depository bank account into which customer revenues have
been deposited. The bulk of each Hotel's operating expenditures are paid through
the Owner's corporate accounts. Funds are transferred from the Hotel's
depository bank accounts to the owner periodically. The transfers to the owner
and expenditures made on behalf of the Hotels by the Owner are accounted for
through various intercompany accounts. No interest has been charged on these
intercompany advances from ongoing operations. There is no intention to repay
any advances to or from the owner. Accordingly, the net amounts have been
included in shareholders' equity with current period intercompany/intracompany
transfers being reflected as net contributions or distributions.
NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES
Approximately sixty percent of the Richmond-West End hotel's revenues are from
Capital One Financial Corporation, a non affiliated entity.
The Hotels' depository bank accounts are maintained with two financial
institutions; Bank of America and First Union. A concentration of credit risk
exists to the extent that cash deposits exceed amounts insured by FDIC; $100,000
per financial institution. At June 30, 1999, cash deposits exceeded FDIC
insurable amounts by $108,909.
(Continued)
46
<PAGE>
HOMEWOOD SUITES ACQUISITION HOTELS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 1999
NOTE 4 -- CONCENTRATIONS AND CONTINGENCIES, Continued
The general contractor who constructed the Richmond-West End hotel has filed a
$3,800,000 lien against the property. Management believes that the general
contractor's case is grossly exaggerated and that the matter will be
satisfactorily resolved in a prompt manner. Management also believes that in the
event that they are unable to prevail entirely, any aspect of the claim should
not have a material adverse affect on the Hotels' financial position or results
of operations.
47
<PAGE>
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 (UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet of Apple
Suites, Inc. (the "Company") is presented as if the acquisition of the five
Homewood Suites hotels from Promus Hotels, Inc. ("Promus") had occurred on June
30, 1999. See Note A for individual hotel details. Such information is based in
part upon the consolidated balance sheet of the Company. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming such transactions had been completed as of June 30, 1999, nor does it
purport to represent the future financial position of the Company.
<TABLE>
<CAPTION>
HOMEWOOD
HISTORICAL SUITES
BALANCE ACQUISITION (A) TOTAL
SHEET ADJUSTMENTS PRO FORMA
-------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investment in hotels - $46,206,000(A) $ 46,206,000
Cash and cash equivalents $ 35,208 - 35,208
Due from lessee - - -
Prepaid expenses - - -
Other assets 162,449 (155,361)(D) 7,088
------------ ----------- ------------
TOTAL ASSETS $ 197,657 $46,050,639 $ 45,248,296
============ ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable - $33,975,000 (B) $ 33,975,000
Line of credit indebtedness 200,000 - $ 200,000
Accounts payable - - -
Accrued expenses - - -
------------ ----------- ------------
TOTAL LIABILITIES 200,000 33,975,000 34,175,000
SHAREHOLDERS' EQUITY
Common stock $ 100 12,231,000 (C) -
- (155,361)(D) 12,075,739
Net income less than distributions (2,443) - (2,443)
------------ ----------- ------------
TOTAL SHAREHOLDERS' EQUITY (2,343) 12,075,639 12,073,296
------------ ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 197,657 $46,050,639 $ 46,248,296
============ =========== ============
</TABLE>
48
<PAGE>
Notes to Pro Forma Condensed Consolidated Balance Sheet
(A) Increase represents the purchase of 5 hotels, including the 2% acquisition
fee payable to Apple Suites Realty Group, Inc. The hotels acquired
are as follows:
<TABLE>
<CAPTION>
2%
Date Commenced Date Purchase Acquisition
Property Operations Acquired Price Fee
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Homewood Suites-Dallas, TX 1990 July 20, 1999 9,500,000 190,000
Homewood Suites-Las Colinas, TX 1990 July 20, 1999 11,200,000 224,000
Homewood Suites-Plano, TX 1997 July 20, 1999 5,400,000 108,000
Homewood Suites-Richmond, VA May 1998 July 20, 1999 9,400,000 188,000
Homewood Suites-Atlanta, GA 1990 July 23, 1999 9,800,000 196,000
--------------------------------------------
Total 45,300,000 906,000
</TABLE>
<TABLE>
<CAPTION>
Debt
Total Assumed
Property ----------------------------------------
- ---------------------------------------- <C> <C>
<S>
9,690,000 7,125,000
Homewood Suites-Dallas, TX 11,424,000 8,400,000
Homewood Suites-Las Colinas, TX 5,508,000 4,050,000
Homewood Suites-Plano, TX 9,588,000 7,050,000
Homewood Suites-Richmond, VA 9,996,000 7,350,000
Homewood Suites-Atlanta, GA ----------------------------------------
46,206,000 33,975,000
</TABLE>
(B) Represents the debt assumed at acquisition. The notes bear interest of 8.5%
per annum. The maturity date for all notes is October 1, 2000. The Company
is required to make monthly principal payments in the amount of the equity
proceeds received during a month in excess of offering expenses.
(C) Increase to common stock to reflect the net proceeds from the sale of
common stock from the Company's continuous offering representing 1,517,494
shares at a $9 purchase price per share (net $8.06 per share).
(D) Represents the reclassification of offering costs upon the issuance of
common stock.
49
<PAGE>
APPLE SUITES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites, Inc. (the "Company") are presented as if the
acquisition of the five Homewood Suites hotels from Promus Hotels, Inc.
("Promus") had occurred at the beginning of the periods presented and all of the
hotels had been leased to Apple Suites Management, Inc. (the "Lessee") pursuant
to the Percentage Leases. Such pro forma information is based in part upon the
Consolidated Statements of Operations of the Company, the Pro Forma Statements
of Operations of the Lessee and the historical Statements of Operations of the
acquired hotels. In management's opinion, all adjustments necessary to reflect
the effects of these transactions have been made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the periods presented are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of the beginning of the periods presented,
nor does it purport to represent the results of operations for future periods.
The most significant assumption which may not be indicative of future operations
is the amount of financial leverage employed. These Pro Forma statements assume
75% of the purchase price was funded with debt for the entire periods presented.
The Company intends to repay this debt with the proceeds from its "best efforts"
offering. This repayment of debt would result in lower interest expense, higher
net income, but lower earnings per share.
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
CONSOLIDATED HOMEWOOD
STATEMENT OF SUITES TOTAL
OPERATIONS ACQUISITION (A) PRO FORMA
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Percentage lease revenue $ - $ 6,261,616(B) $ 6,261,618
Expenses:
Taxes and insurance - 1,040,638(C) 1,040,638
General and administrative - 120,195(D) 120,195
Depreciation - 1,176,103(E) 1,176,103
--------------- ---------- ------------
Total expenses - 2,336,936 2,336,935
--------------- ---------- ------------
Income before interest income (expense) - 3,924,682 3,924,682
Interest income - - -
Interest expense - 2,688,125(F) 2,688,125
--------------- ---------- ------------
Net income $ - $ 1,236,557 $ 1,236,557
=============== ========== ============
Earnings per common share:
Basic and Diluted $ - $ 0.88
=============== ========== ============
Basic and diluted weighted average
common shares outstanding $ - 1,412,531(G) 1,412,531
=============== ========== ============
</TABLE>
50
<PAGE>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL HOMEWOOD
STATEMENT OF SUITES TOTAL
OPERATIONS ACQUISITION (A) PRO FORMA
------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Percentage lease revenue $ - $ 3,317,994(B) $3,317,994
Expenses:
Taxes and insurance - 616,949(C) 616,949
General and administrative - 61,155(D) 61,155
Depreciation - 640,931(E) 640,931
------------ ----------- ----------
Total expenses - 1,319,035 1,319,035
------------ ----------- ----------
Income before interest income (expense) - 1,998,959 1,998,959
Interest income - - -
Interest expense - 1,443,938(F) 1,443,938
------------ ----------- ----------
Net income $ - $ 555,021 $ 555,021
============ =========== ==========
Earnings per common share:
Basic and Diluted $ - $ 0.37
============ ==========
Basic and diluted weighted average common shares
outstanding $ - 1,517,494(G) $1,517.494
============ ==========
</TABLE>
51
<PAGE>
Notes to Pro Forma Condensed Consolidated Statements of Operations
(A) Represents results of operations for the five hotels acquired on a pro
forma basis as if the five hotels were owned by the Company at the
beginning of the periods presented. Since one of the hotels was under
construction in 1998 and full operations did not commence until May 1998,
no pro forma adjustments were made for the periods prior to completion. See
Note A to Pro Forma Consolidated Balance Sheet for a list of individual
hotels acquired.
(B) Represents lease payment from the Lessee to the Company calculated on a pro
forma basis by applying the rent provisions in the Percentage Leases to the
historical room revenue of the hotels as if the beginning of the period was
the beginning of the lease year. The base rent and the percentage rent will
be calculated and paid based on the terms of the lease agreement. Refer to
the Master Hotel Lease Agreement section to prospectus supplement for
details.
(C) Represents historical real estate and personal property taxes and insurance
which will be paid by the Company pursuant to the Percentage Lease
agreements. Such amounts were derived from historical amounts paid by the
respective hotels.
(D) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company and anticipated legal and accounting fees, employee costs, salaries
and other costs of operating as a public company.
(E) Represents the depreciation on the five hotels acquired based on the
purchase price, excluding amounts allocated to land, of $35,251,200, for
the period of time not owned by the Company. The weighted average life of
the depreciable assets was 27.5 years. The estimated useful lives are based
on management's knowledge of the properties and the hotel industry in
general. Depreciable assets of $8,725,080 did not commence depreciation
until May 1998.
(F) Represents the interest expense for the five hotel acquisitions for the
period in which the hotels were not owned. Interest was computed using the
interest rates of 8.5% on mortgage debt of $33.975 million that was assumed
at acquisition. Interest expense on $7.125 million was not recorded for the
first four months in 1998 as this amount was attributable to the debt
assumed. See Note B to the Pro Forma Consolidated Balance Sheet for more
detail.
(G) Represents additional common shares assuming the properties were acquired
at the beginning of the periods presented with the net proceeds from the
"best efforts" offering of $9 per share (net $8.06 per share).
52
<PAGE>
APPLE SUITES MANAGEMENT, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations of Apple Suites Management, Inc. (the "Lessee") are presented as if
the five hotels purchased from Promus Hotels, Inc. ("Promus") had been leased
from Apple Suites, Inc. (the "Company") pursuant to the Percentage Leases from
the beginning of periods presented. Further, the results of operations reflect
the Management Agreement and License Agreement entered into between Promus and
the Lessee or affiliate to operate the acquired hotels. Such pro forma
information is based in part upon the Consolidated Statements of Operations of
the Lessee, and the Homewood Suites Hotels and should be read in conjunction
with the financials statement contained herein. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the periods are not necessarily indicative of what the actual
results of operations of the Lessee would have been assuming such transactions
had been completed as of the beginning of the periods presented, nor does it
purport to represent the results of operations for the future periods.
FOR THE YEAR-ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL HOMEWOOD
STATEMENT OF SUITES PRO FORMA TOTAL
OPERATIONS ACQUISITIONS (A) ADJUSTMENTS PRO FORMA
-------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Suite revenue $ - $ 14,075,852 - $ 14,075,852
Other income - 811,817 - 811,817
EXPENSES:
Property and operating costs and expenses - 5,586,712 - 5,586,712
General and administrative - 348,088 $(56,000)(B)
- - (50,000)(C) 342,088
Advertising and promotion - 648,273 (566,569)(D)
- - 563,034 (E) 644,738
Utilities - 626,269 - 626,269
Taxes and insurance 1,040,638 (1,040,638)(F) -
Depreciation expense 2,394,294 (2,394,294)(G) -
Franchise fees - 563,035 (563,035)(H) -
- - 563,035 (I) 563,035
Management fees - - 619,034 (K) 619,034
Percentage of rent lease payment - - (6,261,618)(L) 6,261,618
Other - 226,964 - 226,964
-------------- ------------ ----------- ------------
Total expenses - 11,434,273 3,436,185 14,870,458
Income before income taxes - 3,453,396 (3,436,185) 17,211
Income tax expense - - 6,884 (M) 6,884
-------------- ------------ ----------- ------------
Net income $ - $ 3,453,396 $(3,443,069) $ 10,327
============== ============ =========== ============
</TABLE>
53
<PAGE>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HOMEWOOD
STATEMENT OF SUITES PRO FORMA TOTAL
OPERATIONS ACQUISITIONS (A) ADJUSTMENTS PRO FORMA
-------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Suite revenue $ - $ 7,364,098 - $ 7,364,098
Other income - 420,072 - 420,072
EXPENSES:
Property and operating costs and expenses - 2,845,653 - 2,845,653
General and administrative - 187,738 $ (30,000)(B)
- - (25,000)(C) 182,738
Advertising and promotion - 329,239 (294,568)(D)
- - 294,568 (E) 329,239
Utilities - 265,585 - 265,585
Taxes and insurance 616,949 $ (616,949)(F) -
Depreciation expense 1,337,266 (1,337,266)(G) -
Franchise fees - 294,568 (294,568)(H) -
- - 294,568 (I) 294,568
Management fees - 233,456 (233,456)(J) -
- - 324,564 (K) 324,564
Percentage of rent lease payment - - 3,317,994 (L) 3,317,994
-------------- ------------ ----------- ------------
Total expenses - 6,110,454 1,449,887 7,560,341
Income before income taxes - 1,673,716 (1,449,887) 223,829
Income tax expense - - 89,531 (M) 89,531
-------------- ------------ ----------- ------------
Net income $ - $ 1,673,716 $(1,539,420) $ 134,296
============== ============ =========== ============
</TABLE>
54
<PAGE>
Notes to Pro Forma Condensed Consolidated Statements of Operations
(A) Represents results of operations for the five Homewood Suites hotel
acquisitions on a pro forma basis as if the hotels acquired were leased and
operated by the Lessee at the beginning of the periods presented. The
hotels acquired are as follows:
<TABLE>
<CAPTION>
Date Commenced Date
Property Operations Acquired
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Homewood Suites-Dallas, TX 1990 July 20, 1999
Homewood Suites-Las Colinas, TX 1990 July 20, 1999
Homewood Suites-Plano, TX 1997 July 20, 1999
Homewood Suites-Richmond. VA May 1998 July 20, 1999
Homewood Suites-Atlanta, GA 1990 July 23, 1999
</TABLE>
Since the Richmond hotel was under construction in 1998 and full operations did
not commence until May 1998, no pro forma adjustments were made prior to the
date the hotel commenced operations.
(B) Represents the elimination of the historical accounting fee allocated to
the hotels by the prior owner.
(C) Represents the addition of the anticipated legal and accounting and other
expenses to operate as a stand alone company.
(D) Represents the elimination of the historical advertising, training and
reservation fee allocated to the hotels by the prior owner.
(E) Represents the addition of the market reservation fee to be incurred under
the new management agreements. The market reservation fee is calculated
based on the terms of the management agreements which is 4% of gross
revenue.
(F) Represents the elimination of the taxes and insurance. Under the terms of
the lease these expenses will be incurred and, accordingly, are reflected
in the Company's Pro Forma Condensed Consolidated Statement of Operations.
(G) Represents the elimination of the depreciation expense. This expense will
be reflected in the Company's Pro Forma Condensed Consolidated Statement of
Operations.
(H) Represents the elimination of the historical franchise fee allocated to the
hotels by the prior owner.
(I) Represents the addition of franchise fees to be incurred under the new
management agreements. The franchise fees are calculated based on the terms
of the agreement which is 4% of gross revenue.
(J) Represents the elimination of the historical management fees for the six
months ended June 30, 1999.
(K) Represents the addition of the management fees of 4% of gross revenue and
the accounting fee $1,000 per hotel per month to be incurred under the new
management agreements for the year ended December 31, 1998 and six month
period ended June 30, 1999.
(L) Represents lease payments from the Lessee to the Company calculated on a
pro forma basis by applying the rent provisions in the Percentage Leases to
the historical room revenue of the hotels as if the beginning of the period
was the beginning of the lease year. The base rent and the percentage rent
will be calculated and paid based on the terms of the lease agreement.
Refer to the Master Hotel Lease Agreement section to Form 8-K Report for
details.
(M) Represents the combined state and federal income tax expense estimated on a
combined rate of 40%.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Apple Suites, Inc.
Date: October 5, 1999 By:/s/ Glade M. Knight
------------------------------------------------
Glade M. Knight,
Chief Executive Officer of Apple Suites, Inc.
56
EXHIBIT 4.1
<PAGE>
NOTE
Date of Note: September 20, 1999
Principal Amount: $26,625,000
Maturity Date: October 1, 2000
Interest Rate: 8.5% per annum to be computed on an actual/365-day basis
(i.e., interest for each day during which any of the
Principal Amount is outstanding shall be computed at the
Interest Rate divided by 365).
FOR VALUE RECEIVED, the undersigned ("Maker") does hereby covenant
and promise to pay to the order of PROMUS HOTELS, INC., a Delaware corporation
or its successors or assigns (collectively, "Payee"), at 755 Crossover Lane,
Memphis, Tennessee 38117-4900, or at such other place as Payee may designate to
Maker in writing from time to time, the Principal Amount, on the Maturity Date,
together with interest at the Interest Rate on the unpaid portion of the
Principal Amount on the first day of the first month following the Date of Note
and on the first day of each month thereafter until this Note is paid in full,
and with a late payment premium of 4% of any principal or interest payment made
more than ten (10) days after the due date thereof which shall be due with any
such late payment. All payments of principal, interest and other sums hereunder
shall be made in lawful money of the United States and in immediately available
funds.
Pursuant to Section 2(b) of the Purchase Agreement (as hereinafter
defined), in addition to the payment of interest as provided herein, commencing
on the first day of the first month after the Date of Note and on the first day
of each month thereafter, Maker hereby covenants and promises to pay a monthly
principal amortization payment equal to the Amortization Amount, as hereinafter
defined. Each such principal amortization payment shall be applied in reduction
of the Principal Amount. In connection with calculating the Amortization Amount,
on or before the twenty-second (22nd) day of each month (or if such 22nd day is
not a business day, the first business day thereafter) between the date hereof
and the repayment in full of amounts evidenced by this Note and secured by the
Mortgage (as hereinafter defined), Maker shall notify Payee (the "Equity
Proceeds Notice") of (1) the total proceeds received in connection with the
"best efforts" public offering of shares in Maker (the "Equity Proceeds") and
(2) the net sum available to Maker from the Equity Proceeds after deduction of
offering expenses, including, without limitation, accountants' fees, legal fees,
printing expenses, registration fees, NASD filing fees, stock exchange/quotation
service listing fees and transfer agent and escrow charges, selling commissions,
marketing expense allowance, Property (as herein defined) acquisition fees and
expenses and closing costs and a working capital reserve and a reserve for
renovations, repairs and replacements of capital
<PAGE>
improvements for each Property (the "Net Equity Proceeds"), all as contemplated
in Maker's Form S-11 Registration Statement, filed on August 3, 1999. For the
purposes of this Note (i) the "Amortization Amount" shall mean an amount equal
to the excess of the Net Equity Proceeds set forth in the most recent Equity
Proceeds Notice over the sum of (x) $8,875,000 plus (y) the aggregate of all
previous principal amortization payments applied in reduction of the Principal
Amount and (ii) "Property" shall mean each property sold to Maker pursuant to
that certain Agreement of Sale dated August 6, 1999 among Hampton Inns, Inc.,
Promus Hotels Florida, Inc. and Payee, as sellers, and Maker, as buyer (the
"Purchase Agreement"). Notwithstanding the foregoing, nothing provided herein
shall prevent Payee from paying the Amortization Amount more often than monthly.
This Note is secured by, among other things, mortgages and/or
deeds of trust and/or deeds to secure debt (individually and collectively, the
"Mortgage"), which Mortgage specifies various defaults upon the happening of
which all sums owing on this Note may, at Payee's option, be declared
immediately due an payable.
Maker agrees that it shall be bound by any agreement extending the
time or modifying the above terms of payment, made by Payee and the owner or
owners of the property affected by the Mortgage, whether with or without notice
to Maker, and Maker shall continue liable to pay the amount due hereunder, but
with interest at a rate no greater than the Interest Rate, according to the
terms of any such agreement of extension or modification. This Note may be
prepaid, in whole or in part, without premium or penalty.
This Note may not be changed orally, but only an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
Should the indebtedness represented by this Note or any part
thereof be collected at law or in equity, or in bankruptcy, receivership or any
other court proceedings (whether at the trial or appellate level), or should
this Note be placed in the hands of attorneys for collection upon default, Maker
agrees to pay, in addition to the principal, premium and interest due and
payable hereon, all costs of collection or attempting to collect this Note,
including reasonable attorneys' fees and expenses.
All parties to this Note, whether Maker, principal, surety,
guarantor or endorser, hereby waive presentment for payment, demand, protest,
notice of protest and notice of dishonor.
Anything herein to the contrary notwithstanding, the obligations
of Maker under this Note and the Mortgage shall be subject to the limitation
that payments of interest shall not be required to the extent that receipt of
any such payment by Payee would be contrary to provisions of law applicable to
Payee limiting the maximum rate of interest that may be charged or collected by
Payee.
<PAGE>
In case of any loss, theft, destruction or mutilation of this
Note, Maker shall, upon its receipt of an affidavit of an officer of Payee as to
such loss, theft, destruction or mutilation and an appropriate indemnification,
execute and deliver a replacement Note to Payee in the same principal amount and
otherwise of like tenor as this Note.
MAKER BY EXECUTION HEREOF, AND PAYEE BY ACCEPTANCE HEREOF, HEREBY
EXPRESSLY AND UNCONDITIONALLY WAIVES, IN CONNECTION WITH ANY SUIT, ACTION OR
PROCEEDING BROUGHT BY PAYEE ON THIS NOTE, ANY AND EVERY RIGHT IT MAY HAVE TO A
TRAIL BY JURY.
This Note and the rights and obligations of the parties hereunder
shall in all respects to be governed by, and construed and enforced in
accordance with, the laws of the State of Tennessee (without giving effect to
Tennessee's principles of conflicts of law). Maker hereby irrevocably submits to
the non-exclusive jurisdiction of any Tennessee State or Federal court sitting
in The City of Memphis over any suit, action or proceeding arising out of or
relating to this Note, and Maker hereby agrees and consents that, in addition to
any methods of service of process provided for under applicable law, all service
of process in any such suit, action or proceeding in any Tennessee State or
Federal court sitting in The City of Memphis may be made by certified or
registered mail, return receipt requested, directed to Maker at the address
indicated below, with a copy to counsel at Jenkens & Gilchrist, Fountain Place,
1445 Ross Avenue, Suite 3200, Dallas, Texas 75202, and service so made shall be
complete five (5) days after the same shall have been so mailed.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note on
the day and year first above written.
APPLE SUITES, INC.,
a Virginia corporation
By /s/ Glade M. Knight
-------------------------------
Name: Glade M. Knight
Title: Chief Executive Officer
Address of Maker:
306 East Main Street
Richmond, Virginia 23219
ATTN Glade M Knight
This is to certify that this Note was executed in my presence on
the date hereof by the party whose signature appears above in the capacity
indicated.
/s/ Jacquelyn B. Owens
---------------------------------
Notary Public
My commission expires
6/30/03
---------------------------------
EXHIBIT 4.2
<PAGE>
================================================================================
Date: September 20, 1999
FEE AND LEASEHOLD DEED OF TRUST, ASSIGNMENT OF LEASES
AND RENTS AND SECURITY AGREEMENT
("this Deed")
FROM
APPLE SUITES, INC.,
a Virginia corporation
("Fee Owner")
AND
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
("Lessee")
Address of Fee Owner and Lessee: ATTN: Glade M. Knight
306 East Main Street
Richmond, Virginia 23219
TO
LAWYERS TITLE REALTY SERVICES, INC.
("Trustee")
Address of Trustee: 101 Gateway Centre Parkway
Gateway One
Richmond, Virginia 23235
FOR THE BENEFIT OF
PROMUS HOTELS, INC.,
a Delaware corporation
("Beneficiary")
Address of Beneficiary: 755 Crossover Lane
Memphis, Tennessee 38117
Note Amount: $26,625,000
================================================================================
This instrument prepared by, and after recording please return to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Graham R. Hone, Esq.
<PAGE>
RECITAL
Beneficiary, Hampton Inns, Inc. and Promus Hotels Florida, Inc., as
sellers, and Fee Owner, as buyer, have entered into an Agreement of Sale dated
as of August 6, 1999 (the "Agreement of Sale") for the purchase of, among other
premises, the premises described in SCHEDULE A. Fee Owner has acquired and is
the owner of the premises described in SCHEDULE A and Lessee is the owner of a
leasehold interest therein. Lessee acknowledges that it will derive substantial
benefit from the making of the loan contemplated herein and further acknowledges
that the obligation of Beneficiary to make such loan is conditioned upon, among
other things, the execution and delivery by Lessee of this Deed. In connection
with the purchase of said premises by Fee Owner from Beneficiary, Fee Owner will
borrow the Note Amount from Beneficiary and has executed and delivered to
Beneficiary its note, dated the date hereof, obligating it to pay the Note
Amount (said note, as the same may hereafter be amended, modified, extended,
severed, assigned, renewed, replaced or restated, hereinafter, the "Note") and
in order to secure the payment of the Note has duly authorized the execution and
delivery of this Deed. For purposes of this Deed, "Grantor" shall mean Fee Owner
and Lessee but only to the extent of their respective interests in the Mortgaged
Property (as herein defined) and their respective obligations under the Note and
Ground Lease.
CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION
Grantor, Trustee and Beneficiary agree that, unless the context
otherwise specifies or requires, the following terms shall have the meanings
herein specified.
"Chattels" means all fixtures, furnishings, fittings, appliances,
apparatus, equipment, building materials and components, machinery and articles
of personal property, of whatever kind or nature, including any replacements,
proceeds or products thereof and additions thereto, other than those owned by
lessees, now or at any time hereafter intended to be or actually affixed to,
attached to, placed upon, or used in any way in connection with the complete and
comfortable use, enjoyment, development, occupancy or operation of the Premises,
and whether located on or off the Premises.
"Default Rate" means the rate (or, if more than one, the highest of the
rates) of interest per annum provided in the Note plus 5%, but in no event to
exceed the maximum rate allowed by law.
"Events of Default" means the events and circumstances described as
such in Section 2.01.
"Ground Lease" means the lease identified in SCHEDULE A covering the
Premises described in SCHEDULE A which is subject to the Ground Lease.
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes, materials or substances, as any of
those terms are defined from time to time in or for the purposes of any relevant
environmental law, rule, regulation, code, permit, order, notice, demand letter
or other binding determination (hereinafter,
<PAGE>
"Environmental Laws") including, without limitation, asbestos fibers and friable
asbestos, polychlorinated biphenyls and any petroleum or hydrocarbon-based
products or derivatives, in each case in amounts in violation of applicable
Environmental Laws.
"Improvements" means all structures or buildings, and replacements
thereof, now or hereafter located upon the Premises, including all plant
equipment, apparatus, machinery and fixtures of every kind and nature whatsoever
forming part of said structures or buildings.
"lease" or "leases" means any lease or leases of all or any portion of
the Premises, whether affecting the fee or leasehold portion thereof.
"Loan" means the loan made by Beneficiary to Fee Owner evidenced by the
Note and secured hereby.
"Premises" means the premises described in SCHEDULE A, including the
leasehold interest therein created by the Ground Lease, and including all of the
easements, rights, privileges and appurtenances (including air or development
rights) thereunto belonging or in anywise appertaining, and all of the estate,
right, title, interest, claim or demand whatsoever of Grantor therein and in the
streets and ways adjacent thereto, either in law or in equity, in possession or
expectancy, now or hereafter acquired, and as used herein shall, unless the
context otherwise requires, be deemed to include the Improvements.
"Premises Documents" means all reciprocal easement or operating
agreements, declarations of covenants, conditions or restrictions, declarations
of condominium, developer's or utility agreements with any village, town, county
or other governmental authority, and any similar such agreements or declarations
now or hereafter affecting the Premises or any part thereof.
All terms of this Deed which are not defined above shall have the
meaning set forth elsewhere in this Deed.
Except as expressly indicated otherwise, when used in this Deed (i)
"or" is not exclusive, (ii) "hereunder", "herein", "hereof" and the like refer
to this Deed as a whole, (iii) "Article", "Section" and "Schedule" refer to
Articles, Sections and Schedules of this Deed, (iv) terms defined in the
singular have a correlative meaning when used in the plural and vice versa, (v)
a reference to a law or statute includes any amendment or modification to, or
replacement of, such law or statute and (vi) a reference to an agreement,
instrument or document means such agreement, instrument or document as the same
may be amended, modified or supplemented from time to time in accordance with
its terms and as permitted hereby and by the other documents executed or
delivered to Beneficiary in connection with the Loan. The cover page and all
Schedules hereto are incorporated herein and made a part hereof. Any table of
contents and the headings and captions herein are for convenience only and shall
not affect the interpretation or construction hereof.
2
<PAGE>
GRANTING CLAUSE
NOW, THEREFORE, Grantor, in consideration of the premises and in order
to secure the payment of both the principal of, and the interest and any other
sums payable under, the Note or this Deed and the performance and observance of
all the provisions hereof and of the Note, hereby gives, grants, bargains,
sells, warrants, aliens, remises, releases, conveys, assigns, transfers,
mortgages, hypothecates, deposits, pledges, sets over and confirms unto Trustee,
all its estate, right, title and interest in, to and under any and all of the
following described property (hereinafter, the "Mortgaged Property") whether now
owned or held or hereafter acquired:
(i) the Premises;
(ii) the Improvements;
(iii) the Chattels;
(iv) the Premises Documents;
(v) all rents, royalties, issues, profits, revenue, income,
recoveries, reimbursements and other benefits of the Mortgaged Property
(hereinafter, the "Rents") and all leases of the Mortgaged Property or
portions thereof now or hereafter entered into and all right, title and
interest of Grantor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of
their obligations thereunder, whether such cash or securities are to be
held until the expiration of the terms of such leases or applied to one
or more of the installments of rent coming due immediately prior to the
expiration of such terms, and including any guaranties of such leases
and any lease cancellation, surrender or termination fees in respect
thereof, all subject, however, to the provisions of Section 4.01;
(vi) all (a) development work product prepared in connection with
the Premises, including, but not limited to, engineering, drainage,
traffic, soil and other studies and tests; water, sewer, gas,
electrical and telephone approvals, taps and connections; surveys,
drawings, plans and specifications; and subdivision, zoning and
platting materials; (b) building and other permits, rights, licenses
and approvals relating to the Premises; and (c) contracts and
agreements (including, without limitation, contracts with architects
and engineers, construction contracts and contracts for the maintenance
or management of the Premises), contract rights, logos, trademarks,
trade names, copyrights and other general intangibles used or useful in
connection with the ownership, operation or occupancy of the Premises
or any part thereof;
(vii) all proceeds of the conversion, voluntary or involuntary, of
any of the foregoing into cash or liquidated claims, including, without
limitation, proceeds of insurance and condemnation awards, and all
rights of Grantor to refunds of real estate taxes and assessments;
3
<PAGE>
(viii) all revenue and income received by or on behalf of Grantor
resulting from the operation of the Premises as a hotel, including all
sums (1) paid by customers for the use of hotel rooms located within
the Premises, (2) derived from food and beverage operations located
within the Premises, (3) generated by other hotel operations, including
any parking, convention, sports and recreational facilities and (4)
business interruption insurance proceeds;
(ix) all accounts and accounts receivable, including all present
and future right to payment from any consumer credit or charge card
organization or entity (such as those organizations which sponsor or
administer the American Express, Carte Blanche, Discover Card, Diners
Club, Visa and Master Card) arising out of the leasing and operation
of, or the business conducted at or in relation to, all or any part of
the Premises; and
(x) any deposit, operating or other account including the entire
balance therein (now or hereafter existing) of Grantor containing
proceeds of the operation of the Premises with any banking or financial
institution and all money, instruments, securities, documents, chattel
paper, credits, demands, and any other property, rights, or interests
of Grantor relating to the operation of the Premises which at any time
shall come into the possession, custody or control of any banking or
financial institution.
TO HAVE AND TO HOLD unto Trustee, its successors and assigns forever.
IN TRUST, to secure the payment to Beneficiary of the principal of and
interest on the Note at the maturity thereof and all other sums due hereunder or
under the Note and the performance of all covenants and agreements herein and in
the Note, whereupon this Deed shall cease and be void and the Mortgaged Property
shall be released at the cost of Grantor.
ARTICLE I
COVENANTS OF GRANTOR
Grantor represents, except as known by Beneficiary or its affiliates to
the contrary, or disclosed to Beneficiary in connection with the sale of the
Mortgaged Property to Grantor, and Grantor covenants and agrees as follows:
Section 1.01. (a) Warranty of Title; Power and Authority. Grantor
warrants that, with respect to the fee interest in the Premises, it has a good
and marketable title to an indefeasible fee estate subject to no lien, charge or
encumbrance, that the Ground Lease is subject to no lien, charge or encumbrance
of any kind and is prior to all liens, charges and encumbrances whatsoever on
the fee interest of the landlord thereunder, except in either case such as are
listed as exceptions to title in the title policy insuring the lien hereof; and,
Grantor further warrants that, with respect to the leasehold interest in the
Premises, that it is the owner of a valid and subsisting interest as tenant
under the Ground Lease, that the Ground Lease is in full force and effect, there
are no defaults thereunder and no event has occurred or is occurring which after
notice or passage of time or both
4
<PAGE>
will result in such a default; that it owns the Chattels, all leases and the
Rents in respect of the Mortgaged Property and all other personal property
encumbered hereby free and clear of liens and claims; and Grantor warrants that
this Deed is and will remain a valid and enforceable lien on the Mortgaged
Property subject only to the exceptions referred to above. Grantor has full
power and lawful authority to subject the Mortgaged Property to the lien hereof
in the manner and form herein done or intended hereafter to be done. Grantor
will preserve such title, will preserve such leasehold estate created by the
Ground Lease and will forever warrant and defend the same to Trustee and
Beneficiary and will forever warrant and defend the validity and priority of the
lien hereof against the claims of all persons and parties whomsoever. Grantor
will perform or cause to be performed all of the covenants and conditions
required to be performed by it under the Ground Lease, will do all things
necessary to preserve unimpaired its rights thereunder, and will not (i) enter
into any agreement modifying or amending the Ground Lease that would reduce the
term of the Ground Lease, increase the amount of rent payable thereunder (except
as contemplated by the provisions of the Ground Lease) or have a material
adverse effect on the lien created by this Deed or the rights of Beneficiary
hereunder or (ii) for so long as the Ground Lease is in effect, release the
landlord thereunder from any obligations imposed upon it thereby. If Grantor
receives a notice of default under the Ground Lease, it shall immediately cause
a copy of such notice to be sent by registered United States mail to
Beneficiary.
(b) Hazardous Materials. To the best of Grantor's knowledge, Grantor
represents and warrants that (i) the Premises and the improvements thereon and
the surrounding areas are not currently and have never been subject to Hazardous
Materials or their effects, in each case in amounts in violation of applicable
Environmental Laws, (ii) neither it nor any portion of the Premises or
improvements thereon is in violation of, or subject to any existing, pending or
threatened investigation or proceeding by any governmental authorities under,
any Environmental Law, (iii) there are no claims, litigation, administrative or
other proceedings, whether actual or threatened, or judgments or orders,
concerning Hazardous Materials relating in any way to the Premises or the
improvements thereon and (iv) Grantor is not required by any Environmental Law
to obtain any permits or licenses to construct or use any improvements, fixtures
or equipment with respect to the Premises, or if any such permit or license is
required it has been obtained and is capable of being mortgaged and assigned
hereby. Grantor will comply with all applicable Environmental Laws and will, at
its sole cost and expense, promptly remove, or cause the removal of, any and all
Hazardous Materials or the effects thereof at any time identified as being on,
in, under or affecting the Premises.
(c) Flood Hazard Area. Grantor represents that neither the Premises nor
any part thereof is located in an area identified by the Secretary of the United
States Department of Housing and Urban Development or by any applicable federal
agency as having special flood hazards or, if it is, Grantor has obtained the
insurance required by Section 1.09.
Section 1.02. (a) Further Assurances. Grantor will, at its sole cost
and expense, do, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, mortgages, assignments, notices of assignment,
transfers and assurances as
5
<PAGE>
Trustee or Beneficiary shall from time to time reasonably require, for the
better assuring, conveying, assigning, transferring and confirming unto Trustee
the property and rights hereby conveyed or assigned or intended now or hereafter
so to be, or which Grantor may be or may hereafter become bound to convey or
assign to Trustee, or for carrying out the intention or facilitating the
performance of the terms hereof, or for filing, registering or recording this
Deed and, on demand, will execute and deliver, and hereby authorizes Trustee or
Beneficiary to execute and file in Grantor's name, to the extent they may
lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments, to evidence or perfect more effectively
Beneficiary's security interest in and the lien hereof upon the Chattels and
other personal property encumbered hereby.
(b) Information Reporting and Back-up Withholding. Grantor will, at its
sole cost and expense, do, execute, acknowledge and deliver all and every such
acts, information reports, returns and withholding of monies as shall be
necessary or appropriate to comply fully, or to cause full compliance, with all
applicable information reporting and back-up withholding requirements of the
Internal Revenue Code of 1986 (including all regulations now or hereafter
promulgated thereunder) in respect of the Premises and all transactions related
to the Premises, and will at all times provide Beneficiary with satisfactory
evidence of such compliance and notify Beneficiary of the information reported
in connection with such compliance.
Section 1.03. (a) Filing and Recording of Documents. Grantor forthwith
upon the execution and delivery hereof, and thereafter from time to time, will
cause this Deed and any security instrument creating a lien or evidencing the
lien hereof upon the Chattels and each instrument of further assurance to be
filed, registered or recorded in such manner and in such places as may be
required by any present or future law in order to publish notice of and fully to
protect the lien hereof upon, and the title of Trustee to, the Mortgaged
Property.
(b) Filing and Recording Fees and Other Charges. Grantor will pay all
filing, registration or recording fees, and all expenses incident to the
execution and acknowledgment hereof, any deed of trust supplemental hereto, any
security instrument with respect to the Chattels, and any instrument of further
assurance, and any reasonable expenses (including attorneys' fees and
disbursements) incurred by Beneficiary in connection with the Loan, and will pay
all federal, state, county and municipal stamp taxes and other taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of the Note, this Deed, any deed of trust supplemental
hereto, any security instrument with respect to the Chattels or any instrument
of further assurance.
Section 1.04. Payment and Performance of Loan Documents. Grantor will
punctually pay the principal and interest and all other sums to become due in
respect hereof and of the Note at the time and place and in the manner specified
therein, according to the true intent and meaning thereof, all in currency of
the United States of America which at the time of such payment shall be legal
tender for the payment of public and private debts. Grantor will duly and timely
comply with and perform all of
6
<PAGE>
the terms, provisions, covenants and agreements contained in said documents and
in all other documents or instruments executed or delivered by Grantor to
Beneficiary in connection with the Loan, and will permit no failures of
performance thereunder.
Section 1.05. Maintenance of Existence; Compliance with Laws. Grantor,
if other than a natural person, will, so long as it is owner of all or part of
the Mortgaged Property, do all things necessary to preserve and keep in full
force and effect its existence, franchises, rights and privileges as a business
or stock corporation, partnership, limited liability company, trust or other
entity under the laws of the state of its formation. Grantor will duly and
timely comply with all laws, regulations, rules, statutes, orders and decrees of
any governmental authority or court applicable to it or to the Mortgaged
Property or any part thereof.
Section 1.06. After-Acquired Property. All right, title and interest of
Grantor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property, hereafter acquired by, or released to, Grantor or
constructed, assembled or placed by Grantor on the Premises, and all conversions
of the security constituted thereby, immediately upon such acquisition, release,
construction, assembling, placement or conversion, as the case may be, and in
each such case, without any further deed of trust, conveyance, assignment or
other act by Grantor, shall become subject to the lien hereof as fully and
completely, and with the same effect, as though now owned by Grantor and
specifically described in the Granting Clause hereof, but at any and all times
Grantor will execute and deliver to Trustee or Beneficiary any and all such
further assurances, deeds of trust, conveyances or assignments thereof as
Trustee or Beneficiary may reasonably require for the purpose of expressly and
specifically subjecting the same to the lien hereof.
Section 1.07. (a) Payment of Taxes and Other Charges. Grantor, from
time to time before the same shall become delinquent, will pay and discharge all
taxes of every kind and nature (including real and personal property taxes and
income, franchise, withholding, profits and gross receipts taxes), all general
and special assessments, levies, permits, inspection and license fees, all water
and sewer rents and charges, and all other public charges whether of a like or
different nature, imposed upon or assessed against it or the Mortgaged Property
or any part thereof or upon the revenues, rents, issues, income and profits of
the Mortgaged Property or arising in respect of the occupancy, use or possession
thereof. Grantor will, upon Beneficiary's request, deliver to Beneficiary
receipts evidencing the payment of all such taxes, assessments, levies, fees,
rents and other public charges imposed upon or assessed against it or the
Mortgaged Property or any portion thereof.
Beneficiary may, at its option following the occurrence of an Event of
Default, to be exercised by thirty (30) days' notice to Grantor, require the
deposit by Grantor, at the time of each payment of an installment of interest or
principal under the Note (but no less often than monthly), of an additional
amount sufficient to discharge the obligations under this clause (a) when they
become due. The determination of the amount so payable and of the fractional
part thereof to be deposited with Beneficiary, so that the aggregate of such
deposits shall be sufficient for this purpose, shall be made by Beneficiary in
its sole
7
<PAGE>
discretion. Such amounts shall be held by Beneficiary without interest and
applied to the payment of the obligations in respect of which such amounts were
deposited or, at Beneficiary's option, to the payment of said obligations in
such order or priority as Beneficiary shall determine, on or before the
respective dates on which the same or any of them would become delinquent. If
one (1) month prior to the due date of any of the aforementioned obligations the
amounts then on deposit therefor shall be insufficient for the payment of such
obligation in full, Grantor within ten (10) days after demand shall deposit the
amount of the deficiency with Beneficiary. Nothing herein contained shall be
deemed to affect any right or remedy of Beneficiary under any provisions hereof
or of any statute or rule of law to pay any such amount and to add the amount so
paid, together with interest at the Default Rate, to the indebtedness hereby
secured.
(b) Payment of Mechanics and Materialmen. Grantor will pay, from time
to time when the same shall become due, all lawful claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation of, a lien on the Mortgaged Property or any part thereof,
and in general will do or cause to be done everything necessary so that the lien
hereof shall be fully preserved, at the cost of Grantor and without expense to
Trustee or Beneficiary, other than those liens which Beneficiary or its
affiliates have indemnified Grantor pursuant to the provisions set forth in the
Agreement of Sale, dated August 6, 1999, by and between Hampton Inns, Inc.,
Promus Hotels Florida, Inc., Promus Hotels, Inc. and Apple Suites, Inc.
(c) Good Faith Contests. Nothing in this Section 1.07 shall require the
payment or discharge of any obligation imposed upon Grantor by this Section so
long as Grantor shall in good faith and at its own expense contest the same or
the validity thereof by appropriate legal proceedings which shall operate to
prevent the collection thereof or other realization thereon and the sale or
forfeiture of the Mortgaged Property or any part thereof to satisfy the same;
provided, however, that (i) during such contest Grantor shall set aside reserves
sufficient to discharge Grantor's obligation hereunder and of any additional
charge, penalty or expense arising from or incurred as a result of such contest
and (ii) if at any time payment of any obligation imposed upon Grantor by clause
(a) above shall become necessary to prevent the delivery of a tax deed or other
instrument conveying the Mortgaged Property or any portion thereof because of
non-payment, then Grantor shall pay the same in sufficient time to prevent the
delivery of such tax deed or other instrument.
Section 1.08. Taxes on Trustee or Beneficiary. Grantor will pay any
taxes, except income taxes, imposed on Trustee or Beneficiary by reason of their
ownership of the Note or this Deed, provided that Beneficiary can require
payment of the Note in full within ninety (90) days if it shall be illegal for
Grantor to pay any tax or if the payment of such tax by Grantor would result in
the violation of applicable usury laws.
Section 1.09. Insurance. (a) Grantor will at all times (directly or
indirectly) provide, maintain and keep in force:
(i) policies of insurance insuring the Premises, Improvements and
Chattels against loss or damage by fire and lightning; against loss or
damage by
8
<PAGE>
other risks embraced by coverage of the type now known as All Risk
Replacement Cost Insurance with agreed amount endorsement, including
but not limited to riot and civil commotion, vandalism, malicious
mischief and theft; and against such other risks or hazards as
Beneficiary from time to time reasonably may designate in an amount
sufficient to prevent Beneficiary or Grantor from becoming a co-insurer
under the terms of the applicable policies, but in any event in an
amount not less than 100% of the then full replacement cost of the
Improvements (exclusive of the cost of excavations, foundations and
footings below the lowest basement floor) without deduction for
physical depreciation;
(ii) policies of insurance insuring the Premises against the loss
of "rental value" of the buildings which constitute a part of the
Improvements on a "rented or vacant basis" arising out of the perils
insured against pursuant to clause (i) above in an amount equal to not
less than one (1) year's gross "rental value" of the Improvements.
"Rental value" as used herein is defined as the sum of (A) the total
anticipated gross rental income from tenant occupancy of such buildings
as furnished and equipped, (B) the amount of all charges which are the
legal obligation of tenants and which would otherwise be the obligation
of Grantor and (C) the fair rental value of any portion of such
buildings which is occupied by Grantor. Grantor hereby assigns the
proceeds of such insurance to Beneficiary, to be applied by Beneficiary
in payment of the interest and principal on the Note, insurance
premiums, taxes, assessments and private impositions until such time as
the Improvements shall have been restored and placed in full operation,
at which time, provided Grantor is not then in default hereunder, the
balance of such insurance proceeds, if any, held by Beneficiary shall
be paid over to Grantor;
(iii) if all or part of the Premises are located in an area
identified by the Secretary of the United States Department of Housing
and Urban Development or by any applicable federal agency as a flood
hazard area, flood insurance in an amount at least equal to the maximum
limit of coverage available under the National Flood Insurance Act of
1968, provided, however, that Beneficiary reserves the right to require
flood insurance in excess of said limit if such insurance is
commercially available up to the amount provided in clause (i) above;
(iv) during any period of restoration under this Section 1.09 or
Section 1.13, a policy or policies of builder's "all risk" insurance,
written on a Standard Builder's Risk Completed Value Form (100%
non-reporting), in an amount not less than the full insurable value of
the Premises against such risks (including, without limitation, fire
and extended coverage, collapse and earthquake coverage to agreed
limits) as Beneficiary may reasonably request, in form and substance
acceptable to Beneficiary;
(v) a policy or policies of workers' compensation insurance as
required by workers' compensation insurance laws (including employer's
liability insurance, if requested by Beneficiary) covering all
employees of Grantor;
9
<PAGE>
(vi) comprehensive liability insurance on an "occurrence" basis
against claims for "personal injury" liability, including, without
limitation, bodily injury, death or property damage liability, with a
limit of not less than $15,000,000 in the event of "personal injury" to
any number of persons or of damage to property arising out of one
"occurrence". Such policies shall name Beneficiary as additional
insured by an endorsement, and shall contain cross-liability and
severability of interest clauses, all satisfactory to Beneficiary; and
(vii) such other insurance (including, but not limited to,
earthquake insurance), and in such amounts, as may from time to time be
reasonably required by Beneficiary against the same or other insurable
hazards.
Notwithstanding anything herein to the contrary, for so long as that
certain Management Agreement of even date herewith between Lessee and
Beneficiary remains in full force and effect (as the same may be amended, the
"Management Agreement"), the types and amounts of insurance required by the
Management Agreement to the extent inconsistent with those set forth above shall
govern and control Grantor's obligations in respect thereof.
(b) All policies of insurance required under this Section 1.09 shall be
issued by companies having Best's ratings and being otherwise reasonably
acceptable to Beneficiary, shall be subject to the reasonable approval of
Beneficiary as to amount, content, form and expiration date and, except for the
liability policies described in clauses (a)(v) and (vi) above, shall contain a
Non-Contributory Standard Mortgagee Clause and Lender's Loss Payable
Endorsement, or their equivalents, in favor of Beneficiary, and shall provide
that the proceeds thereof shall be payable to Beneficiary. Beneficiary shall be
furnished with the original of each policy required hereunder, which policies
shall provide that they shall not lapse, nor be modified or cancelled, without
thirty (30) days' written notice to Beneficiary. At least thirty (30) days prior
to expiration of any policy required hereunder, Grantor shall furnish
Beneficiary appropriate proof of issuance of a policy continuing in force the
insurance covered by the policy so expiring. Grantor shall furnish to
Beneficiary, promptly upon request, receipts or other satisfactory evidence of
the payment of the premiums on such insurance policies. In the event that
Grantor does not deposit with Beneficiary a new certificate or policy of
insurance with evidence of payment of premiums thereon at least thirty (30) days
prior to the expiration of any expiring policy, then Beneficiary may, but shall
not be obligated to, procure such insurance and pay the premiums therefor, and
Grantor agrees to repay to Beneficiary the premiums thereon promptly on demand,
together with interest thereon at the Default Rate.
(c) Grantor hereby assigns to Beneficiary all proceeds of any insurance
required to be maintained by this Section 1.09 which Grantor may be entitled to
receive for loss or damage to the Premises, Improvements or Chattels. All such
insurance proceeds shall be payable to Beneficiary, and Grantor hereby
authorizes and directs any affected insurance company to make payment thereof
directly to Beneficiary subject, however, to clause (f) below. Grantor shall
give prompt notice to Beneficiary of any casualty, whether or not of a kind
required to be insured against under the policies to be
10
<PAGE>
provided by Grantor hereunder, such notice to generally describe the nature and
cause of such casualty and the extent of the damage or destruction. Grantor may
settle, adjust or compromise any claims for loss, damage or destruction,
regardless of whether or not there are insurance proceeds available or whether
any such insurance proceeds are sufficient in amount to fully compensate for
such loss or damage, subject to Beneficiary's prior consent. Notwithstanding the
foregoing, Beneficiary shall have the right to join Grantor in settling,
adjusting or compromising any loss of $100,000 or more. Grantor hereby
authorizes the application or release by Beneficiary of any insurance proceeds
under any policy of insurance, subject to the other provisions hereof. The
application or release by Beneficiary of any insurance proceeds shall not cure
or waive any default or notice of default hereunder or invalidate any act done
pursuant to such notice.
(d) In the event of the foreclosure hereof or other transfer of the
title to the Mortgaged Property in extinguishment, in whole or in part, of the
indebtedness secured hereby, all right, title and interest of Grantor in and to
any insurance policy, or premiums or payments in satisfaction of claims or any
other rights thereunder then in force, shall pass to the purchaser or grantee
notwithstanding the amount of any bid at such foreclosure sale. Nothing
contained herein shall prevent the accrual of interest as provided in the Note
on any portion of the principal balance due under the Note until such time as
insurance proceeds are actually received and applied to reduce the principal
balance outstanding.
(e) Grantor shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 1.09 unless Beneficiary is included thereon as a named insured with loss
payable to Beneficiary under standard mortgage endorsements of the character and
to the extent above described. Grantor shall promptly notify Beneficiary
whenever any such separate insurance is taken out and shall promptly deliver to
Beneficiary the policy or policies of such insurance.
(f) Any and all monies received as payment which Grantor may be
entitled to receive for loss or damage to the Premises, Improvements or Chattels
under any insurance maintained pursuant to this Section 1.09 (other than
proceeds under the policies required by clause (a)(ii) above) shall be paid over
to Beneficiary and, at Beneficiary's option, either applied to the prepayment of
the Note and all interest and other sums accrued and unpaid in respect thereof
or disbursed from time to time to Grantor in reimbursement of its costs and
expenses incurred in the restoration of the Improvements in accordance with
Beneficiary's standard construction lending practices, terms and conditions, in
either case, less Beneficiary's reasonable expenses for collecting and, if
applicable, disbursing the insurance proceeds, or otherwise incurred in
connection therewith. Notwithstanding the provisions of the immediately
preceding sentence, provided no default exists hereunder, Beneficiary agrees to
apply any such proceeds received by it to the reimbursement of Grantor's costs
of restoring the Improvements. Advances of insurance proceeds shall be made to
Grantor from time to time in accordance with Beneficiary's standard construction
lending practices, terms and conditions; amounts not required for such purposes
shall be applied, at Beneficiary's option, to the prepayment of the Note and to
interest accrued and unpaid thereon in such order and proportions as
11
<PAGE>
Beneficiary may elect. In no event shall Beneficiary be required to advance such
proceeds to Grantor unless Beneficiary shall have (i) received satisfactory
evidence that the funding/expiration dates of the commitment, if any, for the
permanent financing of the Improvements have been extended for such period of
time as is reasonably necessary to complete said restoration and (ii) reasonably
determined that the restoration of the Improvements can be completed by the
Maturity Date of the Note at a cost which does not exceed the amount of
available insurance proceeds or, in the event that such proceeds are reasonably
determined by Beneficiary to be inadequate, Beneficiary shall have received from
Grantor a cash deposit equal to the excess of said estimated cost of restoration
over the amount of said available proceeds. If the conditions for the advance of
insurance proceeds for restoration set forth in clauses (i) and (ii) above are
not satisfied within sixty (60) days of Beneficiary's receipt thereof or if the
actual restoration shall not have been commenced within such period, Beneficiary
shall have the option at any time thereafter to apply such insurance proceeds to
the payment of the Note and to interest accrued and unpaid thereon in such order
and proportions as Beneficiary may elect.
Section 1.10. Protective Advances by Beneficiary. If Grantor shall fail
to perform any of the covenants contained herein, Trustee or Beneficiary may
make advances to perform the same on its behalf and all sums so advanced shall
be a lien upon the Mortgaged Property and shall be secured hereby. Grantor will
repay on demand all sums so advanced on its behalf together with interest
thereon at the Default Rate. The provisions of this Section shall not prevent
any default in the observance of any covenant contained herein from constituting
an Event of Default.
Section 1.11. (a) Visitation and Inspection. Grantor will keep adequate
records and books of account in accordance with generally accepted accounting
principles and will permit each of Trustee and Beneficiary, by their agents,
accountants and attorneys, to visit and inspect the Mortgaged Property and
examine its records and books of account and make copies thereof or extracts
therefrom, and to discuss its affairs, finances and accounts with the officers
or general partners, as the case may be, of Grantor, at such reasonable times as
may be requested by Trustee or Beneficiary.
(b) Financial and Other Information. Grantor will deliver to
Beneficiary with reasonable promptness such financial information with respect
to Grantor or the Premises as Beneficiary may reasonably request from time to
time. All financial statements of Grantor shall be prepared in accordance with
generally accepted accounting principles and shall be accompanied by the
certificate of a principal financial or accounting officer or general partner,
as the case may be, of Grantor, dated within five (5) days of the delivery of
such statements to Beneficiary, stating that he or she knows of no Event of
Default, nor of any event which after notice or lapse of time or both would
constitute an Event of Default, which has occurred and is continuing, or, if any
such event or Event of Default has occurred and is continuing, specifying the
nature and period of existence thereof and what action Grantor has taken or
proposes to take with respect thereto, and, except as otherwise specified,
stating that Grantor has fulfilled all of its obligations hereunder and
otherwise in respect of the Loan which are required to be fulfilled on or prior
to the date of such certificate.
12
<PAGE>
(c) Estoppel Certificates. Grantor, within three (3) days upon request
in person or within five (5) days upon request by mail, will furnish a
statement, duly acknowledged, of the amount due whether for principal or
interest on this Deed and whether any offsets, counterclaims or defenses exist
against the indebtedness secured hereby.
Section 1.12. Maintenance of Premises and Improvements. Grantor will
not commit any waste on the Premises or make any change in the use of the
Premises which will in any way increase any ordinary fire or other hazard
arising out of construction or operation. Grantor will, or shall cause its
Lessee to, at all times, maintain the Improvements and Chattels in good
operating order and condition and will promptly make, from time to time, all
repairs, renewals, replacements, additions and improvements in connection
therewith which are needful or desirable to such end. The Improvements shall not
be demolished or substantially altered, nor shall any Chattels be removed
without Beneficiary's prior consent except where appropriate replacements free
of superior title, liens and claims are immediately made of value at least equal
to the value of the removed Chattels.
Section 1.13. Condemnation. Grantor, immediately upon obtaining
knowledge of the institution or pending institution of any proceedings for the
condemnation of the Premises or any portion thereof, will notify Trustee and
Beneficiary thereof. Trustee and Beneficiary may participate in any such
proceedings and may be represented therein by counsel of Beneficiary's
selection. Grantor from time to time will deliver to Beneficiary all instruments
requested by it to permit or facilitate such participation. In the event of such
condemnation proceedings, the award or compensation payable is hereby assigned
to and shall be paid to Beneficiary. Beneficiary shall be under no obligation to
question the amount of any such award or compensation and may accept the same in
the amount in which the same shall be paid. The proceeds of any award or
compensation so received shall, at Beneficiary's option, either be applied to
the prepayment of the Note and all interest and other sums accrued and unpaid in
respect thereof at the rate of interest provided therein regardless of the rate
of interest payable on the award by the condemning authority, or be disbursed to
Grantor from time to time for restoration of the Improvements in accordance with
Beneficiary's standard construction lending practices, terms and conditions, in
either case, less Beneficiary's reasonable expenses for collecting and, if
applicable, disbursing the award, or otherwise incurred in connection therewith.
Notwithstanding the provisions of the immediately preceding sentence, provided
no monetary or bankruptcy related default or any Event of Default exists
hereunder, Beneficiary agrees to apply any such condemnation award proceeds
received by it to the reimbursement of Grantor's costs of restoring the
Improvements. Advances of condemnation award proceeds shall be made to Grantor
from time to time in accordance with Beneficiary's standard construction lending
practices, terms and conditions; amounts not required for such purposes shall be
applied, at Beneficiary's option, to the prepayment of the Note and to interest
accrued and unpaid thereon (at the rate of interest provided therein regardless
of the rate of interest payable on the award by the condemning authority) in
such order and proportions as Beneficiary may elect.
13
<PAGE>
Section 1.14. Leases. (a) Grantor will not (i) execute an assignment of
the rents or any part thereof from the Premises without Beneficiary's prior
consent, (ii) except where the lessee is in default thereunder, terminate or
consent to the cancellation or surrender of any lease of the Premises or of any
part thereof, now existing or hereafter to be made, having an unexpired term of
one (1) year or more, provided, however, that any lease may be cancelled if
promptly after the cancellation or surrender thereof a new lease is entered into
with a new lessee having a credit standing at least equivalent to that of the
lessee whose lease was cancelled, on substantially the same terms as the
terminated or cancelled lease, (iii) modify any such lease so as to shorten the
unexpired term thereof or so as to decrease, waive or compromise in any manner
the amount of the rents payable thereunder or materially expand the obligations
of the lessor thereunder, (iv) accept prepayments of more than one month of any
installments of rents to become due under such leases, except prepayments in the
nature of security for the performance of the lessees thereunder, (v) modify,
release or terminate any guaranties of any such lease or (vi) in any other
manner impair the value of the Mortgaged Property or the security hereof.
(b) Grantor will not execute any lease of all or a substantial portion
of the Premises except for actual occupancy by the lessee thereunder or its
property manager, and will at all times promptly and faithfully perform, or
cause to be performed, all of the covenants, conditions and agreements contained
in all leases of the Premises or portions thereof now or hereafter existing, on
the part of the lessor thereunder to be kept and performed and will at all times
do all things reasonably necessary to compel performance by the lessee under
each lease of all obligations, covenants and agreements by such lessee to be
performed thereunder. If any of such leases provide for the giving by the lessee
of certificates with respect to the status of such leases, Grantor shall
exercise its right to request such certificates within five (5) days of any
demand therefor by Beneficiary and shall deliver copies thereof to Beneficiary
promptly upon receipt.
(c) In the event of the enforcement by Trustee or Beneficiary of the
remedies provided for hereby or by law, the lessee under each of the leases of
the Premise will, upon request of any person succeeding to the interest of
Grantor as a result of such enforcement, automatically become the lessee of said
successor in interest, without change in the terms or other provisions of such
lease, provided, however, that said successor in interest shall not be bound by
(i) any payment of rent or additional rent for more than one (1) month in
advance, except prepayments in the nature of security for the performance by
said lessee of its obligations under said lease or (ii) any amendment or
modification of the lease made without the consent of Beneficiary or such
successor in interest. Each lease shall also provide that, upon request by said
successor in interest, such lessee shall execute and deliver an instrument or
instruments confirming such attornment.
Section 1.15. Premises Documents. Grantor shall (a) do all things
reasonably necessary to cause the due compliance and faithful performance by the
other parties to the Premises Documents with and of all obligations and
agreements by such other parties to be complied with and performed thereunder,
except for any continuing failure of the Premises to comply with the Premises
Documents
14
<PAGE>
of the date of the acquisition hereof from Beneficiary or its affiliate, and (b)
deliver promptly to Beneficiary copies of any notices which it gives or receives
under any of the Premises Documents.
Section 1.16. Trust Fund; Lien Laws. Grantor will receive the advances
secured hereby and will hold the right to receive such advances as a trust fund
to be applied first for the purpose of paying the costs of improvements on the
Premises and will apply the same first to the payment of such costs before using
any part of the total of the same for any other purpose. Grantor will indemnify
and hold Trustee and Beneficiary harmless against any loss or liability, cost or
expense, including, without limitation, any judgments, attorney's fees, costs of
appeal bonds and printing costs, arising out of or relating to any proceeding
instituted by any claimant alleging a violation by Grantor of any applicable
lien law.
Section 1.17. Expenses of Trustee. Grantor shall pay all costs, fees
and expenses of Trustee, its agents and counsel in connection with the
performance of its duties hereunder.
ARTICLE II
EVENTS OF DEFAULT AND REMEDIES
Section 2.01. Events of Default and Certain Remedies. If one or more of
the following Events of Default shall happen, that is to say:
(a) if (i) default shall be made in the payment of any principal,
interest, fees or other sums under the Note, in any such case, when and
as the same shall become due and payable, whether at maturity or by
acceleration or as part of any payment or prepayment or otherwise, in
each case, as herein or in the Note provided, and such default shall
have continued for a period of ten (10) days or (ii) default shall be
made in the payment of any tax or other charge required by Section 1.07
to be paid and said default shall have continued for a period of twenty
(20) days; or
(b) if default shall be made in the due observance or performance
of any covenant, condition or agreement in the Note, this Deed or in
any other document executed or delivered to Beneficiary in connection
with the Loan, and such default shall have continued for a period of
thirty (30) days after notice thereof shall have been given to Grantor
by Beneficiary, or, in the case of such other documents, such shorter
grace period, if any, as may be provided for therein; or
(c) if any representation or warranty made by Grantor in Section
1.01 shall be incorrect, or if any other representation or warranty
made to Beneficiary in this Deed, or in any other document, certificate
or statement executed or delivered to Beneficiary in connection with
the Loan shall be incorrect in any material respect when made or
remade; or
15
<PAGE>
(d) if by order of a court of competent jurisdiction, a trustee,
receiver or liquidator of the Mortgaged Property or any part thereof,
or of Grantor shall be appointed and such order shall not be discharged
or dismissed within sixty (60) days after such appointment; or
(e) if Grantor shall file a petition in bankruptcy or for an
arrangement or for reorganization pursuant to the Federal Bankruptcy
Act or any similar federal or state law, or if, by decree of a court of
competent jurisdiction, Grantor shall be adjudicated a bankrupt, or be
declared insolvent, 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 shall consent to the appointment of a
receiver or receivers of all or any part of its property; or
(f) if any of the creditors of Grantor shall file a petition in
bankruptcy against Grantor or for reorganization of Grantor pursuant to
the Federal Bankruptcy Act or any similar federal or state law, and if
such petition shall not be discharged or dismissed within sixty (60)
days after the date on which such petition was filed; or
(g) if final judgment for the payment of money shall be rendered
against Grantor and Grantor shall not discharge the same or cause it to
be discharged within sixty (60) days from the entry thereof, or shall
not appeal therefrom or from the order, decree or process upon which or
pursuant to which said judgment was granted, based or entered, and
secure a stay of execution pending such appeal; or
(h) (Intentionally Omitted)
(i) if there shall occur a default which is not cured within the
applicable grace period, if any, under any mortgage, deed of trust or
other security instrument covering all or part of the Mortgaged
Property regardless of whether any such mortgage, deed of trust or
other security instrument is prior or subordinate hereto; it being
further agreed by Grantor that an Event of Default hereunder shall
constitute an Event of Default under any such mortgage, deed of trust
or other security instrument held by or for the benefit of Beneficiary;
or
(j) if there shall occur a default which is not cured within the
applicable grace period, if any, under any of the Premises Documents,
except for any continuing failure of the Premises to comply with the
Premises Documents of the date of the acquisition hereof from
Beneficiary or its affiliate; or if any of the Premises Documents is
amended, modified, supplemented or terminated without Beneficiary's
prior consent; or
(k) if Grantor shall transfer, or agree to transfer (or suffer or
permit the transfer or agreement to transfer), in any manner, either
voluntarily or involuntarily, by operation of law or otherwise, all or
any portion of the Mortgaged Property, or any interest or rights
therein (including air or
16
<PAGE>
development rights) without, in any such case, Beneficiary's prior
consent. As used in this clause, "transfer" shall include, without
limitation, any sale, assignment, lease (other than to Lessee) or
conveyance except leases for occupancy subordinate hereto and to all
advances made and to be made hereunder or, in the event Grantor (or a
general partner or co-venturer thereof) is a partnership, joint
venture, limited liability company, trust or closely-held corporation,
the sale, conveyance, transfer or other disposition of more than 10%,
in the aggregate, of any class of the issued and outstanding capital
stock of such closely-held corporation or of the beneficial interest of
such partnership, venture, limited liability company or trust, or a
change of any general partner, joint venturer, member or beneficiary,
as the case may be. In the event Grantor is a limited partnership, and
so long as a limited partner has contributed to (or remains personally
liable for) the present and future partnership capital contributions
required of such limited partner by the partnership agreement, such
partner may sell, convey, devise, transfer or dispose of all or a part
of his limited partnership interest to his spouse, children,
grandchildren or a family trust in which his spouse, children or
grandchildren are sole beneficiaries; or
(l) if Grantor shall encumber, or agree to encumber, in any
manner, either voluntarily or involuntarily, by operation of law or
otherwise, all or any portion of the Mortgaged Property, or any
interest or rights therein (including air or development rights)
without, in any such case, Beneficiary's prior consent. As used in this
clause, "encumber" shall include, without limitation, the placing or
permitting the placing of any mortgage, deed of trust, assignment of
rents or other security device. (Beneficiary may grant or deny its
consent under this clause and the immediately preceding clause in its
sole discretion and, if consent should be given, any such transfer or
encumbrance shall be subject hereto and to any other documents which
evidence or secure the Loan, and, if a transfer, any such transferee
shall assume all of Grantor's obligations hereunder and thereunder and
agree to be bound by all provisions and perform all obligations
contained herein and therein; consent to one such transfer or
encumbrance shall not be deemed to be a waiver of the right to require
consent to future or successive transfers or encumbrances);
then and in every such case:
I. During the continuance of any such Event of Default,
Beneficiary, by notice to Grantor, may declare the entire principal of
the Note then outstanding (if not then due and payable), and all
accrued and unpaid interest and other sums in respect thereof, to be
due and payable immediately, and upon any such declaration the
principal of the Note and said accrued and unpaid interest and other
sums shall become and be immediately due and payable, anything herein
or in the Note (other than Section 4.08 hereof, the provisions thereof
limiting interest payable thereunder to the maximum amount permitted by
applicable law) to the contrary notwithstanding.
17
<PAGE>
II. During the continuance of any such Event of Default, Trustee
or Beneficiary personally, or by their agents or attorneys, may enter
into and upon all or any part of the Premises, and each and every part
thereof, and are each hereby given a right and license and appointed
Grantor's attorney-in-fact and exclusive agent to do so, and may
exclude Grantor, its agents and servants wholly therefrom; and having
and holding the same, may use, operate, manage and control the Premises
and conduct the business thereof, either personally or by their
superintendents, managers, agents, servants, attorneys or receivers;
and upon every such entry, Trustee or Beneficiary, at the expense of
the Mortgaged Property, from time to time, either by purchase, repairs
or construction, may maintain and restore the Mortgaged Property,
whereof they shall become possessed as aforesaid; may complete the
construction of the Improvements and in the course of such completion
may make such changes in the contemplated Improvements as Beneficiary
may deem desirable and may insure the same; and likewise, from time to
time, at the expense of the Mortgaged Property, Trustee or Beneficiary
may make all necessary or proper repairs, renewals and replacements and
such useful alterations, additions, betterments and improvements
thereto and thereon as Beneficiary may seem advisable; and in every
such case Trustee or Beneficiary shall have the right to manage and
operate the Mortgaged Property and to carry on the business thereof and
exercise all rights and powers of Grantor with respect thereto either
in the name of Grantor or otherwise as Beneficiary shall deem best; and
Trustee or Beneficiary shall be entitled to collect and receive the
Rents and every part thereof, all of which shall for all purposes
constitute property of Grantor; and in furtherance of such right
Beneficiary may collect the rents payable under all leases of the
Premises directly from the lessees thereunder upon notice to each such
lessee that an Event of Default exists hereunder accompanied by a
demand on such lessee for the payment to Beneficiary of all rents due
and to become due under its lease, and Grantor FOR THE BENEFIT OF
BENEFICIARY AND EACH SUCH LESSEE hereby covenants and agrees that the
lessee shall be under no duty to question the accuracy of Beneficiary's
statement of default and shall unequivocally be authorized to pay said
rents to Beneficiary without regard to the truth of Beneficiary's
statement of default and notwithstanding notices from Grantor disputing
the existence of an Event of Default such that the payment of rent by
the lessee to Beneficiary pursuant to such a demand shall constitute
performance in full of the lessee's obligation under the lease for the
payment of rents by the lessee to Grantor; and after deducting the
expenses of conducting the business thereof and of all maintenance,
repairs, renewals, replacements, alterations, additions, betterments
and improvements and amounts necessary to pay for taxes, assessments,
insurance and prior or other proper charges upon the Mortgaged Property
or any part thereof, as well as just and reasonable compensation for
the services of Trustee and Beneficiary and for all attorneys, counsel,
agents, clerks, servants and other employees by them engaged and
employed, Trustee or Beneficiary, as the case may be, shall apply the
moneys arising as aforesaid, first, to the payment of the principal of
the Note and the interest thereon, when and as the same shall become
payable and in such order and
18
<PAGE>
proportions as Beneficiary shall elect and second, to the payment of
any other sums required to be paid by Grantor hereunder.
III. Trustee or Beneficiary, as the case may be, with or without
entry, personally or by their agents or attorneys, insofar as
applicable, may:
(1) sell the Mortgaged Property and all estate, right, title
and interest, claim and demand therein, at public auction at such
time and place, and upon such terms and conditions as Beneficiary
may deem expedient or as may be required or permitted by
applicable law, having first given such notice prior to the sale
of such time, place and terms by publication in one (1) or more
newspapers published or having a general circulation in the
county or counties of the state in which the Mortgaged Property
is located as may be required or permitted by law and by such
other methods, if any, as Trustee or Beneficiary may deem
desirable or as may be required or permitted by applicable law.
In the event of any sale of all or part of the Mortgaged Property
under the terms hereof, Grantor shall pay (in addition to taxable
costs) a reasonable fee to Trustee which shall be in lieu of all
other fees and commission permitted by statute or custom to be
paid, reasonable attorneys' fees and all expenses incurred in
obtaining or continuing abstracts of title for the purpose of any
such sale; or
(2) institute proceedings for the complete or partial
foreclosure hereof; or
(3) take such steps to protect and enforce their rights
whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or agreement in
the Note or herein, or in aid of the execution of any power
herein granted, or for any foreclosure hereunder, or for the
enforcement of any other appropriate legal or equitable remedy or
otherwise as Trustee or Beneficiary shall elect.
Section 2.02. Other Matters Concerning Sales. (a) Trustee or
Beneficiary may adjourn from time to time any sale by it to be made hereunder or
by virtue hereof by announcement at the time and place appointed for such sale
or for such adjourned sale or sales; and, except as otherwise provided by any
applicable provision of law, Trustee or Beneficiary, as the case may be, without
further notice or publication, may make such sale at the time and place to which
the same shall be so adjourned.
(b) Upon the completion of any sale or sales made by Trustee or
Beneficiary, as the case may be, under or by virtue of this Article II, Trustee,
or an officer of any court empowered to do so, shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument or instruments
conveying, assigning and transferring all estate, right, title and interest in
and to the property and rights sold. Trustee is hereby appointed the true and
lawful attorney irrevocable of Grantor, in its name and stead, to make all
necessary conveyances, assignments, transfers and deliveries of the Mortgaged
19
<PAGE>
Property and rights so sold and for that purpose Trustee may execute all
necessary instruments of conveyance, assignment and transfer, and may substitute
one or more persons with like power, Grantor hereby ratifying and confirming all
that its said attorney or such substitute or substitutes shall lawfully do by
virtue hereof. Nevertheless, Grantor, if requested by Trustee or Beneficiary,
shall ratify and confirm any such sale or sales by executing and delivering to
Trustee or to such purchaser or purchasers all such instruments as may be
advisable, in the judgment of Trustee or Beneficiary, for the purpose, and as
may be designated in such request. Any such sale or sales made under or by
virtue of this Article II, whether made under the power of sale herein granted
or under or by virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale, shall operate to divest all the estate, right, title,
interest, claim and demand whatsoever, whether at law or in equity, of Grantor
in and to the properties and rights so sold, and shall be a perpetual bar both
at law and in equity against Grantor and against any and all persons claiming or
who may claim the same, or any part thereof from, through or under Grantor.
(c) In the event of any sale or sales made under or by virtue of this
Article II (whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale), the entire principal of, and interest and other sums on, the Note, if not
previously due and payable, and all other sums required to be paid by Grantor
pursuant hereto, immediately thereupon shall, anything in any of said documents
(other than Section 4.08 hereof) to the contrary notwithstanding, become due and
payable.
(d) The purchase money, proceeds or avails of any sale or sales made
under or by virtue of this Article II, together with any other sums which then
may be held by Trustee or Beneficiary hereunder, whether under the provisions of
this Article II or otherwise, shall be applied as follows:
First: To the payment of the costs and expenses of such sale,
including reasonable compensation to Trustee and Beneficiary, their
agents and counsel, and of any judicial proceedings wherein the same
may be made, and of all expenses, liabilities and advances made or
incurred by Trustee hereunder, together with interest at the Default
Rate on all advances made by Trustee, and of all taxes, assessments or
other charges, except any taxes, assessments or other charges subject
to which the Mortgaged Property shall have been sold.
Second: To the payment of the whole amount then due, owing or
unpaid upon the Note for principal and interest, with interest on the
unpaid principal at the Default Rate from and after the happening of
any Event of Default described in clause (a) of Section 2.01 from the
due date of any such payment of principal until the same is paid, in
such order and amounts as Beneficiary may elect.
Third: To the payment of any other sums required to be paid by
Grantor pursuant to any provision hereof or of the Note, including all
expenses, liabilities and advances made or incurred by Beneficiary
hereunder or in connection with
20
<PAGE>
the enforcement hereof, together with interest at the Default Rate on
all such advances.
Fourth: To the payment of the surplus, if any, to whomsoever may be
lawfully entitled to receive the same.
(e) Upon any sale or sales made under or by virtue of this Article II,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale,
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash therefor may make settlement for the purchase price
by crediting upon the indebtedness secured hereby the net sales price after
deducting therefrom the expenses of the sale and the costs of the action and any
other sums which Trustee or Beneficiary are authorized to deduct hereunder.
Section 2.03. Payment of Amounts Due. (a) In case an Event of Default
described in clause (a) of Section 2.01 shall have happened and be continuing,
then, upon demand of Beneficiary, Grantor will pay to Beneficiary the whole
amount which then shall have become due and payable on the Note, for principal
or interest or both, as the case may be, and after the happening of said Event
of Default will also pay to Beneficiary interest at the Default Rate on the then
unpaid principal of the Note, and the sums required to be paid by Grantor
pursuant to any provision hereof, and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to Trustee and Beneficiary, their agents and counsel and
any expenses incurred by Trustee or Beneficiary hereunder. In the event Grantor
shall fail forthwith to pay all such amounts upon such demand, Beneficiary shall
be entitled and empowered to institute such action or proceedings at law or in
equity as may be advised by its counsel for the collection of the sums so due
and unpaid, and may prosecute any such action or proceedings to judgment or
final decree, and may enforce any such judgment or final decree against Grantor
and collect, out of the property of Grantor wherever situated, as well as out of
the Mortgaged Property, in any manner provided by law, moneys adjudged or
decreed to be payable.
(b) Beneficiary shall be entitled to recover judgment as aforesaid
either before, after or during the pendency of any proceedings for the
enforcement of the provisions hereof; and the right of Beneficiary to recover
such judgment shall not be affected by any entry or sale hereunder, or by the
exercise of any other right, power or remedy for the enforcement of the
provisions hereof, or the foreclosure of the lien hereof; and in the event of a
sale of the Mortgaged Property, and of the application of the proceeds of sale,
as herein provided, to the payment of the debt hereby secured, Beneficiary shall
be entitled to enforce payment of, and to receive all amounts then remaining due
and unpaid upon, the Note, and to enforce payment of all other charges, payments
and costs due hereunder or otherwise in respect of the Loan, and shall be
entitled to recover judgment for any portion of the debt remaining unpaid, with
interest at the Default Rate. In case of proceedings against Grantor in
insolvency or bankruptcy or any proceedings for its reorganization or involving
the liquidation of its assets, then Beneficiary shall be entitled to prove the
whole amount of principal, interest and other
21
<PAGE>
sums due upon the Note to the full amount thereof, and all other payments,
charges and costs due hereunder or otherwise in respect of the Loan, without
deducting therefrom any proceeds obtained from the sale of the whole or any part
of the Mortgaged Property, provided, however, that in no case shall Beneficiary
receive, from the aggregate amount of the proceeds of the sale of the Mortgaged
Property and the distribution from the estate of Grantor, a greater amount than
such principal and interest and such other payments, charges and costs.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Grantor shall affect in any manner or to any extent, the lien hereof
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Trustee or Beneficiary hereunder, but such liens, rights, powers and
remedies of Trustee or Beneficiary shall continue unimpaired as before.
(d) Any moneys thus collected by Beneficiary under this Section 2.03
shall be applied by Beneficiary in accordance with the provisions of clause (d)
of Section 2.02.
Section 2.04. Actions; Receivers. After the happening of any Event of
Default and immediately upon the commencement of any action, suit or other legal
proceedings by Trustee or Beneficiary to obtain judgment for the principal of,
or interest on, the Note and other sums required to be paid by Grantor pursuant
to any provision hereof, or of any other nature in aid of the enforcement of the
Note or hereof, Grantor will (a) waive the issuance and service of process and
enter its voluntary appearance in such action, suit or proceeding and (b) if
required by Beneficiary, consent to the appointment of a receiver or receivers
of all or part of the Mortgaged Property and of any or all of the Rents in
respect thereof. After the happening of any Event of Default and during its
continuance, or upon the commencement of any proceedings to foreclose this Deed
or to enforce the specific performance hereof or in aid thereof or upon the
commencement of any other judicial proceeding to enforce any right of Trustee or
Beneficiary, Trustee or Beneficiary shall be entitled, as a matter of right, if
they shall so elect, without the giving of notice to any other party and without
regard to the adequacy or inadequacy of any security for the indebtedness
secured hereby, forthwith either before or after declaring the unpaid principal
of the Note to be due and payable, to the appointment of such a receiver or
receivers.
Section 2.05. Beneficiary's Right to Possession. Notwithstanding the
appointment of any receiver, liquidator or trustee of Grantor, or of any of its
property, or of the Mortgaged Property or any part thereof, Trustee and
Beneficiary shall be entitled to retain possession and control of all property
now or hereafter held hereunder.
Section 2.06. Remedies Cumulative. No remedy herein conferred upon or
reserved to Trustee or Beneficiary is intended to be exclusive of any other
remedy or remedies, and each and every such remedy shall be cumulative, and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law, in equity or by statute. No delay or omission of Trustee or
Beneficiary to exercise any right or power accruing upon any Event of Default
shall impair any such right or power, or shall be
22
<PAGE>
construed to be a waiver of any such Event of Default or any acquiescence
therein; and every power and remedy given hereby to Trustee or Beneficiary may
be exercised from time to time as often as may be deemed by them expedient.
Nothing herein or in the Note shall affect the obligation of Grantor to pay the
principal of, and interest and other sums on, the Note in the manner and at the
time and place therein respectively expressed.
Section 2.07. Moratorium Laws; Right of Redemption. Grantor will not at
any time insist upon, or plead, or in any manner whatever claim or take any
benefit or advantage of any stay or extension or moratorium law, any exemption
from execution or sale of the Mortgaged Property or any part thereof, wherever
enacted, now or at any time hereafter in force, which may affect the covenants
and terms of performance hereof, nor claim, take or insist upon any benefit or
advantage of any law now or hereafter in force providing for the valuation or
appraisal of the Mortgaged Property, or any part thereof, prior to any sale or
sales thereof which may be made pursuant to any provision herein, or pursuant to
the decree, judgment or order of any court of competent jurisdiction; nor, after
any such sale or sales, claim or exercise any right under any statute heretofore
or hereafter enacted to redeem the property so sold or any part thereof and
Grantor hereby expressly waives all benefit or advantage of any such law or
laws, and covenants not to hinder, delay or impede the execution of any power
herein granted or delegated to Trustee or Beneficiary, but to suffer and permit
the execution of every power as though no such law or laws had been made or
enacted. Grantor, for itself and all who may claim under it, waives, to the
extent that it lawfully may, all right to have the Mortgaged Property marshaled
upon any foreclosure hereof.
Section 2.08. Intentionally Omitted.
Section 2.09. Beneficiary's Rights Concerning Application of Amounts
Collected. Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default, Beneficiary may apply, to the extent
permitted by law, any amount collected hereunder to principal, interest or any
other sum due under the Note or otherwise in respect of the Loan in such order
and amounts, and to such obligations, as Beneficiary shall elect in its sole and
absolute discretion.
ARTICLE III
CONCERNING TRUSTEE
Section 3.01. Trustee's Performance. Trustee, by its acceptance hereof,
covenants faithfully to perform and fulfill the trusts herein created, being
liable, however, only for willful negligence or misconduct, and hereby waives
any statutory fee and agrees to accept reasonable compensation, in lieu thereof,
for any services rendered by it in accordance with the terms hereof.
Section 3.02. Resignation by Trustee. Trustee may resign at any time
upon giving thirty (30) days' notice to Grantor and Beneficiary.
23
<PAGE>
Section 3.03. Removal of Trustee; Successors. Beneficiary may remove
Trustee at any time or from time to time and select a successor trustee. In the
event of the death, removal, resignation or refusal or inability to act of
Trustee, or in its sole discretion for any reason whatsoever, Beneficiary may,
without notice and without specifying any reason therefor and without applying
to any court, select and appoint a successor Trustee, and all powers, rights,
duties and authority of Trustee, as aforesaid, shall thereupon become vested in
such successor. In such connection, Beneficiary may, on its and Grantor's
behalf, execute, acknowledge and record an instrument or agreement of such
substitution, and Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, with full power of substitution, to do so. Such substitute
trustee shall not be required to give bond for the faithful performance of its
duties unless required by Beneficiary.
ARTICLE IV
MISCELLANEOUS
Section 4.01. Assignment of Rents. This Deed is intended to constitute
a present, absolute and irrevocable assignment of all of the Rents now or
hereafter accruing, and Grantor, without limiting the generality of the Granting
Clause hereof, specifically hereby presently, absolutely and irrevocably assigns
all of the Rents now or hereafter accruing to Beneficiary. The aforesaid
assignment shall be effective immediately upon the execution hereof and is not
conditioned upon the occurrence of any Event of Default hereunder or any other
contingency or event, provided, however, that Beneficiary hereby grants to
Grantor the right and license to collect and receive the Rents as they become
due, and not in advance, so long as no Event of Default exists hereunder.
Immediately upon the occurrence of any such Event of Default, the foregoing
right and license shall be automatically terminated and of no further force or
effect. Nothing contained in this Section or elsewhere herein shall be construed
to make Beneficiary a mortgagee in possession unless and until Beneficiary
actually takes possession of the Mortgaged Property, nor to obligate Beneficiary
to take any action or incur any expense or discharge any duty or liability under
or in respect of any leases or other agreements relating to the Mortgaged
Property or any part thereof.
Section 4.02. Security Agreement. This Deed constitutes a security
agreement under the applicable Uniform Commercial Code with respect to the
Chattels and such other of the Mortgaged Property which is personal property. In
addition to the rights and remedies granted to Beneficiary by other applicable
law or hereby, Beneficiary shall have all of the rights and remedies with
respect to the Chattels and such other personal property as are granted to a
secured party under the applicable Uniform Commercial Code. Upon Beneficiary's
request after an Event of Default, Grantor shall promptly and at its expense
assemble the Chattels and such other personal property and make the same
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor, after an Event of Default, shall pay to Beneficiary on demand, with
interest at the Default Rate, any and all expenses, including attorneys' fees,
incurred by Beneficiary in protecting its interest in the Chattels and such
other personal property and in enforcing its rights with respect thereto. Any
notice of sale, disposition or other intended action by
24
<PAGE>
Beneficiary with respect to the Chattels and such other personal property sent
to Grantor in accordance with the provisions hereof at least five (5) days prior
to such action shall constitute reasonable notice to Grantor. The proceeds of
any such sale or disposition, or any part thereof, may be applied by Beneficiary
to the payment of the indebtedness secured hereby in such order and proportions
as Beneficiary in its discretion shall deem appropriate. To the extent Grantor
may lawfully do so and without limiting any rights and/or privileges herein
granted to Beneficiary, Grantor agrees that Beneficiary and/or Trustee and any
successor Trustee may dispose of any or all of the Chattels at the same time and
place and after giving the same notices provided in this Deed in connection with
a non-judicial foreclosure sale under the terms and conditions set forth in
Article II, Section 2.01, or III of this Deed. In this connection, Grantor
agrees that the sale may be conducted by Trustee or successor Trustee; that the
sale of the real estate and improvements described in this Deed and the Chattels
or any part thereof, may be sold separately or together; and that in the event
the Premises and the Chattels or any part thereof are sold together, Beneficiary
will not be obligated to allocate the consideration received as between the
Premises and the Chattels.
Section 4.03. Application of Certain Payments. In the event that all or
any part of the Mortgaged Property is encumbered by one or more deeds of trust
held by or for the benefit of Beneficiary, Grantor hereby irrevocably authorizes
and directs Beneficiary to apply any payment received by Beneficiary in respect
of any note secured hereby or by any other such deed of trust to the payment of
such of said notes as Beneficiary shall elect in its sole and absolute
discretion, and Beneficiary shall have the right to apply any such payment in
reduction of principal and/or interest and in such order and amounts as
Beneficiary shall elect in its sole and absolute discretion without regard to
the priority of the deed of trust securing the note so repaid or to contrary
directions from Grantor or any other party.
Section 4.04. Severability. In the event any one or more of the
provisions contained herein or in the Note shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but this Deed
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein or therein.
Section 4.05. Modifications and Waivers in Writing. No provision hereof
may be changed, waived, discharged or terminated orally or by any other means
except an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought. Any agreement hereafter
made by Grantor and Beneficiary relating hereto shall be superior to the rights
of the holder of any intervening or subordinate lien or encumbrance.
Section 4.06. Notices. All notices, demands, consents, approvals and
statements required or permitted hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes when presented
personally, three (3) days after mailing by registered or certified mail,
postage prepaid, or one (1) day after delivery to a nationally recognized
overnight courier service providing evidence of the date of delivery, if to
Grantor at its address stated above, with a copy to Thomas E. Davis, Esq.,
25
<PAGE>
Jenkens & Gilchrist, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202-2799, and
if to Beneficiary to its address stated above (which is the address to which any
notice permitted to be given to Beneficiary under the Code of Virginia shall be
mailed or delivered), or at such other address of which a party shall have
notified the party giving such notice in accordance with the provisions of this
Section.
Section 4.07. Successors and Assigns. All of the grants, covenants,
terms, provisions and conditions herein shall run with the land and shall apply
to, bind and inure to the benefit of, the successors and assigns of Grantor, the
successors in trust of Trustee and the endorsees, transferees, successors and
assigns of Beneficiary.
Section 4.08. Limitation on Interest. Anything herein or in the Note to
the contrary notwithstanding, the obligations of Grantor hereunder and under the
Note shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt of any such payment by Beneficiary would be
contrary to provisions of law applicable to Beneficiary limiting the maximum
rate of interest that may be charged or collected by Beneficiary.
Section 4.09. Counterparts. This Deed may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original; and all such counterparts shall together constitute but one and
the same deed.
Section 4.10. Substitute Deeds. Grantor and Beneficiary shall, upon
their mutual agreement to do so, execute such documents as may be necessary in
order to effectuate the modification hereof, including the execution of
substitute deeds of trust, so as to create two (2) or more liens on or security
titles in respect of the Mortgaged Property in such amounts as may be mutually
agreed upon but in no event to exceed, in the aggregate, the unpaid principal
portion of the Note Amount; in such event, Grantor covenants and agrees to pay
the reasonable fees and expenses of Beneficiary and its counsel in connection
with any such modification.
Section 4.11. Beneficiary's Sale of Interests in Loan. Grantor
recognizes that Beneficiary may sell and transfer interests in the Loan to one
or more participants or assignees and that all documentation, financial
statements, appraisals and other data, or copies thereof, relevant to Grantor,
any Guarantor or the Loan, may be exhibited to and retained by any such
participant or assignee or prospective participant or assignee.
Section 4.12. No Merger of Interests. Unless expressly provided
otherwise, in the event that ownership hereof and title to the fee and/or
leasehold estates in the Premises encumbered hereby shall become vested in the
same person or entity, this Deed shall not merge in said title but shall
continue to be and remain a valid and subsisting lien and/or trust deed on said
estates in the Premises for the amount secured hereby.
Section 4.13. CERTAIN WAIVERS. GRANTOR EXPRESSLY AND UNCONDITIONALLY
WAIVES BY EXECUTION HEREOF, AND BENEFICIARY WAIVES BY ACCEPTANCE HEREOF, IN
CONNECTION WITH ANY FORECLOSURE OR SIMILAR ACTION OR PROCEDURE BROUGHT BY
26
<PAGE>
BENEFICIARY ASSERTING AN EVENT OF DEFAULT UNDER CLAUSE (A) OF SECTION 2.01 OF
THIS DEED, ANY AND EVERY RIGHT IT MAY HAVE TO A TRIAL BY JURY.
Section 4.14. GOVERNING LAW. THE PERFORMANCE REQUIRED BY THIS DEED
SHALL, INSOFAR AS IS POSSIBLE, BE RENDERED TO THE BENEFICIARY AT ITS OFFICE IN
TENNESSEE. GRANTOR AND BENEFICIARY INTEND THAT THE VALIDITY AND CONSTRUCTION OF
THE OBLIGATIONS SECURED BY THIS DEED BE GOVERNED BY THE LAWS OF THE STATE OF
TENNESSEE INCLUDING ALL OBLIGATIONS AND LIABILITIES HEREUNDER WITH RESPECT TO
THE PAYMENT OF INTEREST OR ANY OTHER COMPENSATION FOR THE USE, FORBEARANCE OR
DETENTION OF MONEY. THIS DEED SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TENNESSEE, WITHOUT REFERENCE TO THE CONFLICTS OF LAW
PRINCIPLES OF THAT STATE, EXCEPT ONLY TO THE EXTENT THAT VIRGINIA LAW EXPRESSLY
PROVIDES THAT IT GOVERNS AND THAT A CONTRARY AGREEMENT BY THE PARTIES IS
INEFFECTIVE AND EXCEPT THAT THE LAW OF THE STATE OF VIRGINIA SHALL APPLY TO ANY
AND ALL ACTS WITH RESPECT TO THE CREATION AND PRIORITY OF THE LIEN OF THE DEED
AND ASSIGNMENT OF LEASES AND RENTS ON THE MORTGAGED PROPERTY HEREBY EVIDENCED
AND FORECLOSURE BY TRUSTEE ON THE MORTGAGED PROPERTY. GRANTOR, BENEFICIARY AND
TRUSTEE COVENANT AND AGREE TO TAKE ANY AND ALL ACTION WHICH MAY BE NECESSARY
UNDER VIRGINIA LAW WITH RESPECT TO FORECLOSURE UNDER THE LAWS OF THE STATE OF
VIRGINIA. SHOULD ANY OBLIGATION OR REMEDY UNDER THIS DEED BE INVALID OR
UNENFORCEABLE UNDER THE LAWS PROVIDED HEREIN TO GOVERN, THE LAWS OF ANOTHER
STATE WHOSE LAWS CAN VALIDATE AND APPLY TO THIS DEED SHALL APPLY.
Section 4.15. Future Advances. This Deed is given to secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at Beneficiary's option, or otherwise, as are made
after the date hereof, to the same extent as if such future advances were made
on the date of the execution of this Deed. The total amount of indebtedness that
may be secured hereby may decrease or increase from time to time, but the total
unpaid balance so secured at any one time shall not exceed 150% of the Note
Amount, plus interest thereon, and together with any disbursements made for the
payment of taxes, levies or insurance on the Mortgaged Property, or to protect
the Mortgaged Property, with interest on such disbursements at the Default Rate.
Section 4.16. Waiver/Renewal, Extension or Reinstatement. Grantor
hereby agrees that all "exemptions are waived" and that "renewal, extension or
reinstatement is permitted" hereunder.
27
<PAGE>
IN WITNESS WHEREOF, this Deed has been duly executed and delivered by
Grantor.
APPLE SUITES, INC.,
a Virginia corporation
By /s/ Glade M. Knight
---------------------------------------
Name: Glade M. Knight
Title: Chief Executive Officer
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
By /s/ Glade M. Knight
---------------------------------------
Name: Glade M. Knight
Title: Chief Executive Officer
<PAGE>
STATE OF VIRGINIA
CITY OF RICHMOND
THIS INSTRUMENT was acknowledged before me on the 15th day of
September, 1999, by Glade M. Knight, President of Apple Suites, Inc., a Virginia
corporation, on behalf of said Apple Suites, Inc.
/s/ Jacquelyn B. Owens
--------------------------------------------
Notary Public, State of Virginia
Printed Name: Jacquelyn B. Owens
-----------------------------
Commission Expires: 6/30/03
------------------------
STATE OF VIRGINIA
CITY OF RICHMOND
THIS INSTRUMENT was acknowledged before me on the 15th day of
September, 1999, by Glade M. Knight, President of Apple Suites Management, Inc.,
a Virginia corporation, on behalf of said Apple Suites Management, Inc.
/s/ Jacquelyn B. Owens
--------------------------------------------
Notary Public, State of Virginia
Printed Name: Jacquelyn B. Owens
-----------------------------
Commission Expires: 6/30/03
------------------------
<PAGE>
SCHEDULE A
(Richmond-West End)
ALL THAT certain lot, piece or parcel of land, with the improvements thereon and
the appurtenances thereto belonging, lying and being in Henrico County,
Virginia, containing 3.745 acres, more or less (the "Property"), as more
particularly described on a Plat of Survey made by Timmons & Associates, P.C.,
dated June 2, 1995, revised October 3, 1995, entitled "Topographic And Boundary
Survey On 3.745 Acres Of Land Lying On The Eastern Line Of Innslake Drive Being
A Portion Of Block A - Section I - Innsbrook, Three Chopt District, Henrico
County, Va," (the "Plat") a copy of which is attached to the deed recorded
October 17, 1995 in the Clerk's Office, Circuit Court, Henrico County, Virginia,
in Plat Book 100, at Page 203, to which reference is hereby made for a more
particular description of the property.
TOGETHER WITH a permanent, non-exclusive easement and right-of-way for the
purpose of constructing, operating, maintaining, repairing, replacing and
relocating, as well as utilizing, necessary storm drainage facilities and access
thereto (the "Storm Drainage Easement") for the benefit of the Property, but
subject to the terms and conditions of the Henrico Deed (as hereinafter
defined), within the easement areas reserved by Grantor in that certain Deed,
Deed of Release and Relocation of Easement to the County of Henrico, Virginia,
dated May 17, 1991, and recorded in the Clerk's Office, Circuit Court, Henrico
County, Virginia in Deed Book 2296, at Page 793 (the "Henrico Deed"), and being
more particularly shown and described therein and on the plat of survey attached
thereto as "EASEMENT RESERVED BY THE INNSBROOK CORPORATION FOR THE PURPOSE OF
CONSTRUCTING, MAINTAINING, REPAIRING, REPLACING AND RELOCATING AS WELL AS
UTILIZING DRAINAGE, UTILITY AND JOGGING TRAILS AND GRANTING EASEMENTS THEREFOR";
PROVIDED HOWEVER, that Grantee, its successors and assigns, in exercising the
easement rights granted herein, shall restore any utilities, driveways, access
roads, parking lots, landscaping or facilities appurtenant thereto which it
disturbs to substantially the condition in which they existed prior to the
exercise of such rights.
BEING the same real estate conveyed to Promus Hotels, Inc., a Delaware
corporation, by deed from the Innsbrook Corporation, a Virginia corporation,
dated September 25, 1995, recorded October 17, 1995, in the Clerk's Office,
Circuit Court, Henrico County, Virginia, in Deed Book 2612, at Page 1166.
EXHIBIT 4.3
<PAGE>
Exhibit 4.3 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 4.2. The following
list sets forth the material details in which the document described as Exhibit
4.3 differs from the document filed as Exhibit 4.2:
1. The Fee Owner is Apple Suites REIT Limited Partnership and the
Lessee is Apple Suites Services Limited Partnership.
2. Schedule A is as set forth on the following page.
<PAGE>
SCHEDULE A
(Dallas-Addison)
Being Lot 1, Addison Oaks Addition, an Addition to the Town of Addison, Dallas
County, Texas, according to the plat thereof recorded in Volume 89166, Page
1974, Map Records, Dallas County, Texas
EXHIBIT 4.4
<PAGE>
Exhibit 4.4 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 4.2. The following
list sets forth the material details in which the document described as Exhibit
4.4 differs from the document filed as Exhibit 4.2:
1. The Fee Owner is Apple Suites REIT Limited Partnership and the Lessee is
Apple Suites Services Limited Partnership.
2. Schedule A is as set forth on the following pages.
<PAGE>
SCHEDULE A
(Dallas-Irving/Las Colinas)
BEING a 3.378 acre tract of land situated in the City of Irving, Dallas County,
Texas, in the S.A. & M.C.R.R Survey, Abstract No. 1452, and the A. W. Carter
Survey, Abstract No. 377, said 3.378 acre tract of land being more particularly
described as follows:
BEGINNING at a 1/2 inch iron rod found for the intersection of the southeasterly
right-of-way line of Wingren Blvd. (a 100 foot right-of-way) as described by
plat recorded in Volume 80018, Page 0019, of the Map Records of Dallas County,
Texas, and the northeasterly line of John W. Carpenter Freeway, State Highway
114 (a variable width right-of-way);
THENCE along the southeasterly right-of-way line of said Wingren Boulevard,
North 50(degree) 21' 52" East, a distance of 183.29 feet to a 1/2 inch iron rod
found for the southwesterly corner of a 0.483 acre tract of land as described by
deed recorded in Volume 85228, Page 3242 of the Deed Records of Dallas County,
Texas;
THENCE along the southwesterly line of said 0.483 acre tract, the following:
South 42(degree) 30' 00" East, a distance of 132.00 feet to a 1/2 inch
iron rod found for corner;
North 47(degree) 30' 00" East, a distance of 14.71 feet to a 1/2 inch
iron rod set for corner;
South 42(degree) 30' 00" East, a distance of 122.80 feet to a nail set
for corner;
North 47(degree) 30' 00" East, a distance of 10.25 feet to a 1/2 inch
iron rod found for corner;
South 42(degree) 30' 00" East, a distance of 8.26 feet to a 1/2 inch
iron rod found for the point of tangent to spiral of a spiral curve to
the right having a spiral angle of 03(degree) 17' 20".
Southeasterly with said spiral curve to the right for a distance of
118.98 feet to a 1/2 inch iron rod found for the point of spiral to
curve of a circular curve to the right having a radius of 639.00 feet,
a chord distance of 17.23 feet and a chord bearing of South 36(degree)
26' 18" East;
Southeasterly with said curve to the right through a central angle of
01(degree) 32' 40" for an arc distance of 17.23 feet to a 1/2 inch iron
rod found for the point of curve to spiral of a spiral curve to the
right having a spiral angle of 03(degree) 17' 20";
Southeasterly with said spiral curve to the right for a distance of
118.98 feet to a 1/2 inch iron rod found for the point of spiral to
tangent;
South 30(degree) 22' 40" East, a distance of 29.36 feet to an "X" in
concrete found for corner 10 feet from the back (dry) side of a canal
wall, and on a northerly line of that certain tract of land described
by deed recorded in Volume 82117, Page 1045 of the Deed Records of
<PAGE>
Dallas County, Texas, said 1/2 inch iron rod being on a non-tangent
curve to the right having a radius of 39.50 feet, a chord distance of
11.87 feet and a chord of South 51(degree) 04' 23" West;
THENCE 10 feet from and parallel with the back (dry) side of a canal wall and
along said northerly line, the following:
Southwesterly with said curve to the right through a central angle of
17(degree) 16' 46" for an arc distance of 11.91 feet to a 1/2 inch iron
rod set for the point of tangency;
South 59(degree) 42' 46" West, a distance of 227.63 feet to a 1/2 inch
iron rod found for corner, said 1/2 inch iron rod being on a
non-tangent curve to the left having a radius of 31.00 feet, a chord
distance of 19.92 feet and a chord bearing of South 77(degree) 55' 31"
West;
THENCE continuing along said northerly line, the following:
Southeasterly with said non-tangent curve to the left through a central
angle of 37(degree) 28' 35" for an arc distance of 20.28 feet to a 1/2
inch iron rod found for corner
North 89(degree) 23'14" West, a distance of 26.36 feet to an "X" in
concrete found for corner
South 32(degree) 5' 51" West, a distance of 30.77 feet to an "X" in
concrete found for corner in the northeasterly right-of-way line of the
aforementioned State Highway 114;
THENCE along the northeasterly right-of-way line of said Highway 114, the
following:
North 37(degree) 39' 27" West, a distance of 68.87 feet to a 1/2 inch
iron rod found for corner
North 32(degree) 05' 21" West, a distance of 101.61 feet to a 1/2 inch
iron rod found on a non-tangent curve to the left having a radius of
1938.36 feet a chord distance of 264.04 feet and a chord bearing of
North 34(degree) 05' 29" West;
Northwesterly with said curve to the left through a central angle of
07(degree) 48' 39" for an arc distance of 264.24 feet to a 1/2 inch
iron rod found for corner;
North 06(degree) 16' 41" East, a distance of 83.41 feet to the POINT OF
BEGINNING:
CONTAINING a computed area of 147,140 square feet or 3.378 acres of land more or
less.
Exhibit 4.5
<PAGE>
Exhibit 4.5 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 4.2. The following
list sets forth the material details in which the document described as Exhibit
4.5 differs from the document filed as Exhibit 4.2:
1. The Fee Owner is Apple Suites REIT Limited Partnership and the Lessee is
Apple Suites Services Limited Partnership.
2. Schedule A is as set forth on the following page.
<PAGE>
SCHEDULE A
(North Dallas-Plano)
BEING a tract of land out of the DENTON DARBY SURVEY. Abstract No. 250, in the
City of Plano, Collin County, Texas and being all of LOT 1, BLOCK A of HOMEWOOD
SUITES at PRESTON PARK SOUTH, an addition to the City of Plano, Collin County,
Texas according to the final plat thereof recorded in Cabinet J. Slide 743 of
the Map Records of Collin County, Texas and being more particularly described as
follows:
BEGINNING at a 5/8" iron rod found in the north right-of-way line of Old
Sheppard Place (85(degree) ROW), from which a 5/8" iron rod found for the west
corner of the corner slip at the intersection of said north right-of-way line of
Old Sheppard Place with the west right-of-way line of Preston Park Court
(80(degree) ROW) bears South 89(degree) 43' 25" East, a distance of 255.81 feet;
THENCE with the said north right-of-way line, North 89(degree) 43' 25" West, a
distance of 293.00 feet to an aluminum disk found in concrete for the southeast
corner of THE COURTYARD AT PRESTON PARK an addition to the City of Plano, Texas
according to the plat thereof recorded in Cabinet F, Slide 153 of the Map
Records of Collin County, Texas;
THENCE leaving the north right-of-way line of Old Sheppard Place with the east
line of said THE COURTYARD AT PRESTON PARK, the following courses and distances
to wit:
North 00(degree) 16' 28" East, a distance of 259.96 feet to a 1/2" iron
rod found for corner;
South 89(degree) 43' 32" East, a distance of 30.00 feet to a cross mark
found in concrete for the beginning of a non-tangent curve to the left,
having a central angle of 73(degree) 45' 48", a radius of 68.02 feet
and a chord bearing and distance of North 15(degree) 50' 51" West,
81.65 feet;
Northwesterly with the said curve, an arc distance of 87.57 feet to a
cross mark found in concrete for the beginning of a reverse curve to
the right, having a central angle of 73(degree) 45' 14", a radius of
68.02 feet and a chord bearing and distance of North 15(degree) 51' 08"
West, 81.64 feet;
Northerly with said curve, an arc distance of 87.56 feet to a cross
mark found in concrete for corner;
North 21(degree) 01' 30" East, a distance of 39.99 feet to a cross mark
set in concrete in the southerly right-of-way line of Preston Park
Boulevard (a variable width ROW):
THENCE with the said southerly right-of-way line of Preston Park Boulevard, the
following courses and distances to wit:
South 68(degree) 58' 19" East, a distance of 275.15 feet to a 1/2" iron
rod found for the beginning of a tangent curve to the left, having a
central angle of 04(degree) 56' 56", a radius of 450.00 feet and a
chord bearing and distance of South 71(degree) 26' 47" East, 38.86
feet;
Easterly with the said curve, an arc distance of 38.67 feet to an
aluminum disc found in concrete for corner;
THENCE leaving the southerly right-of-way line of Preston Park Boulevard, South
00(degree) 16' 35" West, a distance of 344.54 feet to the POINT OF BEGINNING and
containing 2.6601 acre of land.
Bearing system based on the plat recorded in Cabinet C. Slide 731 of the Map
Records of Collin County, Texas.
EXHIBIT 10.1
<PAGE>
INDEMNITY
September 20, 1999
Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117-4900
Attention: General Counsel
Loan: $26,625,000
Borrower: Apple Suites, Inc.
Premises: Homewood Suites located at 4100 Innslake
Drive, Glen Allen, Virginia
Dear Sirs:
Except to the extent of any existing liability of you and/or
your affiliates for Corrective Work with respect to Hazardous Materials
currently in, on or under the Property, for good and valuable consideration in
hand received, the undersigned, and if there are two or more signers, each of
us, hereby jointly and severally covenants and agrees for your benefit, in
addition to, and not in limitation of, any other rights and remedies available
to you at law or in equity, as follows:
1. Definitions: The following terms shall be defined as set forth below.
(a) Corrective Work: The removal, relocation, elimination,
remediation or encapsulation of Hazardous Materials from all
or any portion of the Property and (to the extent provided in
Subparagraph 2(b) hereof) surrounding areas and, to the extent
thereby required, the reconstruction and rehabilitation of the
Property pursuant to, and in compliance with, Governmental
Requirements;
(b) Governmental Requirements: Any present and future (i) federal,
state or local laws, rules or regulations and (ii) judicial or
administrative interpretation thereof, including any judicial
or administrative orders or judgments;
(c) Hazardous Materials: (i) Asbestos and polychlorinated
biphenyls and (ii) hazardous or toxic materials, wastes and
substances which are defined, determined or identified as such
(including petroleum
<PAGE>
products if they are defined, determined or identified as
such) in, or subject to, any Governmental Requirements, in
each case in amounts in violation of applicable Governmental
Requirements;
(d) Indemnified Losses: Incurred damages, losses, liabilities,
costs and expenses of Corrective Work, including, without
limitation, obligations, penalties, fines, impositions, fees,
levies, lien removal or bonding costs, claims, litigation,
demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses (including, without limitation,
attorneys' and experts' reasonable fees and disbursements) of
any kind and nature whatsoever, including interest thereon;
(e) Loan Documents: The documents comprising the total
documentation pertaining to the Loan indicated above made to,
or for the benefit of, the above-named Borrower, including,
without limitation, and as applicable, any loan agreement,
building loan or construction loan agreement, note, mortgage,
deed of trust, security agreement, assignment of leases and
rents, any guaranty or guaranties (whether of payment and/or
performance), pledge agreement, commitments, letters of
credit, assignment of partnership interests, and all other
instruments and documents evidencing, securing, or collateral
to, the Loan;
(f) Property: The land more particularly described in Exhibit A
hereto attached and as indicated above, together with the
buildings, improvements, structures and betterments now or
hereafter existing thereon or thereunder.
2. (a) Except as hereinafter limited in Paragraph 9 and Subparagraphs
2(b) and 2(c), the undersigned covenant and agree, at their sole cost
and expense, to indemnify, protect and save you harmless against and
from any and all Indemnified Losses which may at any time be imposed
upon, incurred by or asserted or awarded against you arising from, out
of, attributable to or by reason of, the:
(i) nonperformance or delayed performance and completion of
Corrective Work; or
(ii) enforcement of this Indemnity or the assertion by the
undersigned of any defense to its obligations hereunder (except
the successful defense of actual performance not subject to
further appeal);
whether the Indemnified Losses arise before, during or after,
enforcement of the remedies and rights available to you under the Loan
Documents, including the acquisition of title to all or any portion of
the Property by
<PAGE>
you or your successors or affiliates (as such terms are defined in
Paragraph 8(a) hereof).
(b) The Indemnified Losses shall not extend to the costs of Corrective
Work pertaining to surrounding areas if the applicable Hazardous
Materials did not originate from any portion of the Property, unless
the removal of the Hazardous Materials from the surrounding areas by
Borrower is necessitated by Governmental Requirements.
(c) If you, or any of your successors or affiliates, take
(i) title to the Property at a foreclosure sale, at a sale
pursuant to a power of sale under a mortgage or deed of trust, or
by deed in lieu of foreclosure, or by exercise of other remedial
rights; or
(ii) possession, custody and control of the Property as a
mortgagee-in-possession or through court designated receiver and
Borrower, and its successors or affiliates, never reacquire such
possession, custody and control,
then the Indemnified Losses shall not include or apply to Hazardous
Materials which are initially placed on, in or under all or any
portion of the Property at any time thereafter.
3. (a) So long as Borrower is in possession, custody and control of the
Property you agree that prior to the undertaking of Corrective Work by
you, the Borrower or the undersigned may at their sole cost and
expense contest the Governmental Requirements and/or perform any
Corrective Work, provided that at all times all of the following
conditions are continuously satisfied in full:
(i) no uncured event of default (other than as related to the
Hazardous Materials involved in such contest or Corrective Work)
exists under any of the Loan Documents;
(ii) you (and your agents, officers, directors, servants,
employees, contractors and shareholders) shall not be subject to
any criminal or other penalties, fines, costs or expenses, by
reason of such contest or Corrective Work or any delays in
connection therewith;
(iii) unless the undersigned has instituted a contest as permitted
hereunder with respect to any Corrective Work, the undersigned
shall commence the Corrective Work promptly after obtaining actual
knowledge of the Hazardous Materials on, in, under or affecting
the Property or any surrounding areas, but at least fifteen (15)
days prior to commencement of such Corrective Work, submit to you
in conformity with your reasonable requirements (which
<PAGE>
requirements may not create conditions which violate Governmental
Requirements), reasonably detailed plans for such Corrective Work
complying with Governmental Requirements. If, within said fifteen
(15)-day period, you, in your reasonable judgment, reject such
plans, the undersigned shall promptly submit revised plans
conforming to your reasonable requirements to you for your
approval. If within fifteen (15) days from your receipt of the
original plans, or revised plans, you fail to approve or reject
such original plans, or revised plans, as the case may be, the
same shall be deemed accepted by you. All Corrective Work shall be
performed in compliance with such approved original or revised
plans;
(iv) a contest, if instituted, shall be instituted promptly after
the undersigned, or Borrower, obtains actual knowledge of an
action, suit, proceeding, or governmental order or directive which
asserts any obligation or liability affecting all or any portion
of the Property, or Borrower or any of the undersigned and
diligently prosecuted until a final judgment is obtained;
(v) Corrective Work shall be instituted promptly following an
unsuccessful nonappealable completion of the contest and shall be
diligently prosecuted until the Hazardous Materials involved in
the contest are removed, relocated, encapsulated and/or disposed
of as required by the Governmental Requirements;
(vi) the undersigned shall notify you within ten (10) days after
commencement of such contest or Corrective Work and shall render
to you a written monthly report detailing the progress thereof
including such information as you shall reasonably request; and
(vii) if you are named in any action or proceeding as a necessary
party or as a party defendant relating to matters covered by this
Indemnity, you agree to utilize counsel designated by the
undersigned, subject to your right of approval, not to be
unreasonably withheld or delayed. If you are not named in any such
action or proceeding, you, at your expense, shall have the right
(but not the obligation) to join in any action or proceeding in
which the undersigned or Borrower contests any Governmental
Requirements.
So long as all of such conditions are continuously satisfied, you
agree that you will not enter into any settlement agreement binding
upon the undersigned, or Borrower, without their prior consent, which
consent will not be unreasonably withheld or delayed.
<PAGE>
(b) Promptly after the receipt by you of written notice of any demand
or claim or the commencement of any action, suit or proceeding in
respect of any of the Indemnified Losses, you shall notify the
undersigned thereof in writing, but the failure by you promptly to
give such notice shall not relieve the undersigned of any of their
obligations under this Indemnity, except to the extent of prejudice to
any defense to such Indemnified Losses resulting from such delay.
4. The liability of the undersigned under this Indemnity shall in no way
be limited or impaired by (a) any amendment or modification of the
Loan Documents; (b) any extensions of time for performance required by
any of the Loan Documents; (c) any sale, assignment or foreclosure
pursuant to the Loan Documents or any sale or transfer of all or any
part of the Property; (d) any exculpatory provision in any of the Loan
Documents limiting your recourse to the Property or to any other
security, or limiting your rights to a deficiency judgment against
Borrower, or the undersigned; (e) the accuracy or inaccuracy of any
representations or warranties made to you under the Loan Documents;
(f) the release of Borrower or any other person from performance or
observance of any of the agreements, covenants, terms or conditions
contained in any of the Loan Documents by operation of law, your
voluntary act, or otherwise; (g) the release or substitution, in whole
or in part, of any security for the note or other evidence of debt
issued pursuant to the Loan Documents; (h) your failure to record or
file any of the Loan Documents (or your improper recording or filing
of any thereof) or to otherwise perfect, protect, secure or insure any
security interest or lien given as security for the note or other
evidence of indebtedness under the Loan Documents, (i) any other
action or circumstance whatsoever which constitutes, or might be
construed to constitute, a legal or equitable discharge or defense of
Borrower or others for their obligations under any of the Loan
Documents or of the undersigned for their obligations under this
Indemnity or (j) the invalidity, irregularity or unenforceability, in
whole or in part, of any of the Loan Documents; and in any of such
cases, whether with or without notice to Borrower or the undersigned
and with or without consideration.
5. The undersigned (a) waive any right or claim of right to cause a
marshalling of the undersigned's assets or to cause you to proceed
against any of the security for the Loan Documents before proceeding
under this Indemnity or to cause you to proceed against the
undersigned in any particular order; (b) agree that any payments
required to be made hereunder shall become due on demand; (c) waive
and relinquish all rights and remedies accorded by applicable law to
indemnitors or guarantors, except any rights of subrogation which the
undersigned may have, provided that (i) the indemnity provided for
hereunder shall neither be contingent upon the existence of any such
rights of subrogation nor subject to any claims or defenses whatsoever
which may be asserted in connection with the enforcement or attempted
enforcement of such
<PAGE>
subrogation rights including, without limitation, any claim that such
subrogation rights were abrogated by any of your acts, and (ii) the
undersigned postpone and subordinate (A) the exercise of any and all
of their rights of subrogation to your rights against the undersigned
under this Indemnity and (B) any rights of subrogation to any
collateral securing the Loan until the Loan shall have been paid in
full.
6. No delay on your part in exercising any right, power or privilege
under any of the Loan Documents shall operate as a waiver of any such
privilege, right or power.
7. Any one or more of the undersigned, or any other party liable upon or
in respect of this Indemnity or the Loan, may be released from
liability (in whole or in part) under this Indemnity or the Loan
Documents without affecting the liability hereunder of any of the
undersigned not so released.
8. (a) This Indemnity shall be binding upon the undersigned and their
respective heirs, personal representatives, successors and assigns and
shall inure to the benefit of and, where applicable, shall be binding
upon, you and your successors and affiliates, which acquire all or any
part of the Property by any sale, assignment or foreclosure under the
Loan Documents, by deed or other assignment in lieu of foreclosure, or
otherwise, including if you, or such successor, affiliate or
participant, is the successful bidder at a foreclosure or other
remedial sale. For purposes of this Indemnity your (i) "successors"
shall mean successors by merger, consolidation or acquisition of all
or a substantial part of your assets and business and (ii)
"affiliates" shall mean your parent, if any, or its successors as
above defined and any direct or indirect subsidiary or affiliate of
your parent or its successors as above defined.
(b) Except as provided in Subparagraph 8(a) above, the obligations of
the undersigned under this Indemnity shall not inure to the benefit of
(i) any other purchaser of the Property at a foreclosure sale or a
sale pursuant to a power of sale or other remedial rights under the
Loan Documents or (ii) any subsequent holder of the Loan Documents
unless such holder is your successor, affiliate or participant as
hereinabove defined.
9. (a) Except as provided in Subparagraph 9(b) hereof, this Indemnity
shall terminate and be of no further force and effect upon payment in
full by Borrower or guarantor of all principal, interest and other
sums and costs evidenced or secured by the Loan Documents, provided
that at the time of such full payment neither you, nor your successors
or affiliates, have, at any time, or in any manner, through exercise
of their remedial rights under the Loan Documents, participated in the
management or control of, taken possession of, or title to, the
Property or any portion thereof, whether by foreclosure, deed in lieu
of foreclosure, sale under power of sale pursuant to the Loan
Documents, or otherwise.
<PAGE>
(b) Notwithstanding Subparagraph 9(a) above, the undersigned agree
that this Indemnity shall continue after full payment of the Loan with
respect to:
(i) litigation or administrative claims involving Indemnified
Losses pertaining to Hazardous Materials covered by this Indemnity
pending at the date of payment in full of the Loan, and
(ii) reasonable costs and expenses (including experts' and
attorneys' fees and disbursements) incurred or expended by you in
(A) enforcing Subparagraph 2(a)(ii) of this Indemnity or (B) any
litigation, arbitration, administrative claims or matters relating
to any Indemnified Losses subsequently arising within four (4)
years after the date of such full payment (hereinafter called
("Subsequent Claims") involving Hazardous Materials on, in or
under the Property, or if covered by this Indemnity, any
surrounding areas, but the undersigned's obligation under this
Indemnity as to Subsequent Claims is hereby limited and shall not
extend to payment of any monetary awards or damages against you
but only to the costs and expenses above mentioned. You agree to
utilize counsel designated by the undersigned (whether or not the
undersigned are also parties defendant in such matters) subject to
your right of approval, not to be unreasonably withheld or
delayed.
10. This Indemnity shall continue to be effective, or be reinstated
automatically, as the case may be, if at any time payment, in whole or
in part, of any of the obligations indemnified against hereby is
rescinded or otherwise must be restored or returned by you (whether as
a preference, fraudulent conveyance or otherwise) upon or in
connection with the insolvency, bankruptcy, dissolution, liquidation
or reorganization of Borrower, any of the undersigned or any other
person, or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for,
Borrower, any of the undersigned or any other person or for a
substantial part of Borrower's, any of the undersigned's or any of
such other person's property, as the case may be, or otherwise, all as
though such payment had not been made. Each of the undersigned further
agrees that in the event any such payment is rescinded or must be
restored or returned, all costs and expenses (including, without
limitation, legal fees and expenses) incurred by you or on your behalf
in defending or enforcing such continuance or reinstatement, as the
case may be, shall constitute costs of enforcement which are covered
by each of the undersigned's indemnification obligations under this
Indemnity.
11. Each of the undersigned represents and covenants to you that:
(i) if a corporation, partnership, venture, trust or limited liability
company, it is duly organized, validly existing and in good
<PAGE>
standing under the laws of the state of its formation and has full
power and authority to execute, deliver and perform this Indemnity;
each of the undersigned will preserve and maintain such legal
existence and good standing;
(ii) there are no actions, suits or proceedings pending or threatened
against or affecting Borrower or any of the undersigned, at law, in
equity or before or by any governmental authorities except actions,
suits or proceedings which are fully covered by insurance or would, if
adversely determined, not be likely to have a material adverse effect
on Borrower's or any of the undersigned's business or financial
condition; neither Borrower nor any of the undersigned is in material
default with respect to any order, writ, injunction, decree or demand
of any court or governmental authorities;
(iii) the consummation of the transactions contemplated hereby and the
performance of this Indemnity have not resulted and will not result in
any breach of, or constitute a default under, any mortgage, deed of
trust, lease, bank loan or credit agreement, corporate charter,
by-laws, partnership agreement or other instrument to which any of the
undersigned is a party or by which any of the undersigned may be bound
or affected; and
(iv) each of the undersigned is in compliance with, and the
transactions contemplated by this Indemnity do not and will not
violate any provision of, or require any filing, registration, consent
or approval under, any federal, state or local law, rule, regulation,
ordinance, order, writ, judgment, injunction, decree, determination or
award (hereinafter, "Laws") presently in effect having applicability
to it; each of the undersigned will comply promptly with all Laws now
or hereafter in effect having applicability to it.
12. You shall, at all times, at your discretion and expense, be free to
independently establish to your satisfaction the existence or
non-existence of any fact or facts, the existence or non-existence of
which is a condition of this Indemnity or any of its provisions.
13. This Indemnity may be executed in one or more counterparts, each of
which shall be deemed an original. Said counterparts shall constitute
but one and the same instrument and shall be binding upon each of the
undersigned as fully and completely as if all had signed but one
instrument. The joint and several liability of the undersigned shall
be unaffected by the failure of any of the undersigned to execute any
or all of the counterparts.
<PAGE>
14. All notices hereunder shall be in writing and shall be deemed to have
been sufficiently given or served for all purposes when sent by
registered or certified mail, if to the undersigned at their
respective addresses stated on the signature page hereof and if to
you, at your address indicated above, or at such other address of
which a party shall have notified the party giving such notice in
writing in accordance with the foregoing requirements.
15. No provision of this Indemnity may be changed, waived, discharged or
terminated orally, by telephone or by any other means except by an
instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
16. THE UNDERSIGNED BY EXECUTION HEREOF, AND YOU, BY ACCEPTANCE HEREOF,
HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVE, IN CONNECTION WITH ANY
SUIT, ACTION OR PROCEEDING BROUGHT BY YOU ON THIS INDEMNITY, ANY AND
EVERY RIGHT THEY MAY HAVE TO A TRIAL BY JURY.
17. THIS INDEMNITY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TENNESSEE APPLICABLE TO THE
INTERPRETATION, CONSTRUCTION AND ENFORCEMENT OF INDEMNITIES (WITHOUT
GIVING EFFECT TO TENNESSEE'S PRINCIPLES OF CONFLICTS OF LAW). THE
EXISTENCE OF HAZARDOUS MATERIALS SHALL BE DETERMINED IN ACCORDANCE
WITH FEDERAL LAW AND STATE AND LOCAL LAWS OF THE STATE IN WHICH THE
PROPERTY IS LOCATED.
18. THE UNDERSIGNED IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF ANY TENNESSEE STATE OR FEDERAL COURT SITTING IN THE CITY OF
MEMPHIS, STATE OF TENNESSEE, OVER ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDEMNITY AND THE UNDERSIGNED AGREE
AND CONSENT THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS
PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH
SUIT, ACTION OR PROCEEDING IN ANY ABOVE STATED COURT SITTING IN THE
CITY OF MEMPHIS MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, DIRECTED TO THE UNDERSIGNED AT THEIR RESPECTIVE
ADDRESSES INDICATED ON THE SIGNATURE PAGE HEREOF, AND SERVICE SO MADE
SHALL BE COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO
MAILED.
<PAGE>
Very truly yours,
Indemnitor: Address Of Indemnitor:
- ----------- ----------------------
APPLE SUITES, INC., a ATTN: Glade M. Knight
Virginia corporation 306 East Main Street
Richmond, Virginia 23219
By /s/ Glade M. Knight With a copy to:
-------------------- Thomas E. Davis, Esq.
Name: Glade M. Knight Jenkens & Gilchrist
Title: Chief Executive Officer 1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
This is to certify that this Indemnity was executed in my
presence on the date hereof by the parties whose signatures appear above in the
capacities indicated.
/s/ Jacquelyn B. Owens
-------------------------------
Notary Public
My commission expires:
6/30/03
-------------------------------
<PAGE>
EXHIBIT A
(Richmond-West End)
ALL THAT certain lot, piece or parcel of land, with the improvements thereon and
the appurtenances thereto belonging, lying and being in Henrico County,
Virginia, containing 3.745 acres, more or less (the "Property"), as more
particularly described on a Plat of Survey made by Timmons & Associates, P.C.,
dated June 2, 1995, revised October 3, 1995, entitled "Topographic And Boundary
Survey On 3.745 Acres Of Land Lying On The Eastern Line Of Innslake Drive Being
A Portion Of Block A - Section I - Innsbrook, Three Chopt District, Henrico
County, Va," (the "Plat") a copy of which is attached to the deed recorded
October 17, 1995 in the Clerk's Office, Circuit Court, Henrico County, Virginia,
in Plat Book 100, at Page 203, to which reference is hereby made for a more
particular description of the property.
TOGETHER WITH a permanent, non-exclusive easement and right-of-way for the
purpose of constructing, operating, maintaining, repairing, replacing and
relocating, as well as utilizing, necessary storm drainage facilities and access
thereto (the "Storm Drainage Easement") for the benefit of the Property, but
subject to the terms and conditions of the Henrico Deed (as hereinafter
defined), within the easement areas reserved by Grantor in that certain Deed,
Deed of Release and Relocation of Easement to the County of Henrico, Virginia,
dated May 17, 1991, and recorded in the Clerk's Office, Circuit Court, Henrico
County, Virginia in Deed Book 2296, at Page 793 (the "Henrico Deed"), and being
more particularly shown and described therein and on the plat of survey attached
thereto as "EASEMENT RESERVED BY THE INNSBROOK CORPORATION FOR THE PURPOSE OF
CONSTRUCTING, MAINTAINING, REPAIRING, REPLACING AND RELOCATING AS WELL AS
UTILIZING DRAINAGE, UTILITY AND JOGGING TRAILS AND GRANTING EASEMENTS THEREFOR";
PROVIDED HOWEVER, that Grantee, its successors and assigns, in exercising the
easement rights granted herein, shall restore any utilities, driveways, access
roads, parking lots, landscaping or facilities appurtenant thereto which it
disturbs to substantially the condition in which they existed prior to the
exercise of such rights.
BEING the same real estate conveyed to Promus Hotels, Inc., a Delaware
corporation, by deed from the Innsbrook Corporation, a Virginia corporation,
dated September 25, 1995, recorded October 17, 1995, in the Clerk's Office,
Circuit Court, Henrico County, Virginia, in Deed Book 2612, at Page 1166.
EXHIBIT 10.2
<PAGE>
Exhibit 10.2 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.1. The following
list sets forth the material details in which the document described as Exhibit
10.2 differs from the document filed as Exhibit 10.1:
1. The Premises covered are the Homewood Suites located at 4451
Beltline Drive, Addison, Texas.
2. Exhibit A is as set forth on the following page.
<PAGE>
EXHIBIT A
(Dallas-Addison)
Being Lot 1, Addison Oaks Addition, an Addition to the Town of Addison, Dallas
County, Texas, according to the plat thereof recorded in Volume 89166, Page
1974, Map Records, Dallas County, Texas
EXHIBIT 10.3
<PAGE>
Exhibit 10.3 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.1. The following
list sets forth the material details in which the document described as Exhibit
10.3 differs from the document filed as Exhibit 10.1:
1. The Premises covered are the Homewood Suites at 4300 Wingren Drive,
Irving, Texas.
2. Exhibit A is as set forth on the following page.
<PAGE>
EXHIBIT A
(Dallas-Irving/Las Colinas)
BEING a 3.378 acre tract of land situated in the City of Irving, Dallas County,
Texas, in the S.A. & M.C.R.R Survey, Abstract No. 1452, and the A. W. Carter
Survey, Abstract No. 377, said 3.378 acre tract of land being more particularly
described as follows:
BEGINNING at a 1/2 inch iron rod found for the intersection of the southeasterly
right-of-way line of Wingren Blvd. (a 100 foot right-of-way) as described by
plat recorded in Volume 80018, Page 0019, of the Map Records of Dallas County,
Texas, and the northeasterly line of John W. Carpenter Freeway, State Highway
114 (a variable width right-of-way);
THENCE along the southeasterly right-of-way line of said Wingren Boulevard,
North 50(degree) 21' 52" East, a distance of 183.29 feet to a 1/2 inch iron rod
found for the southwesterly corner of a 0.483 acre tract of land as described by
deed recorded in Volume 85228, Page 3242 of the Deed Records of Dallas County,
Texas;
THENCE along the southwesterly line of said 0.483 acre tract, the following:
South 42(degree) 30' 00" East, a distance of 132.00 feet to a 1/2 inch
iron rod found for corner;
North 47(degree) 30' 00" East, a distance of 14.71 feet to a 1/2 inch
iron rod set for corner;
South 42(degree) 30' 00" East, a distance of 122.80 feet to a nail set
for corner;
North 47(degree) 30' 00" East, a distance of 10.25 feet to a 1/2 inch
iron rod found for corner;
South 42(degree) 30' 00" East, a distance of 8.26 feet to a 1/2 inch
iron rod found for the point of tangent to spiral of a spiral curve to
the right having a spiral angle of 03(degree) 17' 20".
Southeasterly with said spiral curve to the right for a distance of
118.98 feet to a 1/2 inch iron rod found for the point of spiral to
curve of a circular curve to the right having a radius of 639.00 feet,
a chord distance of 17.23 feet and a chord bearing of South 36(degree)
26' 18" East;
Southeasterly with said curve to the right through a central angle of
01(degree) 32' 40" for an arc distance of 17.23 feet to a 1/2 inch iron
rod found for the point of curve to spiral of a spiral curve to the
right having a spiral angle of 03(degree) 17' 20";
Southeasterly with said spiral curve to the right for a distance of
118.98 feet to a 1/2 inch iron rod found for the point of spiral to
tangent;
South 30(degree) 22' 40" East, a distance of 29.36 feet to an "X" in
concrete found for corner 10 feet from the back (dry) side of a canal
wall, and on a northerly line of that certain tract of land described
by deed recorded in Volume 82117, Page 1045 of the Deed Records of
<PAGE>
Dallas County, Texas, said 1/2 inch iron rod being on a non-tangent
curve to the right having a radius of 39.50 feet, a chord distance of
11.87 feet and a chord of South 51(degree) 04' 23" West;
THENCE 10 feet from and parallel with the back (dry) side of a canal wall and
along said northerly line, the following:
Southwesterly with said curve to the right through a central angle of
17(degree) 16' 46" for an arc distance of 11.91 feet to a 1/2 inch iron
rod set for the point of tangency;
South 59(degree) 42' 46" West, a distance of 227.63 feet to a 1/2 inch
iron rod found for corner, said 1/2 inch iron rod being on a
non-tangent curve to the left having a radius of 31.00 feet, a chord
distance of 19.92 feet and a chord bearing of South 77(degree) 55' 31"
West;
THENCE continuing along said northerly line, the following:
Southeasterly with said non-tangent curve to the left through a central
angle of 37(degree) 28' 35" for an arc distance of 20.28 feet to a 1/2
inch iron rod found for corner
North 89(degree) 23'14" West, a distance of 26.36 feet to an "X" in
concrete found for corner
South 32(degree) 5' 51" West, a distance of 30.77 feet to an "X" in
concrete found for corner in the northeasterly right-of-way line of the
aforementioned State Highway 114;
THENCE along the northeasterly right-of-way line of said Highway 114, the
following:
North 37(degree) 39' 27" West, a distance of 68.87 feet to a 1/2 inch
iron rod found for corner
North 32(degree) 05' 21" West, a distance of 101.61 feet to a 1/2 inch
iron rod found on a non-tangent curve to the left having a radius of
1938.36 feet a chord distance of 264.04 feet and a chord bearing of
North 34(degree) 05' 29" West;
Northwesterly with said curve to the left through a central angle of
07(degree) 48' 39" for an arc distance of 264.24 feet to a 1/2 inch
iron rod found for corner;
North 06(degree) 16' 41" East, a distance of 83.41 feet to the POINT OF
BEGINNING:
CONTAINING a computed area of 147,140 square feet or 3.378 acres of land more or
less.
EXHIBIT 10.4
<PAGE>
Exhibit 10.4 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.1. The following
list sets forth the material details in which the document described as Exhibit
10.4 differs from the document filed as Exhibit 10.1:
1. The Premises covered are the Homewood Suites at 4705 Old Sheppard
Place, Plano, Texas.
2. Exhibit A is as set forth on the following page.
<PAGE>
EXHIBIT A
(North Dallas-Plano)
BEING a tract of land out of the DENTON DARBY SURVEY. Abstract No. 250, in the
City of Plano, Collin County, Texas and being all of LOT 1, BLOCK A of HOMEWOOD
SUITES at PRESTON PARK SOUTH, an addition to the City of Plano, Collin County,
Texas according to the final plat thereof recorded in Cabinet J. Slide 743 of
the Map Records of Collin County, Texas and being more particularly described as
follows:
BEGINNING at a 5/8" iron rod found in the north right-of-way line of Old
Sheppard Place (85(degree) ROW), from which a 5/8" iron rod found for the west
corner of the corner slip at the intersection of said north right-of-way line of
Old Sheppard Place with the west right-of-way line of Preston Park Court
(80(degree) ROW) bears South 89(degree) 43' 25" East, a distance of 255.81 feet;
THENCE with the said north right-of-way line, North 89(degree) 43' 25" West, a
distance of 293.00 feet to an aluminum disk found in concrete for the southeast
corner of THE COURTYARD AT PRESTON PARK an addition to the City of Plano, Texas
according to the plat thereof recorded in Cabinet F, Slide 153 of the Map
Records of Collin County, Texas;
THENCE leaving the north right-of-way line of Old Sheppard Place with the east
line of said THE COURTYARD AT PRESTON PARK, the following courses and distances
to wit:
North 00(degree) 16' 28" East, a distance of 259.96 feet to a 1/2" iron
rod found for corner;
South 89(degree) 43' 32" East, a distance of 30.00 feet to a cross mark
found in concrete for the beginning of a non-tangent curve to the left,
having a central angle of 73(degree) 45' 48", a radius of 68.02 feet
and a chord bearing and distance of North 15(degree) 50' 51" West,
81.65 feet;
Northwesterly with the said curve, an arc distance of 87.57 feet to a
cross mark found in concrete for the beginning of a reverse curve to
the right, having a central angle of 73(degree) 45' 14", a radius of
68.02 feet and a chord bearing and distance of North 15(degree) 51' 08"
West, 81.64 feet;
Northerly with said curve, an arc distance of 87.56 feet to a cross
mark found in concrete for corner;
North 21(degree) 01' 30" East, a distance of 39.99 feet to a cross mark
set in concrete in the southerly right-of-way line of Preston Park
Boulevard (a variable width ROW):
THENCE with the said southerly right-of-way line of Preston Park Boulevard, the
following courses and distances to wit:
South 68(degree) 58' 19" East, a distance of 275.15 feet to a 1/2" iron
rod found for the beginning of a tangent curve to the left, having a
central angle of 04(degree) 56' 56", a radius of 450.00 feet and a
chord bearing and distance of South 71(degree) 26' 47" East, 38.86
feet;
Easterly with the said curve, an arc distance of 38.67 feet to an
aluminum disc found in concrete for corner;
THENCE leaving the southerly right-of-way line of Preston Park Boulevard, South
00(degree) 16' 35" West, a distance of 344.54 feet to the POINT OF BEGINNING and
containing 2.6601 acre of land.
Bearing system based on the plat recorded in Cabinet C. Slide 731 of the Map
Records of Collin County, Texas.
MASTER HOTEL LEASE AGREEMENT
DATED AS OF SEPTEMBER 20, 1999
BETWEEN
APPLE SUITES, INC.,
A VIRGINIA CORPORATION
AS LESSOR
AND
APPLE SUITES MANAGEMENT, INC.
A VIRGINIA CORPORATION
AS LESSEE
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C> <C>
ARTICLE 1 LEASED PROPERTY; OTHER DEFINITIONS......................................................................1
1.1. Leased Property.........................................................................................1
1.2. Definitions.............................................................................................2
ARTICLE 2 TERM; TERMINATION......................................................................................14
2.1. Term...................................................................................................14
2.2. Lessor's Option to Terminate Lease.....................................................................15
2.3. Transition Procedures..................................................................................16
2.4. Holding Over...........................................................................................17
ARTICLE 3 RENT; RENT ADJUSTMENTS.................................................................................17
3.1. Rent...................................................................................................17
3.2. Confirmation of Percentage Rent........................................................................20
3.3. Additional Charges.....................................................................................21
3.4. Net Lease; No Termination, Abatement, Etc..............................................................22
3.5. Material Changes in Economic Climate...................................................................22
3.6. Rent Adjustment: Basic Assumptions Incorrect..........................................................23
ARTICLE 4 ANNUAL BUDGETS; BOOKS AND RECORDS......................................................................24
4.1. Annual Budget..........................................................................................24
4.2. Books and Records......................................................................................25
ARTICLE 5 IMPOSITIONS; HOTEL COSTS...............................................................................25
5.1. Payment of Impositions.................................................................................25
5.2. Notice of Impositions..................................................................................26
5.3. Adjustment of Impositions..............................................................................26
5.4. Utility Charges........................................................................................26
5.5. Insurance Premiums.....................................................................................26
5.6. Franchise Fees.........................................................................................26
5.7. Ground Rent............................................................................................26
ARTICLE 6 LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY............................................................27
6.1. Ownership of the Leased Property.......................................................................27
6.2. Lessee's Personal Property.............................................................................27
6.3. Lessor's Lien..........................................................................................27
6.4. Lessor's Option to Purchase Assets of Lessee...........................................................28
ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY...................................................................28
7.1. Condition of the Leased Property.......................................................................28
7.2. Use of the Leased Property.............................................................................28
7.3. Lessor to Grant Easements, Etc.........................................................................29
ARTICLE 8 LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS..................................................30
8.1. Compliance with Legal and Insurance Requirements, Etc..................................................30
8.2. Legal Requirement Covenants............................................................................30
8.3. Environmental Covenants................................................................................31
ARTICLE 9 MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS................................................33
9.1. Maintenance and Repairs................................................................................33
9.2. Encroachments, Restrictions, Etc.......................................................................34
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 10 ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE.............................................................35
10.1. Alterations............................................................................................35
10.2. Salvage................................................................................................35
10.3. Joint Use Agreements...................................................................................35
10.4. Initial Upgrade of Leased Improvements.................................................................36
10.5. Furniture, Fixture and Equipment Allowance.............................................................36
ARTICLE 11 COMPLIANCE WITH FRANCHISE..............................................................................36
11.1. Compliance with Franchise Agreement and Management Agreement...........................................36
ARTICLE 12 PERMITTED LIENS AND CONTESTS...........................................................................37
12.1. Liens..................................................................................................37
12.2. Permitted Contests.....................................................................................37
ARTICLE 13 INSURANCE REQUIREMENTS.................................................................................38
13.1. General Insurance Requirements.........................................................................38
13.2. Replacement Cost.......................................................................................39
13.3. Waiver of Subrogation..................................................................................40
13.4. Form Satisfactory, Etc.................................................................................40
13.5. Increase in Limits.....................................................................................40
13.6. Blanket Policy.........................................................................................41
13.7. No Separate Insurance..................................................................................41
13.8. Reports On Insurance Claims............................................................................41
ARTICLE 14 CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION............................................................41
14.1. Insurance Proceeds.....................................................................................41
14.2. Reconstruction in the Event of Damage or Destruction Covered by Insurance..............................42
14.3. Reconstruction in the Event of Damage or Destruction Not Covered by Insurance..........................43
14.4. Lessee's Property......................................................................................43
14.5. Abatement of Rent......................................................................................43
14.6. Damage Near End of Term................................................................................43
14.7. Waiver.................................................................................................43
ARTICLE 15 CONDEMNATION; AWARD ALLOCATION.........................................................................44
15.1. Definitions............................................................................................44
15.2. Parties' Rights and Obligations........................................................................44
15.3. Total Taking...........................................................................................44
15.4. Allocation of Award....................................................................................44
15.5. Partial Taking.........................................................................................44
15.6. Temporary Taking.......................................................................................45
ARTICLE 16 DEFAULT BY LESSEE; LESSOR'S REMEDIES...................................................................45
16.1. Events of Default......................................................................................45
16.2. Surrender..............................................................................................47
16.3. Damages................................................................................................47
16.4. Waiver.................................................................................................48
16.5. Application of Funds...................................................................................48
16.6. Lessor's Right to Cure Lessee's Default................................................................48
ARTICLE 17 DEFAULT BY LESSOR; LESSEE'S REMEDIES...................................................................49
17.1. Breach by Lessor.......................................................................................49
17.2. Lessee's Right to Cure.................................................................................49
17.3. Provisions Relating to Purchase of the Leased Property by Lessee.......................................50
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 18 INDEMNIFICATION........................................................................................50
18.1. Indemnification........................................................................................50
ARTICLE 19 REIT REQUIREMENTS AND RESTRICTIONS.....................................................................51
19.1. Personal Property Limitation...........................................................................51
19.2. Sublease Rent Limitation...............................................................................51
19.3. Sublease Tenant Limitation.............................................................................52
19.4. Lessee Ownership Limitations...........................................................................52
19.5. Lessee Officer and Employee Limitation.................................................................52
19.6. Payments to Affiliates of Lessee.......................................................................52
ARTICLE 20 SUBLETTING AND ASSIGNMENT..............................................................................52
20.1. Subletting and Assignment..............................................................................52
20.2. Attornment.............................................................................................53
20.3. Conveyance by Lessor...................................................................................53
ARTICLE 21 QUIET ENJOYMENT; RISK OF LOSS..........................................................................53
21.1. Quiet Enjoyment........................................................................................53
21.2. Risk of Loss...........................................................................................54
ARTICLE 22 LESSOR MORTGAGES; SUBORDINATION OF LEASE...............................................................54
22.1. Lessor May Grant Liens.................................................................................54
22.2. Subordination of Lease.................................................................................54
ARTICLE 23 ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS.........................................55
23.1. Estoppel Certificates; Financial Statements............................................................55
23.2. Lessor's Right to Inspect..............................................................................56
ARTICLE 24 APPRAISERS.............................................................................................56
24.1. Appraisers.............................................................................................56
ARTICLE 25 ARBITRATION AND DISPUTE RESOLUTION PROCEDURES..........................................................57
25.1. Arbitration............................................................................................57
25.2. Alternative Arbitration................................................................................57
25.3. Arbitration Procedure..................................................................................57
ARTICLE 26 NOTICES................................................................................................58
26.1. Notices................................................................................................58
ARTICLE 27 MISCELLANEOUS..........................................................................................58
27.1. No Waiver..............................................................................................58
27.2. Remedies Cumulative....................................................................................58
27.3. Waiver of Trial by Jury................................................................................58
27.4. Acceptance of Surrender................................................................................59
27.5. No Merger of Title.....................................................................................59
27.6. Waiver of Presentment, Etc.............................................................................59
27.7. Action for Damages.....................................................................................59
27.8. Lease Assumption in Bankruptcy Proceeding..............................................................59
27.9. Enforceability.........................................................................................59
27.10. Memorandum of Lease....................................................................................60
</TABLE>
iii
<PAGE>
Exhibit A - Legal Description
Exhibit B - Work Letter
Schedule 2.1 - Commencement Dates
Schedule 3.1(a) - Base Rents
Schedule 3.1(b) - Suite Revenue Breakpoint
iv
<PAGE>
MASTER HOTEL LEASE AGREEMENT
THIS MASTER HOTEL LEASE AGREEMENT (hereinafter called "Lease"), made as
of the 20th day of September, 1999, by and between Apple Suites, Inc., a
Virginia corporation (hereinafter called "Lessor"), and Apple Suites Management,
Inc., a Virginia corporation (hereinafter called "Lessee"), provides as follows:
AGREEMENT:
Lessor, for and 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
LEASED PROPERTY; OTHER DEFINITIONS
1.1. Leased Property. The Leased Property shall mean and is comprised
of Lessor's interest in the following:
(a) 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 offsite), 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,
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
1
<PAGE>
(f) all existing leases of space within 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 AND OTHER MATTERS WHICH WOULD BE
DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY
THEREOF.
1.2. Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article 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
generally accepted accounting principles as are at the time applicable, (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 Charges: As defined in Section 3.3.
Affiliate: As used in this Lease 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 (10%) or more of
the outstanding capital stock, shares or equity interests of such Person, or (c)
any officer, director, employee, partner, manager or trustee of such Person or
any Person controlling, controlled by or under common control with such Person
or any Person that owns, beneficially, directly or indirectly, ten percent (10%)
or more of the outstanding capital stock, shares or equity interests of 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.
Annual Budget: As used in this Lease, the term "Annual Budget"
shall mean an operating and capital budget prepared by Lessee and delivered to
Lessor in accordance with Section 4.1.
Award: As defined in Subsection 15.1(a).
2
<PAGE>
Base Rate: The rate of interest announced publicly by
Citibank, N.A., in New York, New York, from time to time, as such bank's base
rate. If no such rate is announced or if such rate becomes discontinued, then
such other rate as Lessor may reasonably designate.
Base Rent: As defined in Subsection 3.1(a).
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which national banks in the City of New York, New
York, or in the municipality wherein the Leased Property is located are closed.
CERCLA: The Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
Change of Control: The sale, conveyance, assignment,
encumbering, pledging, hypothecation, granting a security interest in, granting
of options with respect to, or other disposition of (directly or indirectly,
voluntarily or involuntarily, by operation of law or otherwise, and whether or
not for consideration) of any class stock or other equity interests in a Person
(other than among existing holders of interests in such Person on the
Commencement Date and/or family members of such holders and/or trusts for the
benefit of any of the foregoing) that, upon a transfer of any portion thereof,
will create in the transferee thereof, directly or indirectly, a majority of any
class of stock or other equity interests of such Person.
Claims: As defined in Section 12.2.
COBRA: As defined in Subsection 8.2(b).
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Section 2.1.
Competitive Set: As defined in the STR Reports. Lessor and
Lessee shall work in good faith to determine any additions and deletions to the
Hotel's Competitive Set, on or before November 15th of each year, with such
changes to be applicable for the following Fiscal Year. In the event Lessor and
Lessee cannot agree to the Hotel's Competitive Set by November 15th of any year,
such unagreed items shall be determined by Smith Travel Research (or, if it
refuses or is unable to do so, by arbitration pursuant to Section 25.2). The
costs of resetting the Hotel's Competitive Set shall be borne equally by the
parties.
Comparison Month: As defined in Subsection 3.1(d).
Condemnation, Condemnor: As defined in Section 15.1
Consolidated Financials: For any fiscal year or other
accounting period for Lessee and its consolidated subsidiaries, if any,
statements of earnings and retained earnings and of changes in financial
position for such period and for the period from the beginning of the respective
fiscal year to the end of such period and the related balance sheet as at the
end of such period,
3
<PAGE>
together with the notes thereto, all in reasonable detail and setting forth in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year, and prepared in accordance with generally accepted
accounting principles and audited by independent certified public accountants
acceptable to Lessor in its sole discretion.
Consumer Price Index: The "U.S. City Average, All Items"
Consumer Price Index for All Urban Consumers published by the Bureau of Labor
Statistics of the United States Department of Labor (Base: 1982-1984=100), or
any successor index thereto. If the Consumer Price Index is hereafter converted
to a different standard reference base or otherwise revised, any determination
hereunder that uses the Consumer Price Index shall be made with the use of such
conversion factor, formula or table for converting the Consumer Price Index as
may be published by the Bureau of Labor Statistics, or, if the Bureau shall no
longer publish the same, then with the use of such conversion factor, formula or
table as may be published by Prentice Hall, Inc., or, failing such publication,
by any other nationally recognized publisher of similar statistical information.
Date of Taking: As defined in Subsection 15.1(d).
Encumbrance: As defined in Section 22.1.
Environmental Audit: As defined in Subsection 8.3(b).
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 obligations to pay the
amount of any judgment or settlement, the cost of complying with any 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
4
<PAGE>
against or imposed upon Lessor, Lessee, any Predecessor, the Leased Property or
any property used therein and arising out of:
(a) Failure of Lessee, Lessor, any Predecessor or the Leased
Property to comply at any time with all Environmental Laws;
(b) Presence of any Hazardous Materials on, in, under, at or
in any way affecting the Leased Property;
(c) A Release at any time of any Hazardous Materials on, in,
at, under or in any way affecting the Leased Property;
(d) Identification of Lessee, Lessor or any Predecessor as a
potentially responsible party under CERCLA or under any Environmental Law
similar to CERCLA;
(e) 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.
Fair Market Rental: The fair market rental of the Leased
Property means the rental which a willing tenant not compelled to rent would pay
a willing landlord not compelled to lease for the use and occupancy of such
Leased Property pursuant to the Lease for the term in question, (a) assuming
that Lessee is not in default thereunder and (b) determined in accordance with
the appraisal procedures set forth in Article 24 or in such other manner as
shall be mutually acceptable to Lessor and Lessee.
Fair Market Value: The fair market value of the Leased
Property means an amount equal to the price that a willing buyer not compelled
to buy would pay a willing seller not compelled to sell for such Leased
Property, (a) assuming the same is unencumbered by this Lease, (b) determined in
accordance with the appraisal procedures set forth in Article 24 or in such
other manner as shall be mutually acceptable to Lessor and Lessee, (c) assuming
that such seller must pay customary closing costs and title premiums, and (d)
taking into account the positive or negative effect on the value of the Leased
Property attributable to the interest rate, amortization schedule, maturity
date, prepayment penalty and other terms and conditions of any encumbrance that
is assumed by the transferee. In addition, in determining the Fair Market Value
with respect to damaged or destroyed Leased Property such value shall be
determined as if such Leased Property had not been so damaged or destroyed.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide
Act, as amended.
5
<PAGE>
Fiscal Year: The twelve (12) month period from January 1 to
December 31, or any shorter period at the beginning or end of the Term.
Fixtures: As defined in Section 1.1.
Force Majeure: An Unavoidable Occurrence, generally affecting
travel and/or the hotel or lodging business in the market and/or submarket in
which the Hotel is located.
Franchise Agreement: Any franchise agreement or license
agreement with a franchisor (such as Promus Hotels, Inc.) under which the Hotel
is operated.
Furniture and Equipment: For purposes of this Lease, 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 Hotel, together with all replacements therefor and
additions thereto, including, without limitation, (i) all equipment and systems
required for the operation of kitchens and bars, laundry and dry cleaning
facilities, (ii) office equipment, (iii) material handling equipment, cleaning
and engineering equipment, (iv) telephone and computerized accounting systems,
and (v) vehicles.
Government: The United States of America, any state, district
or territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any agency or political
subdivision of any of the foregoing.
Gross Operating Expenses: The term "Gross Operating Expenses"
shall include (i) all costs and expenses of operating the Hotel included within
the meaning of the term "Total Costs and Expenses" contained in the Uniform
System and, (ii) without duplication, the following: all salaries and employee
expense and payroll taxes (including salaries, wages, bonuses and other
compensation of all employees of the Hotel, and benefits including life, medical
and disability insurance and retirement benefits), expenditures described in
Section 9.1, operational supplies, utilities, insurance to be provided by Lessee
under the terms of this Lease, governmental fees and assessments, common area
maintenance costs and other common area fees and assessments, food, beverages,
laundry service expense, the cost of Inventories, license fees, advertising,
marketing, reservation systems and any and all other operating expenses as are
reasonably necessary for the proper and efficient operation of the Hotel and the
Leased Property incurred by Lessee in accordance with the provisions hereof
(excluding, however, (i) federal, state and municipal excise, sales and use
taxes collected directly from patrons and guests or as a part of the sales price
of any goods, services or displays, such as gross receipts, admissions, cabaret
or similar or equivalent taxes paid over to federal, state or municipal
governments, (ii) the cost of insurance to be provided under Article 13, (iii)
expenditures by Lessor pursuant to Article 13 and (iv) payments on any Mortgage
or other mortgage or security instrument on the Hotel); all determined in
accordance with generally accepted accounting principles. No part of Lessee's
central office overhead or general or administrative expense (as opposed to that
of the Hotel) shall be deemed to be a part of Gross Operating Expenses, as
herein provided. Reasonable out-of-pocket expenses of Lessee incurred for the
account of or in connection with the Hotel operations, including but not limited
to postage, telephone charges and reasonable travel expenses of employees,
officers and other representatives and consultants of Lessee and its Affiliates,
shall be deemed to be a part of Gross Operating
6
<PAGE>
Expenses and such Persons shall be afforded reasonable accommodations, food,
beverages, laundry, valet and other such services by and at the Hotel without
charge to such Persons or Lessee.
Gross Operating Profit: For any Fiscal Year, the excess of
Gross Revenues for such Fiscal Year over Gross Operating Expenses for such
Fiscal Year.
Gross Revenues: All revenues, receipts, and income of any kind
derived directly or indirectly by Lessee from or in connection with the Hotel
(including rentals or other payments from tenants, lessees, licensees or
concessionaires but not including their gross receipts) whether on a cash basis
or credit, paid or collected, determined in accordance with generally accepted
accounting principles, excluding, however: (i) funds furnished by Lessor, (ii)
federal, state and municipal excise, sales, and use taxes collected directly
from patrons and guests or as a part of the sales price of any goods, services
or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes and paid over to federal, state or municipal governments, (iii)
the amount of all credits, rebates or refunds to customers, guests or patrons,
and all service charges, finance charges, interest and discounts attributable to
charge accounts and credit cards, to the extent the same are paid to Lessee by
its customers, guests or patrons, or to the extent the same are paid for by
Lessee to, or charged to Lessee by, credit card companies, (iv) gratuities or
service charges actually paid to employees, (v) proceeds of insurance and
condemnation, (vi) proceeds from sales other than sales in the ordinary course
of business, (vii) all loan proceeds from financing or refinancings of the Hotel
or interests therein or components thereof, (viii) judgments and awards, except
any portion thereof arising from normal business operations of the Hotel, and
(ix) items constituting "allowances" under the Uniform System.
Hazardous Materials: All chemicals, pollutants, contaminants,
wastes and toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in RCRA or any other
Environmental Law;
(b) Hazardous substances, as defined in CERCLA or any other
Environmental Law;
(c) Toxic substances, as defined in TSCA or any other
Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined in
FIFRA or any other Environmental Law; and
(e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyl, asbestos and urea formaldehyde.
Hotel: The hotel and/or other facility offering lodging and
other services or amenities being operated or proposed to be operated on the
Leased Property.
Hotel Market Decline: A period of six (6) consecutive calendar
months during which there is (i) a twenty percent (20%) decline in average hotel
occupancy for the Hotel from the average hotel occupancy levels for same period
during the prior calendar year and (ii) a twenty
7
<PAGE>
percent (20%) decline in average hotel occupancy for the Hotel's Competitive Set
from the average hotel occupancy levels for the same period during the prior
calendar year, as published in the applicable STR Reports.
Impositions: Collectively, all taxes (including, without
limitation, all ad valorem, sales and use, single business, gross receipts,
transaction, privilege, rent or similar taxes as the same relate to or are
imposed upon Lessee or its business conducted upon the Leased Property),
assessments (including, without limitation, 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 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, or (4) any single business, gross receipts
(other than a tax on any rent received by Lessor from Lessee), transaction,
privilege or similar taxes as the same relate to or are imposed upon Lessor,
except to the extent that any tax, assessment, tax levy or charge that Lessee is
obligated to pay pursuant to the first sentence of this definition and that is
in effect at any time during the Term hereof is totally or partially repealed,
and a tax, assessment, tax levy or charge set forth in clause (1) or (2) is
levied, assessed or imposed expressly in lieu 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 Sections 8.3 or 18.1.
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 without limitation
linens, china, silver, glassware and other non-depreciable personal property,
and including any property of the type described in Section 1221(1) of the Code.
Land: As defined in Section 1.1.
8
<PAGE>
Lease: This Lease.
Leased Improvements; Leased Property: Each as defined in
Section 1.1.
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 or alteration thereof (whether by Lessee or
otherwise), whether now in force or 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 and regulations relating
thereto and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.
Lending Institution: Any insurance company, credit company,
federally-insured commercial or savings bank, national banking association,
savings and loan association, employees welfare, pension or retirement fund or
system, corporate profit sharing or pension trust, college or university, or
real estate investment trust, including any corporation qualified to be treated
for federal tax purposes as a real estate investment trust, such trust having a
net worth of at least $10,000,000.
Lessee: The Lessee designated on this Lease and its respective
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 (including a
stockholder's or member's interest) in Lessee, the officers, directors,
stockholders, members, managers, employees, agents and representatives of
Lessee, and the respective heirs, personal representatives, successors and
assigns of any such officer, director, stockholder, member, manager, employee,
agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
Lessee's Work: As defined in Section 10.4.
Lessor: The Lessor designated In this Lease and its respective
successors and assigns.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any
other Person against whom any claim for indemnification may be asserted
hereunder as a result of a direct or indirect ownership interest (including a
stockholder's or partnership interest) in Lessor, the officers, directors,
stockholders, members, managers, employees, agents and representatives of the
general partner of Lessor and any partner, agent, or representative of Lessor,
and the respective heirs,
9
<PAGE>
personal representatives, successors and assigns of any such officer, director,
stockholder, partner, member, manager, employee, agent or representative.
Licenses: As defined in Subsection 2.3(a).
Management Agreement: The agreement pursuant to which Manager
operates the Hotel.
Manager: Promus Hotels, Inc., a Delaware corporation, or any
successor manager that is retained by Lessee to operate the Hotel pursuant to
this Lease and the Franchise Agreement.
Minimum Price: The sum of (a) the equity in the Leased
Property at the time of acquisition of the Leased Property by Lessor, plus (b)
other capital expenditures on the Leased Property by Lessor after the date
hereof (less depreciation and amortization thereof) plus (c) the unpaid
principal balance of all encumbrances against the Leased Property at the time of
purchase of the Leased Property by Lessee, less (x) all proceeds received by
Lessor from any financing or refinancing of the Leased Property after the date
hereof (after payment of any debt refinanced and net of any costs and expenses
incurred in connection with such financing or refinancing, including, without
limitation, loan points, commitment fees and commissions and legal fees) and (y)
the net amount (after deduction of all reasonable legal fees and other costs and
expenses, including without limitation expert witness fees, incurred by Lessor
in connection with obtaining any such proceeds or award) of all insurance
proceeds received by Lessor and awards received by Lessor from any partial
Taking of the Leased Property that are not applied to restoration.
Mortgage: As defined in Section 22.2.
National Economic Decline: A period of six (6) consecutive
calendar months during which there occurs or continues a ten percent (10%)
decline in average hotel occupancy, from average hotel occupancy levels for the
same period during the prior calendar year, for all open and operating hotels in
the United States as determined from the applicable STR Reports or, if the STR
Reports are not longer published, other reputable national economic data
regarding the hospitality industry.
Notice: As defined in Article 26.
Officer's Certificate: A certificate of Lessee reasonably
acceptable to Lessor, signed by the chief financial officer or another officer
authorized so to sign by the board of directors or other governing body of
Lessee, or bylaws or limited liability company agreement of Lessee, or any other
Person whose power and authority to act has been authorized by delegation in
writing by any such officer.
Optional Termination Date: As defined in Section 2.2.
Overdue Rate: On any date, a rate equal to the Base Rate plus
five percent (5%) per annum, but in no event greater than the maximum rate then
permitted under applicable law.
10
<PAGE>
Payment Date: Any due date for the payment of any installment
of Base Rent.
Percentage Rent: As defined in Subsection 3.1(b).
Person: Any Government, natural person, corporation, general
or limited partnership, limited liability company, stock company or association,
joint venture, association, company, trust, bank, trust company, land trust,
business trust, or other entity.
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 than Inventory and other personal property owned by Lessee), together
with all replacement, 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,
either contractually or by operation of law, relating to the Leased Property.
Primary Intended Use: As defined in Subsection 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.
Quarterly Revenues Computation: As defined in Subsection
3.1(b).
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.
Regional Market Decline: A period of six (6) consecutive
calendar months during which there is a twenty percent (20%) decline in average
hotel occupancy from hotel occupancy levels for the same period during the then
prior calendar year, for all open and operating hotels in the Smith Travel
Research Region in which the Hotel is located, as determined from applicable STR
Reports or, if the STR Reports are no longer published, other reputable regional
economic data regarding the hospitality industry.
Rejectable Offer Price: An amount equal to the greater of (a)
the Fair Market Value, determined as of the applicable purchase date, or (b) the
Minimum Price.
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.
11
<PAGE>
Rent: Collectively, the Base Rent, Percentage Rent, and
Additional Charges.
Repositioning: As defined in Section 3.6.
SARA: The Superfund Amendments and Reauthorization Act of
1986, as amended.
Solvent: As to any Person, (a) the sum of the assets of such
Person exceeds its liabilities and (b) such Person has sufficient capital with
which to conduct its business as presently conducted and as proposed to be
conducted.
State: The state or commonwealth in which the Hotel is
located.
STR Reports: Reports compiled by Smith Travel Research, or its
successor, which contain historical supply and demand, occupancy, and average
rate information for the Hotel and hotels with which it competes (or, in the
event that Smith Travel Research discontinues providing such information,
reports of similar nature compiled by an authority recognized nationally in the
hospitality industry).
Subsidiaries: Persons in which Lessee owns, directly or
indirectly, more than fifty percent (50%) of the voting stock or control, as
applicable.
Suite Revenue Breakpoint: As defined in Subsection 3.1(b).
Suite Revenues: All revenues, receipts, and income of any kind
derived directly or indirectly by Lessee from or in connection with the rental
of guest rooms or suites, whether to individuals, groups or transients, at the
Hotel, whether on a cash basis or credit, paid or collected, determined in
accordance with generally accepted accounting principles, but excluding the
following:
(a) The amount of all credits, rebates or refunds to
customers, guests or patrons, and all service charges, finance charges, interest
and discounts attributable to charge accounts and credit cards, to the extent
the same are paid to Lessee by its customers, guests or patrons, or to the
extent the same are paid for by Lessee to, or charged to Lessee by, credit card
companies;
(b) All sales taxes or any other taxes imposed on the rental
of such guest rooms or suites;
(c) Gratuities or service charges actually paid to employees;
(d) Proceeds of business interruption and other insurance; and
(e) Sundry Revenues.
12
<PAGE>
Sundry Revenues: All revenues, receipts, and income derived
from the Hotel's meeting rooms, telephones, TV and movie rentals, check room,
washroom, laundry, valet, vending machines, and other sources not specified
herein as Suite Revenues.
Taking: A 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 2.1.
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delays: Delays 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 or other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto unless such lack of funds is caused by the
failure of the other party hereto to perform any obligations of such party under
this Lease or any guaranty of this Lease.
Unavoidable Occurrence. The occurrence of strikes, lockouts,
labor unrest, gasoline and other energy shortages, widespread disruption of air,
auto or other travel, inability to procure materials or services, power or other
utility failure, acts of God (such as hurricanes, tornadoes, earthquakes, floods
and mud slides), governmental restrictions, war or other enemy or terrorist
action, civil commotion, fire, casualty, condemnation, the Year 2000 Problem or
other similar causes, in each case, if such cause is beyond the reasonable
control of Lessee; provided that (i) 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 failure of the other party hereto to perform any obligations of
such party under this Lease or any guaranty of this Lease, and (ii) any such
occurrence is an extraordinary, as opposed to a routine or cyclical, material
event that was not reasonably foreseeable when the then-applicable Annual Budget
was prepared.
Uneconomic for its Primary Intended Use: A state or condition
of the Hotel such that, in the good faith judgment of Lessee, reasonably
exercised and evidenced by the resolution of the board of directors or other
governing body of Lessee, the Hotel cannot be operated on a commercially
practicable basis for its Primary Intended Use, taking into account, among other
relevant factors, the number of usable rooms and projected revenues, such that
Lessee intends to, and shall, complete the cessation of operations from the
Leased Hotel.
Uniform System: The Uniform System of Accounts for Hotels (9th
Revised Edition, 1996) as published by the Hotel Association of New York City,
Inc., with such later revisions as may be agreed to by both Lessor and Lessee.
Unsuitable for its Primary Intended Use: A state or condition
of the Hotel such that, in the good faith judgment of Lessee, reasonably
exercised and evidenced by the resolution of the
13
<PAGE>
board of directors or other governing body of Lessee, due to casualty damage or
loss through Condemnation, the Hotel cannot function as an integrated hotel
facility consistent with standards applicable to a well maintained and operated
hotel.
WARN Act: As defined in Subsection 8.2(b).
Work Letter: As defined in Section 10.4.
Working Capital: Funds reasonably necessary for the day-to-day
operation of the Hotel's business for a thirty (30) day period, including,
without limitation, amounts sufficient for the maintenance of change and petty
cash funds, operating bank accounts, payrolls, accounts payable, accrued current
liabilities, and funds required to maintain Inventories.
Year 2000 Problem: The malfunction of software, hardware or an
embedded technological system due to the failure to properly process any date or
input which includes an indication of or reference to a date, including
specifically but not limited to dates that represent or reference different
centuries or more than one century, if either (i) Lessor had previously refused
to make or approve a capital expenditure reasonably proposed by Lessee to avoid
such Year 2000 Problem, or (ii) such Year 2000 Problem results from a
governmental or other third party failure to be year 2000 compliant and Lessee
has not failed to take reasonable steps to seek assurances that such parties
will be year 2000 compliant.
ARTICLE 2
TERM; TERMINATION
2.1. Term.
(a) The term of the Lease (the "Term") shall commence on the
date specified in Schedule 2.1 (the "Commencement Date"), and shall end on the
tenth (10th) anniversary of the Commencement Date, unless sooner terminated in
accordance with the provisions hereof or extended to an anniversary of the
initial expiration date pursuant to this Article 2.
(b) Lessee is granted the option to extend the Term of this
Lease for a period of five (5) years (the "First Extension"), provided that
Lessee is not in default hereunder either at the time of deemed exercise of the
option or at the end of the original Term, which option must be exercised by
written notice to Lessor at least one hundred twenty (120) days prior to the
expiration of the original Term. The First Extension shall be upon the same
terms, conditions and rentals as set forth herein for the original Term.
(c) Lessee is granted an option to extend the Term for a
period of five (5) years following the end of the First Extension (the "Second
Extension"), provided that Lessee is not in default hereunder either at the time
of exercise of the option or at the end of the First Extension, which option
must be exercised by written notice to Lessor at least one hundred twenty (120)
days prior to the expiration of the First Extension. If such option is
exercised, Lessor and Lessee shall negotiate in good faith modifications to the
Rent for the Second Extension to adjust such Rent to
14
<PAGE>
market rates for arms-length hotel REIT leases between unrelated parties for
similar hotel properties at that time. In the event Lessor and Lessee are unable
to agree upon Rent terms for the Second Extension at least ninety (90) days
prior to the expiration of the Term, the Rent terms for the Second Extension
shall be determined by a panel of three (3) persons who have generally
recognized expertise in evaluating hotel REIT leases and who are not Affiliates
of Lessor or Lessee. Lessee and the Lessor each shall have the right to
designate one panel member and the two (2) panel members so designated will
designate the third panel member. Rent terms approved by at least two (2) of the
three (3) panel members will be binding on Lessee and Lessor for the Second
Extension, which shall be otherwise on the terms set forth herein. In
determining the market rates for the Second Extension, the panel members shall
be instructed to consider hotel REIT lease terms with respect to similar hotel
property types. The Second Extension shall be otherwise upon the same terms and
conditions as set forth herein for the original Term.
2.2. Lessor's Option to Terminate Lease. In the event Lessor enters
into a bona fide contract to sell the Leased Property to a non-Affiliate, there
is a Change of Control of Lessor, or the provisions of the Code are amended to
permit Lessor to operate hotels or otherwise render the structure embodied by
this Lease to be obsolete, Lessor may terminate the Lease by giving not less
than thirty (30) days' prior Notice to Lessee of Lessor's election to terminate
the Lease effective upon, as appropriate, the closing under such contract, the
date of such Change of Control, or the effective date of such amendment to the
Code (or any other specified date within 30 days after such date) (the "Optional
Termination Date"). Effective upon the Optional Termination 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. As compensation for the early termination of its leasehold estate
under this Section 2.2, Lessor shall within 12 months of the Optional
Termination Date either (a) pay to Lessee the fair market value of Lessee's
leasehold estate hereunder plus interest thereon at the Base Rate as of the
Optional Termination Date or (b) offer to lease to Lessee one or more substitute
hotel facilities pursuant to one or more leases that would create for Lessee
leasehold estates that have an aggregate fair market value of no less than the
fair market value of the original leasehold estate, both such values as
determined as of the Optional Termination Date. Lessor also shall pay to Lessee,
or reimburse Lessee for any assignment fees, termination fees or other
liabilities arising under the Franchise Agreement or Management Agreement solely
as a result of the assignment or termination of such Franchise Agreement or
Management Agreement in connection with the termination of this Lease under this
Section 2.2. If Lessor elects and complies with the option described in (b)
above, regardless of whether Lessee enters into the lease(s) described therein,
Lessor shall have no further obligations to Lessee with respect to compensation
for the early termination of this Lease. 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 24.
For the purposes of this Article, 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, taking into account that the leasehold estate is encumbered by the
Franchise Agreement and an arm's-length Management Agreement.
15
<PAGE>
2.3. Transition Procedures. Upon the expiration or termination of the
Term of this Lease, for whatever reason (other than a purchase of the Leased
Property by Lessee), Lessor and Lessee shall do the following (and the
provisions of this Section 2.3 shall survive the expiration or termination of
this Lease until they have been fully performed) and, in general, shall
cooperate in good faith to effect an orderly transition of the management and/or
lease of the Hotel:
(a) Transfer of Licenses. Lessee shall use reasonable 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 Hotel (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; 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.
(b) Leases and Concessions. Lessee shall assign to Lessor or
Lessor's nominee simultaneously with the termination of this Lease, and the
assignee shall assume, all leases and concession agreements in effect with
respect to the Hotel then in Lessee's name.
(c) Books and Records. All books and records for the Hotel
kept by Lessee pursuant to Section 4.2 shall be delivered promptly to Lessor or
Lessor's nominee, simultaneously with the termination of this Lease, but such
books and records shall thereafter be available to Lessee at all reasonable
times for inspection, audit, examination, and transcription for a period of one
(1) year and Lessee may retain (on a confidential basis) copies or computer
records thereof.
(d) Receivables and Payables. 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 Gross Operating Expenses and
all other obligations of Lessee accrued under this Lease as of the termination
date, and Lessor or Lessor's nominee shall be responsible for all Gross
Operating Expenses of the Hotel accruing after the termination date.
(e) 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, along with a statement of any sums due from Lessee to Lessor
pursuant hereto and payment of such funds.
(f) 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 or its designee shall acquire such Inventory from
Lessee for a sale price equal to the fair market value of such Inventory.
(g) Surrender. 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
16
<PAGE>
to the obligation of Lessee to maintain the Leased Property in good order and
repair, as would a prudent owner, during the entire Term of the Lease), or
damage by casualty or Condemnation (subject to the obligations of Lessee to
restore or repair as set forth in the Lease)
The provisions of this Section 2.3 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.
2.4. 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 150% of the aggregate of (a) one-twelfth of the
aggregate Base Rent and Percentage Rent payable with respect to the last Fiscal
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 3
RENT; RENT ADJUSTMENTS
3.1. Rent. Lessee will pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, in immediately available funds, at Lessor's address set forth in
Article 26 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:
(a) Base Rent: The annual sum specified in Schedule 3.1(a)
(prorated for fiscal year 1999), as adjusted pursuant to Subsection 3.1(d)
hereof, payable in advance in equal, consecutive monthly installments, on or
before the tenth day of each calendar month of the Term ("Base Rent"); provided,
however, that the first monthly payment of Base Rent shall be payable during the
second calendar month of the Term, and that the first and last monthly payments
of Base Rent shall be pro rated as to any partial month (subject to adjustment
as provided in Sections 14.5, 15.3 and 15.5).
(b) Percentage Rent: For each calendar quarter during the Term
commencing with the calendar quarter in which the Commencement Date falls and
ending with the calendar quarter in which the Term (including any applicable
extensions) ends, Lessee shall pay percentage rent ("Percentage Rent").
Percentage Rent for the applicable quarter shall be an amount equal to
the following formula:
17
<PAGE>
The amount equal to the applicable Quarterly Revenues
Computation (as defined below) less the sum of
(i) an amount equal to the Base Rent paid
with respect to such quarter and all prior calendar
quarters of the applicable Fiscal Year and
(ii) an amount equal to Percentage Rent paid
with respect to all prior calendar quarters of the
applicable Fiscal Year.
For the purpose of the above formula:
The quarterly revenues computation ("Quarterly Revenues Computation")
is equal to the amount obtained by adding, for the applicable calendar quarter,
an amount equal to the sum of (i) seventeen percent (17%) of all Fiscal Year to
date Suite Revenues up to the applicable suite revenue breakpoint (the "Suite
Revenue Breakpoint") described in Schedule 3.1(b), attached hereto, (prorated
for the first and last calendar quarters of the Term (including any applicable
extensions)) and fifty-five percent (55%) of all Fiscal Year to date Suite
Revenues in excess of the applicable Suite Revenue Breakpoint. At the beginning
of each Fiscal Year, the Suite Revenue Breakpoints shall be adjusted by the same
percentage that the Base Rent is adjusted pursuant to Subsection 3.1(d). No
Percentage Rent shall be payable by Lessee with respect to Sundry Revenues.
The Percentage Rent shall be payable as follows:
(i) with respect to each calendar month of the Term, Lessee shall
pay on or before the last day of the calendar month an amount
equal to the excess, if any, of (A) seventy-five percent (75%)
of the amount of Lessee's budgeted Percentage Rent payable
with respect to the then current calendar month (which
budgeted amount shall be equal to one-third (1/3) of the
quarterly estimate of Percentage Rent included in the Annual
Budget for the calendar quarter in which the calendar month
occurs) over (B) Base Rent for such calendar month; and
(ii) with respect to each calendar quarter of the Term, Lessee
shall pay on or before the 15th day following the end of the
calendar quarter an amount equal to the amount, if any, by
which the aggregate of all payments in respect of Base Rent
and Percentage Rent for such calendar quarter shall be less
than the amount determined pursuant to the Quarterly Revenues
Computation for such calendar quarter.
In no event will the amount of Percentage Rent payable for any calendar quarter
or the result of any Quarterly Revenues Computation be less than zero, and there
shall be no reduction in the Base Rent regardless of the result of any Quarterly
Revenues Computation.
(c) Officer's Certificates. Additionally, an Officer's
Certificate shall be delivered to Lessor quarterly, together with such quarterly
Percentage Rent payment, setting forth the calculation of such rent payment for
such quarter, within thirty (30) days after each of the first three quarters of
each Fiscal Year (or part thereof) in the Term. Such quarterly payments shall be
18
<PAGE>
based on the formula set forth in Subsection 3.1(b). There shall be no reduction
in the Base Rent regardless of the result of the Quarterly Revenues
Computations.
In addition, on or before March 1 of each year, commencing with March
1, 2000, Lessee shall deliver to Lessor an Officer's Certificate reasonably
acceptable to Lessor setting forth the computation of the actual Percentage Rent
that accrued for each quarter of the Fiscal Year that ended on the immediately
preceding December 31 and shall pay to Lessor Percentage Rent, if due and
payable, for the last quarter of the applicable Fiscal Year. Additionally, if
the annual Percentage Rent due and payable for any Fiscal Year (as shown in the
applicable Officer's Certificate) exceeds the amount actually paid as Percentage
Rent by Lessee for such year, Lessee also shall pay such excess to Lessor at the
time such certificate is delivered. If the Percentage Rent actually due and
payable for such Fiscal Year is shown by such certificate to be less than the
amount actually paid as Percentage Rent for the applicable Fiscal Year, Lessor,
at its option, shall reimburse such amount to Lessee or credit such amount
against subsequent months' Base Rent and, to the extent necessary, subsequent
quarters' Percentage Rent payments. Any such credit to Base Rent shall not be
applied for purposes of calculating Percentage Rent payable for any subsequent
quarter.
Any difference between the annual Percentage Rent due and payable for
any Fiscal Year (as shown in the applicable Officer's Certificate or as adjusted
pursuant to Section 3.3) and the total amount of quarterly payments for such
Fiscal Year actually paid by Lessee as Percentage Rent, whether in favor of
Lessor or Lessee, shall bear interest at the Overdue Rate, which interest shall
accrue from the due date of the last quarterly payment for the Fiscal Year until
the amount of such difference shall be paid or otherwise discharged. Any such
interest payable to Lessor shall be deemed to be and shall be payable as
Additional Charges.
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, and Lessee's good faith best estimate of
the amount of any unresolved contractual allowances, shall be made not later
than two (2) years after such expiration or termination date, but Lessee shall
advise Lessor within sixty (60) days after such expiration or termination date
of Lessee's best estimate at that time of the approximate amount of such
adjustments, which estimate shall not be binding on Lessee or have any legal
effect whatsoever.
(d) CPI Adjustments to Base Rent and Percentage Rent. For each
year of the Term beginning on or after January 1, 2001, the Base Rent shall be
adjusted from time to time as follows:
(1) If the most recently published Consumer Price
Index as of the last day of the last month (the "Comparison
Month") of any Fiscal Year is different than the average
Consumer Price Index for the twelve (12) month period prior
thereto, the Base Rent for the next Fiscal Year shall be
adjusted by the percentage change in the Consumer Price Index
calculated as follows:
19
<PAGE>
(A) The difference between the Consumer Price Index
for the most recent Comparison Month and the average Consumer
Price Index for the twelve (12) month period prior thereto
shall be divided by the average Consumer Price Index for the
twenty four (24) month period prior thereto.
(B) The Base Rent shall be multiplied by the lesser
of (i) seven percent (7%) or (ii) the quotient obtained in
subparagraph (d)(1)(A) above.
(C) The product obtained in subparagraph (d)(1)(B)
above shall be added to the Base Rent.
Adjustments in the Base Rent shall be effective on the first day of the
first calendar month of the Fiscal Year to which such adjusted Base Rent
applies. The Suite Revenue Breakpoint then included in the Quarterly Revenues
Computation pursuant to Subsection 3.1(b) shall be similarly adjusted, effective
with any such adjustment in the Base Rent.
(2) If (i) a significant change is made in the number or
nature (or both) of items used in determining the Consumer
Price Index, or (ii) the Consumer Price Index shall be
discontinued for any reason, the Bureau of Labor Statistics
shall be requested to furnish a new index comparable to the
Consumer Price Index, together with information which will
make possible a conversion to the new index in computing the
adjusted Base Rent hereunder. If for any reason the Bureau of
Labor Statistics does not furnish such an index and such
information, the parties will instead mutually select, accept
and use such other index or comparable statistics on the cost
of living in Washington, D.C. that is computed and published
by an agency of the United States or a responsible financial
periodical of recognized authority.
(e) Manager Fund-up Cure Payments. If and to the extent that
Manager pays amounts to Lessee pursuant to the Management Agreement in order to
avoid termination of the Management Agreement by Lessee for Manager's failure to
meet certain performance hurdles described therein, such amounts shall be
treated as additional Suite Revenues for purposes of the Percentage Rent
calculation hereunder.
(f) Allocation of Rent. The parties hereto acknowledge and
agree that the Base Rent paid or payable by Lessee to Lessor hereunder shall, to
the extent relevant, be allocated between the personal property and real
property constituting Leased Property hereunder in direct proportion to the then
recognizable fair market value of such personal property and real property.
Percentage Rent in excess of Base Rent shall be allocated solely to real
property.
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 generally accepted
accounting principles, that will accurately record all data necessary to compute
Percentage Rent, and Lessee shall retain, for at least four (4) years after the
expiration of each Fiscal Year (and in any event until the reconciliation
described in Subsection 3.1(c) for such Fiscal Year has been made), reasonably
adequate records conforming to such accounting system showing all data necessary
to compute Percentage Rent for the applicable Fiscal
20
<PAGE>
Years. Lessor, at its expense (except as provided hereinbelow), shall have the
right from time to time, upon prior written notice to Lessee and Manager, by its
accountants or representatives to audit the information that formed the basis
for the data set forth in any Officer's Certificate provided under Subsection
3.1(c) and, in connection with such audits, to examine all Lessee's records
(including supporting data and sales and excise tax returns) reasonably required
to verify Percentage Rent, subject to any prohibitions or limitations on
disclosure of any such data under Legal Requirements; provided, however that
Lessor may only inspect or audit records in Manager's possession subject to the
terms of Lessee's access thereto under the Management Agreement. If any such
audit discloses a deficiency in the payment of Percentage Rent, and either
Lessee agrees with the result of such 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; provided, however, that as to any audit that is commenced
more than two (2) years after the date Percentage Rent for any Fiscal Year is
reported by Lessee to Lessor, the deficiency, if any, with respect to such
Percentage Rent shall bear interest at the Overdue Rate only from the date such
determination of deficiency is made unless such deficiency is the result of
gross negligence or willful misconduct on the part of Lessee, in which case
interest at the Overdue Rate will accrue from the date such payment should have
been made to the date of payment thereof. If any such audit discloses that the
Percentage Rent actually due from Lessee for any Fiscal Year exceed those
reported by Lessee by more than three percent (3%), Lessee shall pay the cost of
such audit and examination. 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 between the parties and except further that Lessor
may disclose such information to prospective lenders. The obligations of Lessee
contained in this Section shall survive the expiration or earlier termination of
this Lease.
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
Charges"), 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 on demand, as
Additional Charges, a late charge (to the extent permitted by law) computed at
the Overdue Rate on the amount of such installment, from the due date of such
installment to the date of payment thereof. To the extent that 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 same from monies
received from Lessee.
21
<PAGE>
3.4. Net Lease; No Termination, Abatement, Etc.
(a) The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Base
Rent, Percentage Rent and Additional Charges throughout the Term, all as more
fully set forth in Article 5, but subject to any other provisions of this Lease
that expressly provide for adjustment or abatement of Rent or other charges or
expressly provide that certain expenses or maintenance shall be paid or
performed by Lessor.
(b) Except as otherwise specifically provided in this Lease,
and except for loss of the Franchise Agreement solely by reason of any action or
inaction by Lessor, 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 (which shall not be unreasonably withheld
or delayed) 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) the lawful or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, or any portion thereof, or the interference
with such use by any Person other than Lessor, (c) any claim which Lessee has or
might have against Lessor by reason of any default or breach of any warranty by
Lessor under this Lease or any other agreement between Lessor and Lessee, or to
which Lessor and Lessee are parties, (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Lessor or any assignee or transferee of Lessor,
or (e) 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 occurrence
whatsoever, 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 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.
3.5. Material Changes in Economic Climate.
(a) In the event of the occurrence of a Force Majeure or a
Hotel Market Decline, Lessor and Lessee shall, in good faith, negotiate possible
modifications to the Base Rent and Percentage Rent to reduce such Base Rent and
Percentage Rent to recent market rates for hotel REIT leases for similar hotel
properties in the Hotel's Competitive Set, retroactively effective as of the
first calendar month of the Term following the last day of the six-month period
during which such Hotel Market Decline has occurred with the excess of Base Rent
and Percentage Rent actually paid for such period over the reduced Base Rent and
Percentage Rent, plus interest thereon at the Base Rate, to be credited to the
next payments of Rent due and owing hereunder. If Lessor and Lessee are unable
to agree that a Force Majeure or a Hotel Market Decline has occurred, within
22
<PAGE>
thirty (30) days after the date of written certification from Lessee to Lessor
that a Force Majeure and Hotel Market Decline has occurred (accompanied by
reasonably detailed computations and documentation to support such assertion),
the matter may be submitted by either party to arbitration under Section 25.2
hereof for resolution (during which period Lessee shall continue to pay Base
Rent and Percentage Rent as required under Section 3.1 of this Lease). If,
within ninety (90) days (during which period Lessee shall continue to pay Base
Rent and Percentage Rent as required under Section 3.1 of this Lease) following
the date of such written certification from Lessee (or the date of a decision of
an arbitrator if required hereunder to determine that a Force Majeure and Hotel
Market Decline has occurred), Lessor and Lessee are unable to agree upon the
amount of reduction in Base Rent and Percentage Rent contemplated hereby, Lessee
shall have the option to terminate this Lease upon not less than thirty (30)
days prior written notice to Lessor.
(b) In the event of the occurrence of a National Economic
Decline or a Regional Market Decline, Lessor and Lessee shall, in good faith,
negotiate (i) possible modifications to the Base Rent and Percentage Rent to
reduce such Base Rent and Percentage Rent to recent market rates for hotel REIT
leases for similar hotel properties in the Hotel's Competitive Set, and (ii)
possible modifications to the Base and Percentage Rent payable under each of the
Other Leases for Other Hotels in the same Region (as defined in the STR Reports)
as the Hotel to reduce such Base Rent and Percentage Rent to recent market rates
for hotel REIT leases for similar hotel properties in the Hotel's Competitive
Set, in each case retroactively effective as of the first calendar month of the
Term following the last day of the six month period during which such Regional
Market Decline has occurred with the excess of Base Rent and Percentage Rent
actually paid for such period over the reduced Base Rent and Percentage Rent,
plus interest thereon at the Base Rent, to be credited to the next payments of
Rent due and owing hereunder. If, within thirty (30) days after the date of
written certification from Lessee to Lessor that a National Economic Decline and
Regional Market Decline has occurred (accompanied by reasonably detailed
computations and documentation to support such assertion), Lessor and Lessee are
unable to agree that a National Economic Decline or Regional Market Decline has
occurred, the matter may be submitted by either party to arbitration under
Section 25.2 hereof for resolution (during which period Lessee shall continue to
pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease).
If, within ninety (90) days (during which period Lessee shall continue to pay
Base Rent and Percentage Rent as required under Section 3.1 of this Lease)
following the date of such initial written certification from Lessee (or the
date of a decision of an arbitrator if required hereunder to determine that a
National Economic Decline and Regional Market Decline has occurred), Lessor and
Lessee are unable to agree upon the amount of reduction in Base Rent and
Percentage Rent contemplated hereby, Lessee shall have the option, upon not less
than sixty (60) days prior written notice to Lessor, to terminate all (but not
less than all) of the Existing Leases of hotels in the same Region as the Hotel,
including this Lease.
3.6. Rent Adjustment: Basic Assumptions Incorrect. Except to the extent
that doing so would cause Lessor to recognize income other than "rents from real
property" as defined in Section 856(d) of the Code, notwithstanding anything
herein (other than Article 19) to the contrary, if (i) the facts and
circumstances underlying the documented, basic assumptions upon which both
Lessor and Lessee have relied in determining the Base Rent, the Suite Revenue
Breakpoint, and the Percentage Rent payable hereunder become materially
incorrect solely as a result of (A) a decision to re-brand the Hotel that is
made after the Commencement Date, (B) the scope or cost of
23
<PAGE>
substantial renovations or other capital improvements to the Hotel, or (C) the
implementation of any other hotel repositioning strategies (that were not
planned as of the Commencement Date) resulting in significant disruption of the
operations of the Hotel (collectively, a "Repositioning"), and (ii) Lessor and
Lessee so agree in writing, then Lessor and Lessee shall, in good faith,
negotiate modifications to the Base Rent, Suite Revenue Breakpoint and
Percentage Rent to adjust (i.e., increase, decrease or reallocate among revenue
categories) such Base Rent, Suite Revenue Breakpoint and Percentage Rent to
reflect such change in basic assumptions for the affected periods, using the
same methodology and other basic assumptions as were initially utilized in
determining the Base Rent, Suite Revenue Breakpoint and Percentage Rent
hereunder. If Lessor and Lessee are unable to agree, within thirty (30) days
after the date of written certification from either Lessee or Lessor to the
other party that a good faith dispute exists, as to the existence of the
occurrence of a Repositioning or the adjustments to be made to the amounts or
percentages for the Base Rent, Suite Revenue Breakpoint and Percentage Rent
hereunder as a result of any repositioning, the dispute may be submitted by
either party to arbitration under Section 25.2 hereof for resolution (during
which period Lessee shall continue to pay Base Rent and Percentage Rent as
required under Section 3.1 of this Lease); provided, however, that for purposes
of applying the procedures in Section 25.3 to such arbitration, the target
deadline therein for concluding the arbitration shall be shortened from ninety
(90) days to thirty (30) days.
ARTICLE 4
ANNUAL BUDGETS; BOOKS AND RECORDS
4.1. Annual Budget. Not later than thirty (30) days prior to the
commencement of each Fiscal Year, Lessee shall submit the Annual Budget to
Lessor. The Annual Budget shall contain the following, to the extent included in
the operating budgets and capital budgets provided to Lessee by Manager under
the management agreement for the Hotel:
(a) Lessee's reasonable estimate of Gross Revenues (including
room rates and Suite Revenues), Gross Operating Expenses, and Gross Operating
Profits for the forthcoming Fiscal Year itemized on schedules on a quarterly
basis as approved by Lessor and Lessee, as same may be revised or replaced from
time to time by Lessee and approved by Lessor, together with the assumptions, in
narrative form, forming the basis of such schedules.
(b) An estimate of the amounts to be dedicated to the repair,
replacement, or refurbishment of Furniture and Equipment.
(c) An estimate of any amounts Lessor will be required to
provide for required or desirable capital improvements to the Hotel or any of
its components.
(d) A cash flow projection.
(e) A business plan, which shall describe business objectives
and strategies for the forthcoming Fiscal Year, and shall include without
limitation an analysis of the market area in which the Hotel competes, a
comparison of the Hotel and its business with competitive hotels, an
24
<PAGE>
analysis of categories of potential guests, and a description of sales and
marketing activities designed to achieve and implement identified objectives and
strategies.
4.2. Books and Records. Lessee shall keep full and adequate books of
account and other records reflecting the results of operation of the Hotel on an
accrual basis, all in accordance with generally accepted accounting principles
and the obligations of Lessee under this Lease. The books of account and all
other records relating to or reflecting the operation of the Hotel shall be kept
either at the Hotel or at Lessee's offices in Richmond, Virginia or at Manager's
central offices, and shall be available to Lessor and its representatives and
its auditors or accountants, at all reasonable times, upon prior written notice
to Lessee and Manager, for examination, audit, inspection, and transcription;
provided, however that Lessor may only inspect or audit records in Manager's
possession subject to the terms of Lessee's access thereto under the Management
Agreement. All of such books and records pertaining to the Hotel 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
Hotel or Lessee's offices or Manager's central offices (but may be moved among
any of the foregoing) by Lessee without Lessor approval.
ARTICLE 5
IMPOSITIONS; HOTEL COSTS
5.1. Payment of Impositions. Subject to Section 12.2 (relating to
permitted contests), Lessee will pay, or cause to be paid, all Impositions
(other than Real Estate Taxes and Personal Property Taxes, which shall be paid
by Lessor) before any fine, penalty, interest or cost may be added for
non-payment, 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 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 during the Term hereof (subject to
Lessee's right of contest pursuant to the provisions of Section 12.2) as the
same respectively become due and before any fine, penalty, premium, further
interest or cost may be added thereto. 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, Real Estate
Taxes, Personal Property 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. 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 occurred 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. Lessor and Lessee shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may
25
<PAGE>
be necessary to prepare any required returns and reports. Lessee shall file all
Personal Property Tax returns in such jurisdictions where it is legally required
so to file. 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. Where Lessor is legally required to file
Personal Property Tax returns, Lessee shall provide Lessor with copies of
assessment notices in sufficient time for Lessor to file a protest. 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 or personal property
assessments for those Impositions to be paid by Lessor, 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, liabilities and loss against or
incurred by Lessee in connection with such cooperation. Billings for
reimbursement of Personal Property Taxes by Lessee to Lessor shall be
accompanied by copies of a bill therefor and payments thereof which identify the
personal property with respect to which such payments are made. 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 go forward
at Lessor's sole expense. Upon such Notice, Lessee, at Lessor's expense, shall
cooperate fully with such activities.
5.2. 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 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.
5.3. Adjustment of Impositions. Impositions 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.
5.4. 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.
5.5. Insurance Premiums. Lessee will pay or cause to be paid all
premiums for the insurance coverage's required to be maintained by it under
Article 13.
5.6. Franchise Fees. Lessee will maintain in full force and effect, and
pay or cause to be paid all fees and other charges payable pursuant to, any
Franchise Agreement with respect to the Hotel.
5.7. Ground Rent. In the event that Lessor's interest in the Land is
pursuant to a Ground Lease or sublease, Lessor shall be solely responsible for
the payment of any ground rent, building rent or subrent, as the case may be,
due with respect to the Leased Property.
26
<PAGE>
ARTICLE 6
LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY
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. Lessee will acquire and maintain
throughout the Term such Inventory as is required to operate the Leased Property
in the manner contemplated by this Lease. 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. Lessee, at the commencement of the Term,
and from time to time thereafter, shall provide Lessor with an accurate list of
all such items of Lessee's personal property (collectively, the "Lessee's
Personal Property"). Lessee may, subject to the first sentence of this Section
6.2 and the conditions set forth below, remove any of Lessee's Personal Property
set forth on such list at any time during the Term or upon the expiration or any
prior termination of the Term. All of Lessee's Personal Property, other than
Inventory, not removed by Lessee within ten (10) 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 Subsection 2.3(g), including repair
of all damage to the Leased Property caused by the removal of Lessee's Personal
Property, whether effected by Lessee or Lessor. Upon the expiration or earlier
termination of the Term, Lessor or its designee shall have the option to
purchase all Inventory on hand at the Leased Property at the time of such
expiration or termination for a sale price equal to the fair market value of
such Inventory. Lessee may make such financing arrangements, title retention
agreements, leases or other agreements with respect to Lessee's Personal
Property as it sees fit provided that Lessee first advises Lessor of any such
arrangement and such arrangement expressly provides that in the event of
Lessee's default thereunder, Lessor (or its designee) may assume Lessee's
obligations and rights under such arrangement.
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 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. Lessee hereby authorizes Lessor to execute and file
financing statements signed only be a representative of Lessor covering the
security interest of Lessor in Lessee's personal property.
27
<PAGE>
6.4. Lessor's Option to Purchase Assets of Lessee. Effective on not
less than ninety (90) days' prior Notice given at any time within one hundred
eighty (180) days before the expiration of the Term, but not later than ninety
(90) days prior to such expiration, or upon such shorter Notice period as shall
be appropriate if this Lease is terminated prior to its expiration date, Lessor
shall have the option to purchase all (but not less than all) of the assets of
Lessee, tangible and intangible, relating to the Leased Property (other than
this Lease), at the expiration or termination of this Lease for an amount
(payable in cash on the expiration date of this Lease) equal to the fair market
value thereof as appraised in conformity with Article 24, except that the
appraisers need not be members of the American Institute of Real Estate
Appraisers, but rather shall be appraisers having at least ten (10) years'
experience in valuing similar assets. Notwithstanding any such purchase, Lessor
shall obtain no rights to any trade name or logo used in connection with the
Franchise Agreement unless separate agreement as to such use is reached with the
applicable franchisor.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY
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" in its present condition. 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. Provided,
however, to the extent permitted by law, Lessor hereby assigns to Lessee all of
Lessor's rights to proceed against any predecessor in title (other than any
Affiliate of Lessee which conveyed the Property to Lessor) for breaches of
warranties or representations or for latent defects in the Leased Property.
Lessor shall fully cooperate with Lessee in the prosecution of any such claim,
in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against any
claims, obligations and liabilities against or incurred by Lessor in connection
with such cooperation.
7.2. Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due
diligence and will exercise reasonable efforts to obtain and to maintain all
Licenses and other approvals needed to use and operate the Leased Property and
the Hotel under applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property
only as a Homewood Suites-Registered Trademark- all-suite 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
28
<PAGE>
Use"). Lessee shall not use the Leased Property or any portion thereof for any
other use without the prior written consent of Lessor, which consent may be
granted, denied or conditioned in Lessor's sole discretion. No use shall be made
or permitted to be made of the Leased Property, and no acts shall be done, 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 may be prohibited by law or fire underwriter's
regulations. Lessee shall, at its sole cost, comply with all of the requirements
pertaining to the Leased Property of any insurance board, association,
organization or company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Lessee's Personal Property.
(c) Subject to the provisions of Articles 14, 15, 18 and 21,
Lessee covenants and agrees that during the Term it will (1) operate
continuously the Leased Property as a hotel facility, (2) keep in full force and
effect and comply with all the provisions of the Franchise Agreement and the
Management Agreement, (3) not terminate or amend the Franchise Agreement or the
Management Agreement without the consent of Lessor (which shall not be
unreasonably withheld or delayed), (4) maintain appropriate certifications and
Licenses for such use and (5) seek to maximize the Gross Revenues generated
therefrom consistent with sound business practices.
(d) Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Hotel, 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,
except as necessary in the ordinary and prudent operation of the Hotel on the
Leased Property.
7.3. Lessor to Grant Easements, Etc. Lessor will, from time to time, so
long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of Lessor,
which approval shall not be unreasonably withheld or delayed), (a) grant
easements and other rights in the nature of easements with respect to the Leased
Property to third parties, (b) release existing easements or other rights in the
nature of easements which are for the benefit of the Leased Property, (c)
dedicate or transfer unimproved portions of the Leased Property for road,
highway or other public purposes, (d) execute petitions to have the Leased
Property annexed to any municipal corporation or utility district, (e) execute
amendments to any covenants and restrictions affecting the Leased Property and
(f) execute and deliver to any Person any instrument appropriate to confirm or
effect such grants, releases, dedications, transfers, petitions and amendments
(to the extent of its interests in the Leased Property), but only upon delivery
to Lessor of an Officer's Certificate stating that such grant, release,
dedication, transfer, petition or amendment does not interfere with the proper
conduct of the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property.
29
<PAGE>
ARTICLE 8
LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS
8.1. Compliance with Legal and Insurance Requirements, Etc. Subject to
Subsection 8.3(b) below and Section 12.2 (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 (excluding any repair
or restoration of any portion of the Leased Property required to be made by
Lessor pursuant to Subsection 9.1(b) below, which repair shall be made by
Lessor), 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 Subsection 8.3(b) and Subsection 9.1(b) below,
Lessee covenants and agrees that the Leased Property and Lessee's Personal
Property shall not be used for any unlawful purpose, and that Lessee shall not
permit or suffer to exist any unlawful use of the Leased Property by others.
Lessee shall acquire and maintain all appropriate licenses, certifications,
permits and other authorizations and approvals needed 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 sub-tenants, invitees or others within its control
so to comply with all Legal Requirements). Lessee may, however, upon prior
Notice to Lessor, contest the legality or applicability of any such Legal
Requirement or any licensure or certification decision if Lessee maintains such
action in good faith, with due diligence, without prejudice to Lessor's rights
hereunder, and at Lessee's sole expense. If by the terms of any such Legal
Requirement compliance therewith pending the prosecution of any such proceeding
may legally be delayed without the occurrence of any charge or liability of any
kind, or the filing of any lien, against the Hotel or Lessee's leasehold
interest therein and without subjecting Lessee or Lessor to any liability, civil
or criminal, for failure so to comply therewith, Lessee may delay compliance
therewith until the final determination of such proceeding. If any lien, charge
or civil or criminal liability would be incurred by reason of any such delay,
Lessee, on the prior written consent of Lessor, which consent shall not be
unreasonably withheld or delayed, may nonetheless contest as aforesaid and delay
as aforesaid provided that such delay would not subject Lessor to criminal
liability and Lessee both (a) furnishes to Lessor security reasonably
satisfactory to Lessor against any loss or injury by reason of such contest or
delay and (b) prosecutes the contest with due diligence and in good faith.
(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 (the "WARN
Act") or any similar state law applicable to the Leased Property; any required
compliance
30
<PAGE>
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.
(c) 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 Hotel or (ii) the former
owner of the Hotel is holding the liquor license and continuing to exercise
management and supervision of the liquor services at the Hotel pending transfer
of the license to Lessor or Lessee, the Lessee shall indemnify and hold Lessor
harmless from any liability, damages or claims (a) arising in connection with
liquor operations at the Hotel during such period of time following the
Commencement Date, except to the extent caused by Lessor's gross negligence or
willful misconduct or (b) made by or through the former owner with respect to
liquor operations at the Hotel following the Commencement Date.
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 the later of (i) such time as
all liabilities, duties or obligations of Lessee to Lessor under the Lease have
been satisfied in full and (ii) such time as 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. Lessee agrees to give Lessor prompt 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;
(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; and (4) all facts, events or conditions that could reasonably
lead to the occurrence of any of the above-referenced matters.
(b) Lessor hereby agrees to defend, indemnify and save
harmless any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities other than (i) Environmental Liabilities resulting
from conditions disclosed in any environmental audit obtained by Lessor and
provided to Lessee prior to the execution of this Lease (the "Environmental
Audit"),
31
<PAGE>
and (ii) Environmental Liabilities which were caused by the acts or negligent
failures to act of Lessee.
(c) Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities which were (i) resulting from conditions disclosed in
the Environmental Audit, and (ii) caused by the acts or negligent failures to
act of Lessee.
(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 Subsection 8.3(b) or (c), the
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 Indemnified Party and approved by the Indemnifying Party,
which approval shall not be unreasonably withheld or delayed; 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 such counsel has been approved by the
Indemnifying Party, which approval shall not be unreasonably withheld or
delayed. The Indemnifying Party shall not be liable for any settlement of any
such Proceeding made without its consent, which shall not be unreasonably
withheld or delayed, but if settled with the consent of the Indemnifying Party,
or if settled without its consent (if its consent shall be unreasonably withheld
or delayed), 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 and loss
incurred by such Indemnified Parties by reason of such settlement or judgement.
(e) At any time any Indemnified Party has reason to believe
circumstances exist which could reasonably result in an Environmental Liability,
upon reasonable prior Notice to Lessee and Manager 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), Lessee'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 he 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.
(g) The indemnification rights and obligations provided for in
this Article 8 shall survive the termination of this Lease.
32
<PAGE>
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 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.
Notwithstanding anything to the contrary contained in this Lease, if
Lessor shall become entitled to the possession of the Leased Property by virtue
of the termination of the Lease or repossession of the Leased Property, then
Lessor may assign its indemnification rights under this Section 8.3 (but not any
other rights under this Section 8.3) to any Person to whom Lessor subsequently
transfers the Leased Property, subject to the following conditions and
limitations, each of which shall be deemed to be incorporated into the terms of
such assignment, whether or not specifically referred to therein:
(i) The indemnification rights referred to in this
section may be assigned only if a known Environmental
Liability then exists or if a Proceeding is then pending or,
to the knowledge of Lessee or Lessor, then threatened with
respect to the Leased Property;
(ii) Such indemnification rights shall be limited to
Environmental Liabilities relating to or specifically
affecting the Leased Property; and
(iii) Any assignment of such indemnification rights
shall be limited to the immediate transferee of Lessor, and
shall not extend to any such transferee's successors or
assigns.
ARTICLE 9
MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS
9.1. Maintenance and Repairs.
(a) Lessee, at its sole expense, 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, mechanical,
electrical and plumbing systems and equipment (including conduit and ductware),
and non-load bearing interior walls, and parking lot surfaces, in good order and
repair, except (i) 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) and (ii) to the extent of
damage caused by Lessor's gross negligence or willful misconduct or that of its
employees or agents, and, except as otherwise provided in Subsection 9.1(b),
Article 14 or Article 15, with reasonable promptness, make all necessary and
appropriate
33
<PAGE>
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, except as to the structural
elements of the Leased Improvements. 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.
(b) Notwithstanding Lessee's obligations under Subsection
9.1(a) above, except to the extent of damage caused by Lessee's negligence or
willful misconduct or that of its employees or agents, Lessor shall be required
to bear the cost of maintaining any underground utilities and the structural
elements of the Leased Improvements, including exterior walls and the roof of
the Hotel (but excluding windows and plate glass, mechanical, electrical and
plumbing systems and equipment, including conduit and ductware, and non-load
bearing walls, and parking lot surfaces). Except as set forth in the preceding
sentence and in Section 10.5, Lessor shall not under any circumstances be
required to build or rebuild any improvement on the Leased Property, or to make
any repairs, replacements, alterations, restorations or renewals of any nature
or description to the Leased Property, whether ordinary or extraordinary,
foreseen or unforeseen, or to make any expenditure whatsoever with respect
thereto, in connection with this Lease, or to maintain the Leased Property in
any way. Lessee hereby waives, to the extent permitted by law, the right to make
repairs at the expense of Lessor, pursuant to any law in effect at the time of
the execution of this Lease or hereafter enacted, except following default by
Lessor under this Lease, to the extent of repairs (for which Lessor is obligated
hereunder) required to be made in order for the Hotel, and Lessee's use thereof,
to comply with Lessee's obligations under the Franchise Agreement and the
Management Agreement. Lessor shall have the right to give, record and post, as
appropriate, notices of nonresponsibility 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.
9.2. Encroachments, Restrictions, Etc. Lessor represents and warrants
that the Leased Improvements do not materially encroach upon any property,
street or right-of-way adjacent to the Leased Property, or violate the
agreements or conditions contained in any lawful restrictive
34
<PAGE>
covenant or other agreement affecting the Leased Property, or any part thereof,
or impair the rights of others under any easement or right-of-way to which the
Leased Property is subject. Except to the extent that such representation and
warranty is breached by Lessor, if any of the Leased Improvements, at any time
hereafter, materially encroach upon any property, street or right-of-way
adjacent to the Leased Property, or violate the agreements or conditions
contained in any lawful restrictive covenant or other agreement affecting the
Leased Property, or any part thereof, or impair the rights of others under any
easement or right-of-way to which the 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.
ARTICLE 10
ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE
10.1. Alterations. After receiving approval of Lessor, which approval
shall not be unreasonably withheld or delayed, Lessee shall have the right 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 significantly alter the character or purposes
or significantly detract from the value or operating efficiency thereof and will
not significantly impair the revenue-producing capability of the Leased Property
or adversely affect the ability of Lessee to comply with the provisions of this
Lease. 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. Joint Use Agreements. If Lessee constructs additional
improvements that are connected to the Leased Property or share maintenance
facilities, HVAC, electrical, plumbing or other systems, utilities, parking or
other amenities, the parties shall enter into a mutually agreeable
35
<PAGE>
cross-easement or joint use agreement, the form of which has been approved in
advance by Lessor, to make available necessary services and facilities in
connection with such additional improvements, to protect each of their
respective interests in the properties affected, and to provide for separate
ownership, use, and/or financing of such improvements.
10.4. Initial Upgrade of Leased Improvements. Lessee desires to
install, construct and complete the improvements, alterations, upgrades and
refurbishments in the Leased Improvements (collectively, "Lessee's Work")
necessary to qualify the Leased Improvements to operate under the Franchise
Agreement as a "Homewood Suites" hotel. Pursuant to the terms of the Work Letter
(the "Work Letter") attached hereto as Exhibit B, Lessee agrees to perform
Lessee's Work; provided, however, Lessor shall pay the costs actually incurred
by Lessee to perform Lessee's Work, subject to and in accordance with the terms
and conditions of the Work Letter. Lessee shall pay all increased taxes and
insurance on Lessee's Work or attributable thereto.
10.5. Furniture, Fixture and Equipment Allowance. Lessor shall be
obligated to pay Lessee, when and as required to meet the requirements of the
Franchise Agreement and the Management Agreement for a reserve for periodic
repair, replacement or refurbishing of furniture, fixtures and equipment that
constitute Leased Property, an amount equal up to five percent (5%) of Suite
Revenues monthly. Upon written request by Lessee to Lessor stating the specific
use to be made and the reasonable approval thereof by Lessor (or as otherwise
required by the franchisor under the Franchise Agreement or Manager under the
Management Agreement), such reserve funds (and additional funds of Lessor, if
necessary) shall be made available by Lessor for use by Lessee for replacement
or refurbishing of furniture, fixtures and equipment that constitute Leased
Property in connection with the Primary Intended Use; provided, however, that no
amounts made available under this Article shall be used 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 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.
ARTICLE 11
COMPLIANCE WITH FRANCHISE
11.1. Compliance with Franchise Agreement and Management Agreement. To
the extent any of the provisions of the Franchise Agreement or Management
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 and the Management Agreement. It is the
intent of the parties hereto that Lessee shall comply in every respect with the
provisions of the Franchise Agreement and the Management Agreement so as to
avoid any material default thereunder during the term of this Lease. Lessee
shall not terminate, extend or enter into any material modification of the
Franchise Agreement or the Management Agreement without in each instance first
obtaining Lessor's prior written consent, which shall not be unreasonably
withheld. Lessor and Lessee agree
36
<PAGE>
to cooperate with each other in the event it becomes necessary to obtain a
franchise extension or modification (or, at Lessor's option, a new franchise)
for the Leased Property, and in any transfer of the Franchise Agreement or
Management Agreement to Lessor or any designee of Lessor or any successor to
Lessee upon the termination of this Lease. In the event of expiration or
termination of a Franchise Agreement or Management Agreement, for whatever
reason, Lessor will have the right, in the exercise of its sole discretion, to
approve any new Franchise Agreement or Management Agreement for the Hotel.
ARTICLE 12
PERMITTED LIENS AND CONTESTS
12.1. Liens. Subject to the provisions of Section 12.2 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 or any
attachment, levy, claim or encumbrance in respect of the Rent, not including,
however, (a) this Lease, (b) the matters included as exceptions 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 or any
easements granted pursuant to the provisions of Section 7.3 of this Lease, (d)
liens for those taxes upon Lessor or the Leased Property which Lessee is not
required to pay hereunder, (e) subleases permitted by Article 20 hereof, (f)
liens for Impositions or for sums resulting from noncompliance with Legal
Requirements so long as (1) the same are not yet payable or are payable without
the addition of any fine or penalty or (2) such liens are in the process of
being contested as permitted by Section 12.2, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due
provided that (1) the payment of such sums shall not be postponed under any
related contract for more than sixty (60) days after the completion of the
action giving rise to such lien and such reserve or other appropriate provisions
as shall be required by law or generally accepted accounting principles shall
have been made therefor or (2) any such liens are in the process of being
contested as permitted by Section 12.2 hereof, and (h) any liens which are the
responsibility of Lessor pursuant to the provisions of Article 22 of this Lease.
12.2. 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 Insurance Requirement or any lien, attachment, levy, encumbrance,
charge or claim ("Claims") not otherwise permitted by Section 12.1, 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 Section 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 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
37
<PAGE>
sufficient to pay the same, together with interest and penalties 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 (5) days of the same. Lessor agrees to join in any such
proceedings if the same be required legally to prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability or loss 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 liabilities, losses, 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 Section and diligently to prosecute any contest of the same, Lessor may,
upon ten (10) days' advance Notice to Lessee, and Lessee's failure to correct
the same within such ten (10) day period, pay such charges together with any
interest and penalties and the same shall be repayable by Lessee to Lessor as
Additional 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 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
INSURANCE REQUIREMENTS
13.1. General Insurance Requirements. During the Term of this Lease,
Lessor and Lessee shall at all times keep the Leased Property insured with the
kinds and amounts of insurance described below, or such other insurance
coverage(s) as may be required by the Franchise Agreement. This insurance shall
be written by companies authorized to issue insurance in the State. The policies
must name Lessor and/or Lessee, as applicable, as the insured or as an
additional named insured, as the case may be. Losses shall be payable to Lessor
or Lessee as provided in this Lease. Any loss adjustment 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 include the following:
(a) Lessor shall obtain and maintain, at its own expense:
(i) Building insurance on the "Special Form"
(formerly "All Risk" form) (including earthquake and flood in
reasonable amounts as determined by Lessor) 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 Lessee, and personal property
insurance (on other than Lessee's Personal Property) 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, now or hereafter installed in the Hotel, in the
38
<PAGE>
minimum amount of $5,000,000 or in such greater amounts as are
then customary; and
(iii) Loss of income insurance on the "Special Form",
in the amount of one year of Base Rent and Additional Charges
(to the extent quantifiable) for the benefit of Lessor.
(b) Lessee shall obtain and maintain, at its own expense:
(i) Personal property insurance on Lessee's Personal
Property on the "Special Form" in the full amount of the
replacement cost thereof;
(ii) Comprehensive general liability insurance, with
amounts not less than $10,000,000 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;
(iii) Insurance covering such other hazards and in
such amounts as may be 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 requested by Lessor;
(iv) Fidelity bonds with limits and deductibles as
may be reasonably requested by Lessor, covering Lessee's
employees in job classifications normally bonded under prudent
hotel management practices in the United States or otherwise
required by law;
(v) Worker's compensation insurance coverage for all
persons, if any, employed by Lessee on the Leased Premises, to
the extent necessary to protect Lessor and the Leased Property
against Lessee's worker's compensation claims, such worker's
compensation insurance to be in accordance with the
requirements of applicable local, state and federal law;
(vi) Vehicle liability insurance for owned,
non-owned, and hired vehicles, in the amount of $5,000,000;
and
(vii) Such other insurance as Lessor may reasonably
request for facilities such as the Leased Property and the
operation thereof.
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 (the then-replacement cost less such
39
<PAGE>
exclusions) has increased or decreased at any time during the Lease Term, it
shall have the right to have such full replacement cost re-determined.
13.3. Waiver of Subrogation. All insurance policies carried by Lessor
or Lessee covering the Leased Property, the Fixtures, the Hotel 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. The parties hereto agree that their policies
will include such waiver clause or endorsement so long as the same are
obtainable without extra cost, and in the event of such an extra charge the
other party, at its election, may pay the same, but shall not be obligated to do
so.
13.4. Form Satisfactory, Etc.
(a) All of the policies of insurance referred to in this
Article 13 to be maintained by Lessee shall be written in a form, with
deductibles and by insurance companies satisfactory to Lessor. Lessee shall pay
all of the premiums therefor, and deliver such policies or certificates thereof
to Lessor prior to their effective date (and, with respect to any renewal
policy, thirty (30) days prior to the expiration of the existing policy), and in
the event of the failure of 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 Lessor at the times required, Lessor shall be entitled,
but shall have no obligation, to effect such insurance and pay the premiums
therefor, and Lessee shall reimburse Lessor for any premium or premiums paid by
Lessor for the coverages required of Lessee under this Article 13 upon written
demand therefor, and Lessee's failure to repay the same within thirty (30) days
after Notice of such failure from Lessor shall constitute an Event of Default
within the meaning of Section 16.1. 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 Lessor, that it will give to Lessor thirty
(30) days' written notice before the policy or policies in question shall be
materially altered, allowed to expire or canceled.
(b) All of the policies of insurance referred to in this
Article 13 to be maintained by Lessor shall be written in a form, with
deductibles and by insurance companies satisfactory to Lessee. Lessor shall pay
all of the premiums therefor, and deliver such policies or certificates thereof
to Lessee prior to their effective date (and, with respect to any renewal
policy, thirty (30) days prior to the expiration of the existing policy), and in
the event of the failure of Lessor either to effect such insurance as herein
called for or to pay the premiums therefor, or to deliver such policies or
certificates thereof to Lessee at the times required, Lessee shall be entitled,
but shall have no obligation, to effect such insurance and pay the premiums
therefor, and Lessor shall reimburse Lessee for any premium or premiums paid by
Lessee for the coverages required under this Section 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 Lessee, that it will give to Lessee thirty (30) days' written notice before
the policy or policies in question shall be materially altered, allowed to
expire or canceled.
13.5. 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
40
<PAGE>
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 Article 13.
13.6. Blanket Policy. Notwithstanding anything to the contrary
contained in this Article 13. Lessee or Lessor 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 (or Manager) or Lessor; 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.
13.7. No Separate Insurance. Lessee shall not, on Lessee's 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 insured, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. Lessee
shall immediately notify Lessor of any such separate insurance that Lessee has
obtained or of the increase of any of the amounts of the then existing
insurance.
13.8. 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, claims for damage relating to the ownership,
operation, and maintenance of the Hotel, any damage or destruction to the Hotel
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 final copy of such report shall be
furnished to Lessor. Lessee shall be authorized to adjust, settle, or compromise
any insurance loss, or to execute proofs of such loss, in the aggregate amount
of $25,000 or less, with respect to any single casualty or other event.
ARTICLE 14
CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION
14.1. Insurance Proceeds. Subject to the provisions of Section 14.4,
all proceeds payable by reason of any loss or damage to the Leased Property, or
any portion thereof, insured under any policy of insurance required by Article
13 of this Lease, shall be paid to Lessor and held in trust by Lessor in an
interest-bearing account, shall be 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 (and accrued interest) remaining after
the completion of the restoration or reconstruction of the Leased Property, as
hereinafter set forth, shall be paid to Lessee. If neither Lessor nor Lessee is
required or elects to repair and restore, and the Lease is terminated without
purchase by Lessee as described in Section 14.2, all such insurance proceeds
41
<PAGE>
shall be retained by Lessor. All salvage resulting from any risk covered by
insurance shall belong to Lessor.
14.2. Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) Except as provided in Section 14.6, 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 Hotel thereby is rendered Unsuitable
for its Primary Intended Use, Lessee shall, at Lessee's option, either (1)
restore the Hotel to substantially the same condition as existed immediately
before the damage or destruction and otherwise in accordance with the terms of
the Lease, or (2) offer to acquire the Leased Property from Lessor for a
purchase price equal to the Rejectable Offer Price of the Leased Property. If
Lessee restores the Hotel, the insurance proceeds shall be paid out by Lessor
from time to time for the reasonable costs of such restoration upon satisfaction
of reasonable terms and conditions, and any excess proceeds remaining after such
restoration shall be paid to Lessee. If Lessee acquires the Leased Property,
Lessee shall receive the insurance proceeds. If Lessor does not accept Lessee's
offer so to purchase the Leased Property within ninety (90) days, Lessee may
withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee
may terminate the Lease with respect to the Leased Property without further
liability hereunder and Lessor shall be entitled to retain all insurance
proceeds.
(b) Except as provided in Section 14.6, if during the Term the
Leased Property is partially destroyed by a risk covered by the insurance
described in Article 13, but the Hotel is not thereby rendered Unsuitable for
its Primary Intended Use, Lessee shall restore the Hotel 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; provided, however, that if Lessee cannot within
a reasonable time obtain all necessary government approvals, including building
permits, licenses and conditional use permits, after diligent efforts to do so,
to perform all required repair and restoration work and to operate the Hotel for
its Primary Intended Use in substantially the same manner as that existing
immediately prior to such damage or destruction and otherwise in accordance with
the terms of the Lease, Lessee may offer to purchase the Leased Property for a
purchase price equal to the Rejectable Offer Price of the Leased Property,
determined without regard to such damage or destruction if insurance proceeds
are available to restore the Hotel. If Lessee makes such offer and Lessor does
not accept the same, Lessee shall withdraw such offer, in which event this Lease
shall remain in full force and effect and Lessee shall immediately proceed to
restore the Hotel to substantially the same condition as existed immediately
before such damage or destruction and otherwise in accordance with the terms of
the Lease. If Lessee restores the Hotel, the insurance proceeds shall be paid
out by Lessor from time to time for the reasonable costs of such restoration
upon satisfaction of reasonable terms and conditions specified by Lessor, and
any excess proceeds remaining after such restoration shall be paid to Lessee.
(c) If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessor from the insurance it maintains as
required under Article 13, Lessee shall be obligated to contribute any excess
amounts needed to restore the Hotel. Such difference shall be paid by Lessee to
Lessor promptly after Lessee receives Lessor's written invoice therefor, to be
42
<PAGE>
held in trust in an interest-bearing account, together with any other insurance
proceeds, for application to the cost of repair and restoration.
(d) If Lessor accepts Lessee's offer to purchase the Leased
Property under this Article, this Lease shall terminate as to the Leased
Property upon payment of the purchase price, and Lessor shall remit to Lessee
all insurance proceeds pertaining to the Leased Property being held in trust by
Lessor.
14.3. Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance. Except as provided in Section 14.6, if during the Term the Hotel
is totally or materially destroyed by a risk not covered by the insurance
described in Article 13, whether or not such damage or destruction renders the
Hotel Unsuitable for its Primary Intended Use, Lessee at its option shall
either, (a) at Lessee's sole cost and expense, restore the Hotel 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) offer to purchase the Leased Property for a purchase price equal to the
Rejectable Offer Price of the Leased Property without regard to such damage or
destruction. If such damage or destruction is not material, Lessee shall restore
the Hotel to substantially the same condition as existed immediately before the
damage or destruction and otherwise in accordance with the terms of the Lease.
If Lessor does not accept Lessee's offer so to purchase the Leased Property
within ninety (90) days, Lessee may withdraw its offer to purchase the Leased
Property and, if so withdrawn, Lessee may terminate the Lease with respect to
the Leased Property without further liability hereunder.
14.4. Lessee's Property. All insurance proceeds payable by reason of
any loss of or damage to any of Lessee's Personal Property 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, this Lease shall remain in full force and effect and Lessee's
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated during the first three (3) months of any period
required for the applicable repair and restoration. Thereafter, Base Rent shall
be equitably abated.
14.6. Damage Near End of Term. Notwithstanding any provisions of
Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of
the Hotel rendering it unsuitable for its Primary Intended Use occurs during the
last twenty-four (24) months of the Term, then Lessor or Lessee shall have the
right to terminate this Lease by giving Notice, respectively, to Lessee or
Lessor within thirty (30) days after the date of damage or destruction,
whereupon all accrued Rent shall be paid immediately, and this Lease shall
automatically terminate five (5) days after the date of such Notice.
14.7. Waiver. Lessee hereby waives any statutory rights of termination
that may arise by reason of any damage or destruction of the Hotel that Lessor
is obligated to restore or may restore under any of the provisions of this
Lease.
43
<PAGE>
ARTICLE 15
CONDEMNATION; AWARD ALLOCATION
15.1. Definitions.
(a) "AWARD" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
(b) "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.
(c) "CONDEMNOR" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
(d) "DATE OF TAKING" means the date the Condemnor has the
right to possession of the property being condemned.
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 or Uneconomic for its Primary Intended
Use, Lessee and Lessor shall each 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
Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, Lessee shall
not initiate, prosecute or acquiesce in any proceedings that may result in a
diminution of any Award payable to Lessor.
15.5. Partial Taking. 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, and not Uneconomic for its Primary Intended Use, or if Lessee or
Lessor is entitled but neither elects to terminate this Lease as provided in
Section 15.3, Lessee at its cost shall with all reasonable dispatch restore the
untaken
44
<PAGE>
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 shall 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. In the event of such a partial Taking,
this Lease shall not terminate, but 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 thirty (30) days after such partial Taking, the matter may be
submitted by either party to a court of competent jurisdiction for resolution.
15.6. Temporary Taking. If the whole or any part of the Leased Property
(other than the fee) or of Lessee's interest under this Lease is condemned by
any Condemnor for its temporary use or occupancy (which shall mean a period not
to exceed two years), this Lease shall not terminate by reason thereof, and
Lessee shall continue to pay, in the manner and at the terms herein specified,
the full amounts of Base Rent and Additional Charges. In addition, Lessee shall
pay Percentage Rent at a rate equal to the average Percentage Rent during the
last three (3) preceding Fiscal Years (or if three (3) Fiscal Years shall not
have elapsed, the average during the preceding Fiscal Years). 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 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, at its sole cost and expense (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, and Lessee shall fund the balance of such costs in a
manner reasonably satisfactory to Lessor.
ARTICLE 16
DEFAULT BY LESSEE; LESSOR'S REMEDIES
16.1. Events of Default. If any one or more of the following events
(individually, an "Event of Default") occurs:
(a) if an Event of Default occurs under any other lease
between Lessor or any Affiliate of Lessor and Lessee or any Affiliate of Lessee;
or
45
<PAGE>
(b) if Lessee fails to make payment of the Base Rent within
ten (10) days after the same becomes due and payable; or
(c) if Lessee fails to make payment of Percentage Rent when
the same becomes due and payable and such condition continues for a period of
thirty (30) days after the end of the applicable quarter; or
(d) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of thirty (30) days after receipt by Lessee of Notice thereof
from Lessor, unless such failure cannot with due diligence be cured within a
period of thirty (30) days, in which case it shall not be deemed an Event of
Default if Lessee proceeds promptly and with due diligence to cure the failure
and diligently completes the curing thereof provided, however, in no event shall
such cure period extend beyond ninety (90) days after such Notice; or
(e) if Lessee shall file a petition in bankruptcy or
reorganization for an arrangement 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 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 Lessee shall be adjudicated a bankrupt and
such adjudication shall not be vacated or set aside or stayed within sixty (60)
days after the entry of an order in respect thereof, or if a receiver of Lessee
or of the whole or substantially all of the assets of Lessee shall be appointed
in any proceeding brought by Lessee or if any such receiver, trustee or
liquidator shall be appointed in any proceeding brought against Lessee and shall
not be vacated or set aside or stayed within sixty (60) days after such
appointment; or
(f) if Lessee is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner, permits
the sale or divestiture of substantially all of its assets; or
(g) if, except as expressly permitted herein, 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 (unless Lessee is contesting such lien or attachment in good faith in
accordance with Section 12.2 hereof) or there is a Change of Control of Lessee;
or
(h) if, except as a result of damage, destruction or a partial
or complete Condemnation as contemplated by this Lease, Lessee voluntarily
ceases operations on the Leased Property for a period in excess of thirty (30)
days; or
(i) if an event of default has been declared by the franchisor
under the Franchise Agreement with respect to the Hotel as a result of any
action or failure to act by Lessee or any Person with whom Lessee contracts for
management services at the Hotel, and such default is not cured by the earlier
of (A) ten (10) days following notice from Lessor or (B) such earlier date as is
required for Lessee to avoid termination of the Franchise Agreement by the
franchisor;
46
<PAGE>
then, and in any such event, Lessor may exercise one or more remedies available
to it herein or at law or in equity, including but not limited to its right to
terminate this Lease by giving Lessee not less than ten (10) days' Notice of
such termination.
If litigation 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.
No Event of Default (other than a failure to make a payment of
money) shall be deemed to exist under clause (d) during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Lessee remedies such default or Event of Default
without further delay.
16.2. Surrender. If an Event of Default occurs (and the event giving
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or not
this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and Lessor may
enter upon and repossess the Leased Property by summary proceedings, ejectment
or otherwise, and may remove Lessee and all other Persons and any and all
personal property from the Leased Property, subject to rights of any hotel
guests and to any requirement of law. Lessee hereby waives any and all
requirements of applicable laws for service of notice to re-enter the Leased
Property. Lessor shall be under no obligation to, but may if it so chooses,
relet the Leased Property or otherwise mitigate Lessor's damages.
16.3. Damages. Neither (a) the termination of this Lease, (b) the
repossession of the Leased Property, (c) the failure of Lessor to relet the
Leased Property, nor (d) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Lessee shall forthwith pay to Lessor all Rent due and payable
with respect to the Leased Property to and including the date of such
termination.
Lessee shall forthwith pay to Lessor, at Lessor's option, as
and for liquidated and agreed current damages for Lessee's default, either:
(i) Without termination of Lessee's right to
possession of the Leased Property, each installment of Rent
(including Percentage Rent as determined below) and other sums
payable by Lessee to Lessor under the Lease as the same
becomes due and payable, which Rent and other sums shall bear
interest at the Overdue Rate, and Lessor may enforce, by
action or otherwise, any other term or covenant of this Lease;
or
47
<PAGE>
(ii) the sum of:
(A) the unpaid Rent which had been earned at
the time of termination, repossession or reletting, and
(B) the worth at the time of termination,
repossession or reletting of the amount by which the unpaid
Rent for the balance of the Term after the time of
termination, repossession or reletting, exceeds the amount of
such rental loss that Lessee proves could be reasonably
avoided and as reduced for rentals received after the time of
termination, repossession or reletting, if and to the extent
required by applicable law, and
(C) any other amount necessary to compensate
Lessor for all the detriment proximately caused by Lessee's
failure to perform its obligations under this Lease or which
in the ordinary course of things, would be likely to result
therefrom.
The worth at the time of termination, repossession or
reletting of the amount referred to in subparagraph (B) is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of New
York at the time of award plus one percent (1%). Percentage Rent for the
purposes of this Section 16.3 shall be a sum equal to (i) the average of the
annual amounts of the Percentage Rent for the three (3) Fiscal Years immediately
preceding the Fiscal Year in which the termination, re-entry or repossession
takes place, or (ii) if three (3) Fiscal Years shall not have elapsed, the
average of the Percentage Rent during the preceding Fiscal Years during which
the Lease was in effect, or (iii) if one Fiscal Year has not elapsed, the amount
derived by annualizing the Percentage Rent from the effective date of this
Lease.
16.4. Waiver. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article 16, and (b) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate veil" of Lessee other than to the extent
funds shall have been fraudulently paid by Lessee to any Affiliate of Lessee
following a default resulting in an Event of Default.
16.5. 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.
16.6. 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
48
<PAGE>
under no obligation to) at any time thereafter 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 16.4, 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 Lessors, 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 17
DEFAULT BY LESSOR; LESSEE'S REMEDIES
17.1. Breach by Lessor. 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 thirty (30) days
after Notice thereof from Lessee, unless such failure cannot with due diligence
be cured within a period of thirty (30) days, in which case such failure shall
not be deemed to continue if Lessor, within such thirty (30) day period,
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof; provided, however, that such default shall be
cured by Lessor in any event prior to the date on which the default becomes an
event of default under the terms of the Franchise Agreement for the Hotel. 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 fails to cure any such breach within the grace period described above,
Lessee, without waiving or releasing any obligations hereunder, and in addition
to all other remedies available to Lessee at law or in equity, may purchase the
Leased Property from Lessor for a purchase price equal to the then Fair Market
Value. If Lessee elects to purchase the Leased Property it shall deliver a
Notice thereof to Lessor specifying a settlement date to occur not less than
ninety (90) days subsequent to the date of such Notice on which it shall
purchase the Leased Property, and the same shall be thereupon conveyed in
accordance with the provisions of Section 17.3; provided, however, that Lessor
shall pay the cost of Lessee's title insurance and all closing costs associated
with such purchase by Lessee following default by Lessor.
17.2. Lessee's Right to Cure. Subject to the provisions of Section
17.1, if Lessor breaches any covenant to be performed by it under this Lease,
Lessee, after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
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 or,
following entry of a final, nonappealable judgment against Lessor for such sums,
may be offset by Lessee against the Base Rent and/or Percentage Rent payments
next accruing or coming due. The rights of Lessee hereunder to cure and to
secure payment from Lessor in accordance with this Section 17.2 shall survive
the termination of this Lease with respect to the Leased Property.
49
<PAGE>
17.3. Provisions Relating to Purchase of the Leased Property by Lessee.
If Lessee purchases the Leased Property from Lessor pursuant to any of the terms
of this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase
price, together with full payment of any unpaid Rent due and payable with
respect to any period ending on or before the date of the purchase, deliver to
Lessee an appropriate limited or special warranty deed or other conveyance
conveying the entire interest of Lessor in and to the Leased Property to Lessee
free and clear of all encumbrances other than (a) those that Lessee has agreed
hereunder to pay or discharge, (b) those mortgage liens, if any, that Lessee has
agreed in writing to accept and to take title subject to, (c) those liens and
encumbrances subject to which the Leased Property was conveyed to Lessor, to the
extent not released in connection with the transactions contemplated by this
Lease, (d) encumbrances, easements, licenses or rights of way required to be
imposed on the Leased Property under Section 7.3, and (e) any other encumbrances
permitted to be imposed on the Leased Property under the provisions of Article
22 that are assumable at no cost to Lessee or to which Lessee may take subject
without cost to Lessee. The difference between the applicable purchase price and
the total of the encumbrances assumed or taken subject to shall be paid in cash
to Lessor or as Lessor may direct, in federal or other immediately available
funds, except as otherwise mutually agreed by Lessor and Lessee. All expenses of
such conveyance, including, without limitation, the cost of title examination or
title insurance, if desired by Lessee, Lessee's attorneys' fees incurred in
connection with such conveyance and release, and one-half of any transfer taxes
and recording fees, shall be paid by Lessee. Lessor shall pay one-half of any
transfer taxes and recording fees and its attorney's fees.
ARTICLE 18
INDEMNIFICATION
18.1. Indemnification.
(a) Notwithstanding the existence of any insurance, and
without regard to the policy limits of any such insurance or self-insurance, but
subject to Section 13.3 and Section 8.3, Lessee will protect, indemnify, hold
harmless and defend Lessor from and against all liabilities, losses,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses), to the
extent permitted by law, 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 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
during the Term 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
that are the obligations of Lessee pursuant to the applicable provisions of this
Lease, (d) any failure on the
50
<PAGE>
part of Lessee to perform or comply with any of the terms of this Lease, and (e)
the non-performance 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.
(b) Notwithstanding the existence of any insurance, and
without regard to the policy limits of any such insurance or self-insurance, but
subject to Section 13.3 and Section 8.3, Lessor shall indemnify, save harmless
and defend Lessee Indemnified Parties from and against 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 (10) 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. 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 or delayed. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own (or Lessor's) grossly
negligent acts or omissions or willful misconduct.
(c) Lessee's or Lessor's liability for a breach of the
provisions of this Article shall survive any termination of this Lease.
ARTICLE 19
REIT REQUIREMENTS AND RESTRICTIONS
19.1. Personal Property Limitation. Anything contained in this Lease to
the contrary notwithstanding, the average of the adjusted tax bases of the items
of personal property that are leased to Lessee under this Lease at the beginning
and at the end of any Fiscal Year shall not exceed fifteen percent (15%) of the
average of the aggregate adjusted tax bases of the Leased Property at the
beginning and at the end of such Fiscal Year. This Section 19.1 is intended to
ensure that the Rent qualifies as "rents from real property," within the meaning
of Section 856(d) of the Code, or any similar or successor provisions thereto,
and shall be interpreted in a manner consistent with such intent.
19.2. Sublease Rent Limitation. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublet the Leased Property on any
basis such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (a) the 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.
51
<PAGE>
19.3. Sublease Tenant Limitation. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublease the Leased Property to
any Person in which Lessor owns, directly or indirectly, a ten percent (10%) or
more interest, within the meaning of Section 856(d)(2)(B) of the Code, or any
similar or successor provisions thereto.
19.4. Lessee Ownership Limitations.
(a) Anything contained in this Lease to the contrary
notwithstanding, neither Lessee nor an Affiliate of Lessee shall acquire,
directly or indirectly, a ten percent (10%) or more interest in Lessor within
the meaning of Section 856(d)(2)(B) of the Code, or any similar or successor
provision thereto.
(b) Lessee shall not own, operate, manage or have any interest
in any hotel or motel property in which Lessor or an Affiliate of Lessor does
not have an interest, pursuant to this Lease or another lease, agreement or
arrangement with Lessor or an Affiliate of Lessor. Lessor agrees to notify
Lessee promptly of the location of any hotel or motel property in which Lessor
or an Affiliate of Lessor has an interest.
19.5. Lessee Officer and Employee Limitation. If a Person serves as
both (a) a director of Lessee (or any Person who furnishes or renders services
to the tenants of the Leased Property, or manages or operates the Leased
Property) and (b) an officer (or employee) of the Lessor that Person shall not
receive any compensation for serving as a director of Lessee (or any Person who
furnishes or renders services to the tenants of the Leased Property, or manages
or operates the Leased Property). Furthermore, if a Person serves as both (a) a
director of the Lessor and (b) an officer (or employee) of Lessee (or any Person
who furnishes or renders services to the tenants of the Leased Property, or
manages or operates the Leased Property), that Person shall not receive any
compensation for serving as a director of the Lessor. No Person, other than
Glade M. Knight, shall serve as an officer (or employee) of both Lessor and
Lessee.
19.6. Payments to Affiliates of Lessee. During the Term, Lessee shall
not pay, or become obligated to pay, any fees to any Affiliate of Lessee in
connection with the Hotel, other than fees that are subordinated to the payments
that are required to be made to Lessor pursuant to this Lease.
ARTICLE 20
SUBLETTING AND ASSIGNMENT
20.1. Subletting and Assignment. Subject to the provisions of Article
19 and Section 20.2 and any other express conditions or limitations set forth
herein, Lessee may, but only with the consent of Lessor (which shall not be
unreasonably withheld or delayed), (a) assign this Lease or sublet all or any
part of the Leased Property to an Affiliate of Lessee, or (b) sublet any retail
or restaurant portion of the Leased Improvements in the normal course of the
Primary Intended Use; provided that any subletting to any party other than an
Affiliate of Lessee shall not individually as to any one such subletting, or in
the aggregate, materially diminish the actual or potential Percentage Rent
payable under this Lease. In the case of a subletting, the sublessee shall
comply with the provisions of Section 20.2, and in the case of an assignment,
the assignee shall assume in
52
<PAGE>
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. Notwithstanding the
above, Lessee may assign the Lease to an Affiliate without the consent of
Lessor; provided that any such assignee assumes in writing and agrees to keep
and perform all of the terms of the 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.
20.2. Attornment. Lessee shall insert in each sublease permitted under
Section 20.1 provisions to the effect that (a) such sublease is subject and
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 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.
20.3. Conveyance by Lessor. Lessor may assign this Lease to any
purchaser of the Leased Property. If Lessor or any successor owner of the Leased
Property conveys the Leased Property in accordance with the terms hereof other
than as security for a debt, and the grantee or transferee of the Leased
Property expressly assumes all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, Lessor or such
successor owner, as the case may be, 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.
ARTICLE 21
QUIET ENJOYMENT; RISK OF LOSS
21.1. 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 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, but subject to all liens and encumbrances subject
to which the Leased Property was conveyed to Lessor, to the extent not released
in connection with the transactions contemplated by this Lease, or hereafter
consented to by Lessee or provided for herein.
53
<PAGE>
Notwithstanding the foregoing, 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.
21.2. Risk of Loss. During the Term, the risk of loss or of decrease in
the enjoyment and beneficial use of the Leased Property in consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than those caused by Lessor and those claiming from, through
or under Lessor) is assumed by Lessee, and, in the absence of gross negligence,
willful misconduct or breach of this Lease by Lessor pursuant to Section 17.1,
Lessor shall in no event be answerable or accountable therefor, nor shall any of
the events mentioned in this Section entitle Lessee to any abatement of Rent
except as specifically provided in this Lease.
ARTICLE 22
LESSOR MORTGAGES; SUBORDINATION OF LEASE
22.1. Lessor May Grant Liens. Without the consent of Lessee, Lessor
may, subject to the terms and conditions set forth below in this Section 22.1,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing. Upon the request of
Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the
Leased Property, on the condition that the proposed mortgagee executes a
non-disturbance agreement recognizing this Lease in accordance with the
provisions of Section 22.2, and agreeing, for itself and its successors and
assigns, to comply with the provisions of this Article 22.
22.2. Subordination of Lease. 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
Encumbrances 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, however, that with respect to any Mortgage hereafter
granted, such subordination is conditioned upon delivery to Lessee of a
non-disturbance agreement which provides that Lessee shall not be disturbed in
its possession of the Leased Property hereunder following a foreclosure of such
Mortgage (or delivery of a deed-in-lieu-of-foreclosure) and that the holder of
such Mortgage or the purchaser at a foreclosure sale (or grantee under such
deed-in-lieu-of-foreclosure) shall perform all obligations of Lessor under this
Lease. In confirmation of such subordination, however, Lessee shall, at Lessor's
request, promptly execute, acknowledge and deliver any instrument which may be
required to evidence subordination to any Mortgage and to the holder thereof. 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.
54
<PAGE>
ARTICLE 23
ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS
23.1. Estoppel Certificates; Financial Statements.
(a) At any time and from time to time upon not less than ten
(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 exists
thereunder 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 and any prospective purchaser of the Leased
Property.
(b) Lessee will furnish the following statements to Lessor:
(i) with reasonable promptness, such information
respecting the financial condition and affairs of Lessee
including audited financial statements prepared by the same
certified independent accounting firm that prepares the
returns for Lessor or such other accounting firm as may be
approved by Lessor, as Lessor may request from time to time;
and
(ii) the most recent Consolidated Financials of
Lessee within forty-five (45) days after each quarter of any
Fiscal Year (or, in the case of the final quarter in any
Fiscal Year, the most recent audited Consolidated Financials
of Lessee within ninety (90) days); and
(iii) on or about the 20th day of each month, a
detailed profit and loss statement for the Leased Property for
the preceding month, a balance sheet for the Leased Property
as of the end of the preceding month, and a detailed
accounting of revenues for the Leased Property for the
preceding month, each in form acceptable to Lessor.
Lessee will permit the inclusion of such statements in any filings required to
be made by Lessor under the Securities Act of 1933 and the Securities Exchange
Act of 1934.
(c) At any time and from time to time upon not less than ten
(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 reasonably requested by Lessee.
55
<PAGE>
(d) Lessee shall at all times be Solvent. Furthermore, as of
the date of this Agreement, Lessee agrees to establish and maintain, in a form
satisfactory to Lessor, a funding commitment in an amount equal to $2,000,000
upon which Lessee may draw upon to pay to Lessor Base Rent, Percentage Rent and
Additional Charges. Repayment of the funding commitment shall be subordinated to
all payments of Base Rent, Percentage Rent and additional charges under all
Leases between Lessor and Lessee.
23.2. Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives as frequently as reasonably requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining thereto
and make copies thereof, during usual business hours upon reasonable advance
Notice, subject only to any business confidentiality requirements reasonably
requested by Lessee.
ARTICLE 24
APPRAISERS
24.1. 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, 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 ten (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 (5)
years' experience in the State appraising property similar to the Leased
Property, shall, within forty-five (45) days after the date of the Notice
appointing the first 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. To the extent consistent with sound
appraisal practice as then existing at the time of any such appraisal, such
appraisal shall be made on a basis consistent with the basis on which the Leased
Property was appraised for purposes of determining its Fair Market Value at the
time the Leased Property was acquired by Lessor. If two (2) appraisers are
appointed and if the difference between the amounts so determined does not
exceed five percent (5%) of the lesser of such amounts, then the Fair Market
Value or Fair Market Rental shall be an amount equal to fifty percent (50%) of
the sum of the amounts so determined. If the difference between the amounts so
determined exceeds five percent (5%) of the lesser of such amounts, then such
two appraisers shall have twenty (20) days to appoint a third appraiser. If no
such appraiser shall have been appointed within such twenty (20) days or within
ninety (90) 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
forty-five (45) days after appointment of such appraiser. The determination of
the appraiser which differs most in the terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and fifty percent
(50%) of the sum of the remaining two
56
<PAGE>
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
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 25
ARBITRATION AND DISPUTE RESOLUTION PROCEDURES
25.1. Arbitration. Except as set forth in Section 25.2, 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
25.1. The party desiring such arbitration shall give Notice to that effect to
the other party, and an arbitrator shall be selected by mutual agreement of the
parties, or if they cannot agree within thirty (30) days of such notice, by
appointment made by the American Arbitration Association ("AAA") from among the
members of its panels who are qualified and who have experience in resolving
matters of a nature similar to the matter to be resolved by arbitration.
25.2. Alternative Arbitration. In each case specified in this Lease for
a matter to be submitted to arbitration pursuant to the provisions of this
Section 25.2, Lessor and Lessee will agree upon a nationally recognized
accounting firm with a hospitality division of which neither party nor their
Affiliates of Lessor is a significant client to serve as arbitrator of such
dispute within fifteen (15) days after written demand for arbitration is
received or sent by either party. In the event the parties fail to make such
designation within such fifteen (15) day period, 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 fifteen (15) days after the parties fail to
timely make such designation. In the event Lessor fails to make such designation
within such fifteen (15) day period, Lessee shall be entitled to designate any
nationally recognized accounting firm with hospitality division of which Lessee
or an Affiliate of Lessee is not a significant client to serve as arbitrator of
such dispute within fifteen (15) days after the parties fail 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
arbitrator shall instead be administered as set forth in Section 25.1.
25.3. Arbitration Procedure. In any arbitration commenced pursuant to
Sections 25.1 or 25.2, a single arbitrator shall be designated and shall resolve
the dispute. The arbitrator's decision shall be binding on all parties, shall
not be subject to further review or appeal except as otherwise allowed by
applicable law and may be filed in and enforced by a court of competent
jurisdiction. 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 ninety (90) days of
57
<PAGE>
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 25.3. 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 Hotel during the arbitration.
ARTICLE 26
NOTICES
26.1. Notices. All notices, demands, requests, consents approvals and
other communications ("Notice" or "Notices") hereunder shall be in writing and
hand-delivered, sent by FedEx or other nationally recognized overnight courier
service, or mailed (by registered or certified mail, return receipt requested
and postage prepaid), if to Lessor at 306 East Main Street, Richmond, Virginia
23219, Attn: Glade M. Knight and if to Lessee at 306 East Main Street, Richmond,
Virginia 23219, Attn: Glade M. Knight or to such other address or addresses as
either party may hereafter designate. Personally delivered Notice shall be
effective upon receipt, and Notice given by overnight courier service or by mail
shall be complete at the time of deposit with the courier service or in the U.S.
Mail system, respectively, 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 overnight courier service
shall be extended one (1) day and by mail shall be extended five (5) days.
ARTICLE 27
MISCELLANEOUS
27.1. 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.
27.2. Remedies Cumulative. To the extent permitted by law and unless
otherwise provided herein to the contrary, 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.
58
<PAGE>
27.3. Waiver of Trial by Jury. LESSOR AND LESSEE EACH WAIVE, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN THE
EVENT OF A PROCEEDING WITH RESPECT TO THIS LEASE, INCLUDING, WITHOUT LIMITATION,
SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN ARTICLE 16.
27.4. 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.
27.5. 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
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.
27.6. 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.
27.7. Action for Damages. Except as otherwise expressly provided
herein, 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.
27.8. 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
this Lease pursuant to 11 U.S.C. Section 365, without seeking an extension of
the time to file said motion.
27.9. Enforceability. 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
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at 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 permitted 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
59
<PAGE>
governed by and construed in accordance with the laws of the State, but not
including its conflicts of laws rules.
27.10. Memorandum of Lease. Lessor and Lessee shall promptly, upon the
request of either party, 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.
60
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
"LESSOR"
APPLE SUITES, INC.
By: /s/ Glade M. Knight
----------------------------------
Name: Glade M. Knight
--------------------------------
Title: President
--------------------------------
"LESSEE"
APPLE SUITES MANAGEMENT, INC.
By: /s/ Glade M. Knight
----------------------------------
Name: Glade M. Knight
--------------------------------
Title: President
--------------------------------
<PAGE>
EXHIBIT "A-1"
LEGAL DESCRIPTION OF PREMISES
(Richmond-West End)
ALL THAT certain lot, piece or parcel of land, with the improvements thereon and
the appurtenances thereto belonging, lying and being in Henrico County,
Virginia, containing 3.745 acres, more or less (the "Property"), as more
particularly described on a Plat of Survey made by Timmons & Associates, P.C.,
dated June 2, 1995, revised October 3, 1995, entitled "Topographic And Boundary
Survey On 3.745 Acres Of Land Lying On The Eastern Line Of Innslake Drive Being
A Portion Of Block A - Section I - Innsbrook, Three Chopt District, Henrico
County, Va," (the "Plat") a copy of which is attached to the deed recorded
October 17, 1995 in the Clerk's Office, Circuit Court, Henrico County, Virginia,
in Plat Book 100, at Page 203, to which reference is hereby made for a more
particular description of the property.
TOGETHER WITH a permanent, non-exclusive easement and right-of-way for the
purpose of constructing, operating, maintaining, repairing, replacing and
relocating, as well as utilizing, necessary storm drainage facilities and access
thereto (the "Storm Drainage Easement") for the benefit of the Property, but
subject to the terms and conditions of the Henrico Deed (as hereinafter
defined), within the easement areas reserved by Grantor in that certain Deed,
Deed of Release and Relocation of Easement to the County of Henrico, Virginia,
dated May 17, 1991, and recorded in the Clerk's Office, Circuit Court, Henrico
County, Virginia in Deed Book 2296, at Page 793 (the "Henrico Deed"), and being
more particularly shown and described therein and on the plat of survey attached
thereto as "EASEMENT RESERVED BY THE INNSBROOK CORPORATION FOR THE PURPOSE OF
CONSTRUCTING, MAINTAINING, REPAIRING, REPLACING AND RELOCATING AS WELL AS
UTILIZING DRAINAGE, UTILITY AND JOGGING TRAILS AND GRANTING EASEMENTS THEREFOR";
PROVIDED HOWEVER, that Grantee, its successors and assigns, in exercising the
easement rights granted herein, shall restore any utilities, driveways, access
roads, parking lots, landscaping or facilities appurtenant thereto which it
disturbs to substantially the condition in which they existed prior to the
exercise of such rights.
BEING the same real estate conveyed to Promus Hotels, Inc., a Delaware
corporation, by deed from the Innsbrook Corporation, a Virginia corporation,
dated September 25, 1995, recorded October 17, 1995, in the Clerk's Office,
Circuit Court, Henrico County, Virginia, in Deed Book 2612, at Page 1166.
<PAGE>
EXHIBIT "A-2"
LEGAL DESCRIPTION OF PREMISES
(ATLANTA - GALLERIA/CUMBERLAND)
ALL THAT TRACT OR PARCEL OF LAND situated, lying and being in Land Lot 978
in the 2nd Section and 17th District of Cobb County, Georgia, and being
more particularly described as follows:
BEGINNING at a railroad iron found, said point being the land lot corner
common to Land Lots 948, 978 and 979, said Section, District and County;
thence proceed North 88(degree) 59' 50" East 572.69 feet to a 1" bar found
on the southwesterly right-of-way line of U.S. Highway No. 41 (a 130-foot
right-of-way); thence proceed along the aforedescribed right-of-way line
South 55(degree) 57' 41" East 100.00 feet to an iron pin set; thence
leaving the aforedescribed right-of-way line South 34(degree) 04' 16" West
100.00 feet to an iron pin set; thence proceed North 55(degree) 57' 41"
West 41.00 feet to an iron pin set; thence proceed South 34(degree) 04' 16"
West 270.19 feet to a point; thence proceed along the arc of a curve in a
counter-clockwise direction, whose radius is 245.00 feet and is subtended
by a chord bearing of South 22(degree) 41' 38" West and a chord distance of
96.66 feet, an arc distance of 97.30 feet to an iron pin set; thence
proceed North 88(degree) 32' 42" West 116.03 feet to an iron pin set;
thence proceed along the arc of a curve in a counter-clockwise direction,
whose radius is 1054.08 feet and is subtended by a chord bearing of North
69(degree) 58' 11" West and a chord distance of 344.10 feet, an arc
distance of 345.64 feet to an iron pin set on the land lot line common to
Land Lots 949 and 978; thence proceed along said land lot line North
01(degree) 42' 53" East 215.28 feet to a railroad iron found, said point
being THE POINT OF BEGINNING.
The aforedescribed tract or parcel of land is known as Tract No. 1 and
Tract No. 2 and contains 3.698 acres as shown on the ALTA/ACSM Land Title
Survey for Homewood Equity Development Corporation by Precision Planning,
Inc., Lawrenceville, Georgia, dated April 19, 1989, revised May 1, 1989,
bearing the seal and certification of Randall W. Dixon, G.R.L.S. No. 1678.
Said survey being incorporated herein by this reference.
LESS AND EXCEPT:
ALL THAT TRACT or parcel of land lying and being in Land Lot 978 of the
17th District, 2nd Section, Cobb County, Georgia, and being more
particularly described as follows:
TO FIND THE TRUE POINT OF BEGINNING, Commence at an iron pin set at the
intersection of the southwestern right-of-way line of U.S. Highway No. 41
(Cobb Parkway and State Route No. 3) (having a variable right-of-way width)
and the northwestern right-of-way line of Cumberland Circle (having a
variable right-of-way width); run thence along said southwestern
right-of-way line of U.S. Highway No. 41, in a generally northwesterly
direction, the following courses and distances: North 55(degree) 51' 19"
West a distance of 216.33 feet to an iron pin set; and North 55(degree) 55'
44" West a distance of 119.88 feet to an iron pin set; thence leaving said
southwestern right-of-way line, run thence along the southeastern and
southwestern boundary line of property now or formerly owned by Homewood
Suites Equity Development Corporation, in a generally southwesterly and
northwesterly direction, the following courses and distances: South
34(degree) 04' 16" West a distance of 92.95 feet to an iron pin set; North
55(degree) 57' 41" West a distance of 41.00 feet to an iron pin set; South
34(degree) 04' 16" West a distance of 170.19 feet to an iron pin set, said
iron pin being the TRUE POINT OF BEGINNING. From the True Point of
Beginning as thus Established, thence continuing along said southeastern
boundary line of property, in a generally southwesterly direction, along
the arc of a 245.00 foot radius curve an arc distance of 59.14 feet to an
iron pin set (said arc being subtended by a chord lying to the southeast
thereof, bearing South 27(degree) 09' 20" East and having a length of 59.00
feet); and along the arc of a 245.00 foot radius curve an arc distance of
38.16 feet to an iron pin set (said arc being subtended by a chord lying to
the southeast thereof, bearing South 15(degree) 46' 41" West and having a
length of 38.12 feet); thence leaving said southeastern boundary line of
property, run thence North 34(degree) 04' 16" East a distance of 106.96
feet to an iron pin set on the southeastern boundary line of property now
or formerly owned by Homewood Suites Equity Development Corporation, said
iron pin being the TRUE POINT OF BEGINNING.
The above-described property contains 0.0163 acres and is shown as and
described according to that certain Survey prepared by Loo-Turley &
Associates, P.C., Richard Loo, Georgia Registered Land Surveyor No. 2129,
dated, June 3, 1991, last revised June 19, 1991, which certain Survey is
incorporated herein by this reference and made a part of this description.
<PAGE>
EXHIBIT B
WORK LETTER
This Work Letter describes and specifies the rights and obligations of
Apple Suites, Inc. ("Lessor"), and Apple Suites Management, Inc. ("Lessee"),
with respect to the design, construction, installation and payment for the
completion of Lessee's Work (as defined in Section 10.4 of the Lease).
1. Definitions. Terms which are defined in that certain Hotel Lease
Agreement (the "Lease") executed contemporaneously herewith, by and between
Lessor and Lessee, shall have the same meaning in this Work Letter.
Additionally, as used in this Work Letter, the following terms (when delineated
with initial capital letters) shall have the respective meaning indicated for
each as follows:
(a) "Plans and Specifications" shall mean, collectively, the
plans, specifications and other information prepared or to be prepared
by Lessee's architect and, where necessary, by Lessee's electrical,
mechanical and structural engineers, which shall detail Lessee's Work
and which shall be approved in writing by both Lessee and Lessor prior
to the commencement of such work. The Plans and Specifications shall
comply with the minimum requirements established by Lessor.
(b) "Cost of the Work" shall mean the actual contract costs of
all materials and labor for the design, construction and installation
to completion of the Lessee's Work in accordance with the Plans and
Specifications.
(c) "Change Cost" shall mean any increase in the Cost of the
Work attributable to any change in the Plans and Specifications.
2. Procedure for the Completion of Plans and Specifications. The Plans
and Specifications shall be completed in accordance with the following
procedure:
(a) Design Drawings. Lessee shall submit to Lessor design
drawings specifying the intended design, character and finishing of
Lessee's Work. The design drawings shall set forth the requirements of
Lessee with respect to the installation of Lessee's Work.
i) After receipt of design drawings, Lessor shall
return to Lessee Lessor's required modifications and/or
approval.
ii) If Lessor requires modifications, the design
drawings shall be revised by Lessee and resubmitted to Lessor
for approval. Unless such action is taken, Lessee will be
deemed to have accepted and approved all of Lessor's comments
on the design drawings. This process will continue until
approval of Lessor is obtained.
1
<PAGE>
(b) Completion of Plans and Specifications. All Plans and
Specifications shall be prepared in strict compliance with applicable
standards and requirements as set forth in the Lease, this Work Letter
and otherwise, and shall also adhere to the design drawings approved by
Lessor. Lessee shall deliver to Lessor, as soon as practicable after
the date of Lessor's approval of design drawings, the proposed Plans
and Specifications. If the Plans and Specifications are returned to
Lessee with comments, but not bearing approval of Lessor, the Plans and
Specifications shall be revised by Lessee and resubmitted to Lessor for
approval. This process will continue until approval of Lessor is
obtained.
(c) Compliance with Laws. Lessee shall have the sole
responsibility for compliance of the Plans and Specifications with all
applicable statutes, codes, ordinances and other regulations. The
approval of the Plans and Specifications or calculations included
therein by Lessor shall not constitute an indication, representation or
certification by Lessor that such Plans and Specifications or
calculations are in compliance with said statutes, codes, ordinances
and other regulations. In instances where several sets of requirements
must be met, the requirements of Lessor's insurance underwriter or the
strictest applicable requirements shall apply where not prohibited by
applicable codes.
3. Pricing. As soon as practicable after finalization of the Plans and
Specifications, as evidenced by Lessor's written approval thereof, Lessee shall
notify Lessor in writing of the Cost of the Work. Lessor shall either approve
the Cost of the Work in writing or request that the Plans and Specifications and
the Cost of the Work be revised and resubmitted to Lessor for approval. Lessee
shall revise the Plans and Specifications and the Cost of the Work and resubmit
them to Lessor for approval. This procedure shall continue until Lessor approves
the Cost of the Work.
4. Performance of Work and Delays. Lessee shall select one or more
contractors ("Contractors") to furnish labor and/or materials for the Lessee's
Work in substantial accordance with the Plans and Specifications. Each
Contractor and the contract between Lessee and such Contractor must be approved
in advance by Lessor. After Lessor's approval of the Plans and Specifications,
the Cost of the Work, Contractors and contracts, Lessee agrees to cause the
Contractors to commence the construction and installation of the Lessee's Work
as promptly as reasonably practicable and to proceed with due diligence to
perform Lessee's Work in a good and workmanlike manner. Lessee warrants to
Lessor that all materials and equipment furnished in constructing and installing
the Lessee's Work will be new, unless otherwise specified to Lessor, and that
such work shall be of good quality, free from faults and defects; provided,
however, Lessor's sole remedy for breach of the above warranty shall be that
Lessee, for a period of twelve (12) months after substantial completion of the
Lessee's Work, at its sole cost and expense, will make all necessary repairs,
replacements and corrections of any nature or description as may become
necessary by reason of faulty construction, labor or materials in the Lessee's
Work. Any delays in the completion of Lessee's Work shall not justify any
abatement or reduction of the rent payable under the Lease.
5. Payments for Cost of Work. Lessor shall be liable for payment of the
Cost of the Work. Within ten (10) days after Lessor's receipt of an invoice from
Lessee, together with supporting billing statements, architect certificates and
other detailed information required by the construction contracts with the
Contractors, Lessor shall pay to Lessee the amount of the invoice. Lessee shall
2
<PAGE>
pay over to its Contractors any payments by Lessor to Lessee for the Cost of the
Work. Lessor may, at its option, elect to make its payments for the Cost of the
Work directly to the Contractors rather than to Lessee. Lessor shall not be
obligated to pay for, and Lessee shall not pay for, any work performed by any of
the Contractors or their mechanics, workmen or subcontractors until Lessor has
received a lien waiver from any said party.
6. Change Orders. All changes and modifications in Lessee's Work from
that contemplated in the Plans and Specifications, whether or not such change or
modification gives rise to a Change Cost, must be evidenced by a written change
order executed by both Lessor and Lessee. In that regard, Lessee shall submit to
Lessor such information as Lessor shall require with respect to any change order
requested by Lessee. After receipt of any requested change order, together with
such information as Lessor shall require with respect thereto, Lessor shall
return to Lessee either the executed change order, which will evidence Lessor's
approval thereof, or the Plans and Specifications with respect thereto with
Lessor's suggested modifications. Lessee shall revise the change order and
resubmit it to Lessor. This process will continue until Lessor's approval is
obtained.
7. Punch List. Within ten (10) days after Lessor receives notice from
Lessee of the substantial completion of Lessee's Work, Lessor shall give Lessee
written notice specifying any details of construction, decoration, installation
or mechanical adjustment which remain to be performed with respect to Lessee's
Work; and except for the details contained in such written notice from Lessor,
all obligations of Lessee in regard to Lessee's Work shall be deemed to have
been satisfied. Lessor or its agents, servants, employees or contractors shall
have the right to enter the Leased Improvements during the progress and after
the completion of the Lessee's Work to inspect any details of the Lessee's Work,
and entry by Lessor, its agents, servants, employees or contractors for such
purpose shall not relieve Lessee of any of its obligations under the Lease or
impose any liability on Lessor or its agents, servants, employees or
contractors.
8. Insurance; Liability. Lessee shall procure and maintain adequate
Workmen's Compensation and public liability insurance for bodily injury and
property damage, all in amounts, with companies and in forms satisfactory to
Lessor. Lessee shall also cause each of the Contractors to provide and maintain
certificates of such insurance and furnish copies of same to Lessor prior to
proceeding with the Lessee's Work. Lessor shall not be liable in any way for any
injury, loss or damage which may occur in connection with or as a result of the
Lessee's Work, the same being solely at Lessee's risk. Lessee shall hold Lessor
harmless from any claim, demand or action arising from the construction or
installation activities in connection with Lessee's Work, the Contractors or any
workmen, mechanics or subcontractors working on the Lessee's Work.
9. Whole Agreement; No Oral Modification. This Work Letter and the
Lease embody all representations, warranties and agreements of Lessor and Lessee
with respect to the matter described herein, and this Work Letter may not be
altered or modified except by an agreement in writing signed by the parties.
10. Paragraph Headings. The paragraph headings contained in this Work
Letter are for convenient reference only and shall not in any way affect the
meaning or interpretation of such paragraphs.
3
<PAGE>
11. Notices. All notices required or contemplated hereunder shall be
given to the parties in the manner specified for giving notices under the Lease.
12. Binding Effect. This Work Letter shall be construed under the laws
of the State of Texas and shall be binding upon and shall inure to the benefit
of the parties hereto and their respective permitted successors and assigns.
13. Conflict. In the event of conflict between this Work Letter and any
other exhibits or addenda to the Lease, this Work Letter shall prevail.
DATED as of the 20th day of September, 1999.
"LESSOR"
APPLE SUITES, INC.
By: /s/ Glade M. Knight
----------------------------------
Name: Glade M. Knight
--------------------------------
Title: President
--------------------------------
"LESSEE"
APPLE SUITES MANAGEMENT, INC.
By: /s/ Glade M. Knight
----------------------------------
Name: Glade M. Knight
--------------------------------
Title: President
--------------------------------
4
<PAGE>
SCHEDULE 2.1
COMMENCEMENT DATES
Homewood Suites-Registered Trademark- Richmond - West End
Glen Allen, Virginia
September 20, 1999
<PAGE>
SCHEDULE 2.1
COMMENCEMENT DATES
Homewood Suites-Registered Trademark- Atlanta - Galleria/Cumberland
Atlanta, Georgia
October 5, 1999
<PAGE>
SCHEDULE 3.1(a)
BASE RENTS
Homewood Suites-Registered Trademark- Atlanta - Galleria/Cumberland
Atlanta, Georgia
$661,320
<PAGE>
SCHEDULE 3.1(a)
BASE RENTS
Homewood Suites-Registered Trademark- Richmond - West End
Glen Allen, Virginia
$674,190
<PAGE>
SCHEDULE 3.1(b)
SUITE REVENUE BREAKPOINT
Homewood Suites-Registered Trademark- Atlanta - Galleria/Cumberland
Atlanta, Georgia
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Quarters 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $285,570 $265,530 $270,540 $275,550 $280,560 $285,570 $290,580 $295,590 $300,600 $305,610
2nd Quarter $571,140 $531,060 $541,080 $551,100 $561,120 $571,140 $581,160 $591,180 $601,200 $611,220
3rd Quarter $856,710 $796,590 $811,620 $826,650 $841,680 $856,710 $871,740 $886,770 $901,800 $916,830
4th Quarter $1,142,280 $1,062,120 $1,082,160 $1,102,200 $1,122,240 $1,142,280 $1,162,320 $1,182,360 $1,202,400 $1,222,440
- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
SCHEDULE 3.1(b)
SUITE REVENUE BREAKPOINT
Homewood Suites(R) Richmond - West End
Glen Allen, Virginia
<TABLE>
<CAPTION>
- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Quarters 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $291,128 $270,698 $275,805 $280,913 $286,020 $291,128 $296,235 $301,343 $306,450 $311,558
2nd Quarter $582,255 $541,395 $551,610 $561,825 $572,040 $582,255 $592,470 $602,685 $612,900 $623,115
3rd Quarter $873,383 $812,093 $872,415 $842,738 $858,060 $873,383 $888,705 $904,028 $919,350 $934,673
4th Quarter $1,164,510 $1,082,790 $1,103,220 $1,123,650 $1,144,080 $1,164,510 $1,184,940 $1,205,370 $1,225,800 $1,246,230
- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
MASTER HOTEL LEASE AGREEMENT
DATED AS OF SEPTEMBER 20, 1999
BETWEEN
APPLE SUITES REIT LIMITED PARTNERSHIP
A VIRGINIA LIMITED PARTNERSHIP
AS LESSOR
AND
APPLE SUITES SERVICES LIMITED PARTNERSHIP
A VIRGINIA LIMITED PARTNERSHIP
AS LESSEE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 LEASED PROPERTY; OTHER DEFINITIONS.........................................................................1
1.1. Leased Property.............................................................................................1
1.2. Definitions.................................................................................................2
ARTICLE 2 TERM; TERMINATION.........................................................................................14
2.1. Term.......................................................................................................14
2.2. Lessor's Option to Terminate Lease.........................................................................15
2.3. Transition Procedures......................................................................................16
2.4. Holding Over...............................................................................................17
ARTICLE 3 RENT; RENT ADJUSTMENTS....................................................................................17
3.1. Rent.......................................................................................................17
3.2. Confirmation of Percentage Rent............................................................................20
3.3. Additional Charges.........................................................................................21
3.4. Net Lease; No Termination, Abatement, Etc..................................................................23
3.5. Material Changes in Economic Climate.......................................................................23
3.6. Rent Adjustment: Basic Assumptions Incorrect..............................................................24
ARTICLE 4 ANNUAL BUDGETS; BOOKS AND RECORDS.........................................................................25
4.1. Annual Budget..............................................................................................25
4.2. Books and Records..........................................................................................26
ARTICLE 5 IMPOSITIONS; HOTEL COSTS..................................................................................26
5.1. Payment of Impositions.....................................................................................26
5.2. Notice of Impositions......................................................................................27
5.3. Adjustment of Impositions..................................................................................27
5.4. Utility Charges............................................................................................27
5.5. Insurance Premiums.........................................................................................27
5.6. Franchise Fees.............................................................................................27
5.7. Ground Rent................................................................................................28
ARTICLE 6 LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY...............................................................28
6.1. Ownership of the Leased Property...........................................................................28
6.2. Lessee's Personal Property.................................................................................28
6.3. Lessor's Lien..............................................................................................28
6.4. Lessor's Option to Purchase Assets of Lessee...............................................................29
ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY......................................................................29
7.1. Condition of the Leased Property...........................................................................29
7.2. Use of the Leased Property.................................................................................30
7.3. Lessor to Grant Easements, Etc.............................................................................30
ARTICLE 8.LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS.....................................................31
8.1. Compliance with Legal and Insurance Requirements, Etc......................................................31
8.2. Legal Requirement Covenants................................................................................31
8.3. Environmental Covenants....................................................................................32
ARTICLE 9.MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS...................................................34
9.1. Maintenance and Repairs....................................................................................34
9.2. Encroachments, Restrictions, Etc...........................................................................36
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 10 ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE...............................................................36
10.1. Alterations.............................................................................................36
10.2. Salvage.................................................................................................37
10.3. Joint Use Agreements....................................................................................37
10.4. Initial Upgrade of Leased Improvements..................................................................37
10.5. Furniture, Fixture and Equipment Allowance..............................................................37
ARTICLE 11 COMPLIANCE WITH FRANCHISE................................................................................38
11.1. Compliance with Franchise Agreement and Management Agreement............................................38
ARTICLE 12 PERMITTED LIENS AND CONTESTS.............................................................................38
12.1. Liens...................................................................................................38
12.2. Permitted Contests......................................................................................38
ARTICLE 13 INSURANCE REQUIREMENTS...................................................................................39
13.1. General Insurance Requiremen.ts.........................................................................39
13.2. Replacement Cost........................................................................................41
13.3. Waiver of Subrogation...................................................................................41
13.4. Form Satisfactory, Etc..................................................................................41
13.5. Increase in Limits......................................................................................42
13.6. Blanket Policy..........................................................................................42
13.7. No Separate Insurance...................................................................................42
13.8. Reports On Insurance Claims.............................................................................42
ARTICLE 14 CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION..............................................................43
14.1. Insurance Proceeds......................................................................................43
14.2. Reconstruction in the Event of Damage or Destruction Covered by Insurance...............................43
14.3. Reconstruction in the Event of Damage or Destruction Not Covered by Insurance...........................44
14.4. Lessee's Property.......................................................................................44
14.5. Abatement of Rent.......................................................................................44
14.6. Damage Near End of Term.................................................................................45
14.7. Waiver..................................................................................................45
ARTICLE 15 CONDEMNATION; AWARD ALLOCATION...........................................................................45
15.1. Definitions.............................................................................................45
15.2. Parties' Rights and Obligations.........................................................................45
15.3. Total Taking............................................................................................45
15.4. Allocation of Award.....................................................................................46
15.5. Partial Taking..........................................................................................46
15.6. Temporary Taking........................................................................................46
ARTICLE 16 DEFAULT BY LESSEE; LESSOR'S REMEDIES.....................................................................47
16.1. Events of Default.......................................................................................47
16.2. Surrender...............................................................................................48
16.3. Damages.................................................................................................49
16.4. Waiver..................................................................................................50
16.5. Application of Funds....................................................................................50
16.6. Lessor's Right to Cure Lessee.'s Default................................................................50
ARTICLE 17 DEFAULT BY LESSOR; LESSEE'S REMEDIES.....................................................................50
17.1. Breach by Lessor........................................................................................50
17.2. Lessee's Right to Cure..................................................................................51
17.3. Provisions Relating to Purchase of the Leased Property by Lessee........................................51
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 18 INDEMNIFICATION..........................................................................................52
18.1. Indemnification.........................................................................................52
ARTICLE 19 REIT REQUIREMENTS AND RESTRICTIONS.......................................................................53
19.1. Personal Property Limitation............................................................................53
19.2. Sublease Rent Limitation................................................................................53
19.3. Sublease Tenant Limitation..............................................................................53
19.4. Lessee Ownership Limitations............................................................................53
19.5. Lessee Officer and Employee Limitation..................................................................53
19.6. Payments to Affiliates of Lessee........................................................................54
ARTICLE 20 SUBLETTING AND ASSIGNMENT................................................................................54
20.1. Subletting and Assignment...............................................................................54
20.2. Attornment..............................................................................................54
20.3. Conveyance by Lessor....................................................................................55
ARTICLE 21 QUIET ENJOYMENT; RISK OF LOSS............................................................................55
21.1. Quiet Enjoyment.........................................................................................55
21.2. Risk of Loss............................................................................................55
ARTICLE 22 LESSOR MORTGAGES; SUBORDINATION OF LEASE.................................................................55
22.1. Lessor May Grant Liens..................................................................................56
22.2. Subordination of Lease..................................................................................56
ARTICLE 23 ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS...........................................56
23.1. Estoppel Certificates; Financial Statements.............................................................56
23.2. Lessor's Right to Inspect...............................................................................57
ARTICLE 24 APPRAISERS...............................................................................................57
24.1. Appraisers..............................................................................................58
ARTICLE 25 ARBITRATION AND DISPUTE RESOLUTION PROCEDURES............................................................58
25.1. Arbitration.............................................................................................58
25.2. Alternative Arbitration.................................................................................59
25.3. Arbitration Procedure...................................................................................59
ARTICLE 26 NOTICES..................................................................................................59
26.1. Notices.................................................................................................59
ARTICLE 27 MISCELLANEOUS............................................................................................60
27.1. No Waiver...............................................................................................60
27.2. Remedies Cumulative.....................................................................................60
27.3. Waiver of Trial by Jury.................................................................................60
27.4. Acceptance of Surrender.................................................................................60
27.5. No Merger of Title......................................................................................61
27.6. Waiver of Presentment, Etc..............................................................................61
27.7. Action for Damages......................................................................................61
27.8. Lease Assumption in Bankruptcy Proceeding...............................................................61
27.9. Enforceability..........................................................................................61
27.10. Memorandum of Lease.....................................................................................61
</TABLE>
iii
<PAGE>
Exhibit A - Legal Description
Exhibit B - Work Letter
Schedule 2.1 - Commencement Dates
Schedule 3.1(a) - Base Rents
Schedule 3.1(b) - Suite Revenue Breakpoint
iv
<PAGE>
MASTER HOTEL LEASE AGREEMENT
THIS MASTER HOTEL LEASE AGREEMENT (hereinafter called "Lease"), made as
of the 20th day of September, 1999, by and between Apple Suites REIT Limited
Partnership, a Virginia limited partnership (hereinafter called "Lessor"), and
Apple Suites Services Limited Partnership, a Virginia limited partnership
(hereinafter called "Lessee"), provides as follows:
AGREEMENT:
Lessor, for and 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
LEASED PROPERTY; OTHER DEFINITIONS
1.1. Leased Property. The Leased Property shall mean and is comprised
of Lessor's interest in the following:
(a) 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 offsite), 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,
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
1
<PAGE>
(f) all existing leases of space within 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 AND OTHER MATTERS WHICH WOULD BE
DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY
THEREOF.
1.2. Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article 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
generally accepted accounting principles as are at the time applicable, (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 Charges: As defined in Section 3.3.
Affiliate: As used in this Lease 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 (10%) or more of
the outstanding capital stock, shares or equity interests of such Person, or (c)
any officer, director, employee, partner, manager or trustee of such Person or
any Person controlling, controlled by or under common control with such Person
or any Person that owns, beneficially, directly or indirectly, ten percent (10%)
or more of the outstanding capital stock, shares or equity interests of 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.
Annual Budget: As used in this Lease, the term "Annual Budget"
shall mean an operating and capital budget prepared by Lessee and delivered to
Lessor in accordance with Section 4.1.
Award: As defined in Subsection 15.1(a).
2
<PAGE>
Base Rate: The rate of interest announced publicly by Citibank,
N.A., in New York, New York, from time to time, as such bank's base rate. If no
such rate is announced or if such rate becomes discontinued, then such other
rate as Lessor may reasonably designate.
Base Rent: As defined in Subsection 3.1(a).
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which national banks in the City of New York, New
York, or in the municipality wherein the Leased Property is located are closed.
CERCLA: The Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
Change of Control: The sale, conveyance, assignment, encumbering,
pledging, hypothecation, granting a security interest in, granting of options
with respect to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration) of any class stock or other equity interests in a Person (other
than among existing holders of interests in such Person on the Commencement Date
and/or family members of such holders and/or trusts for the benefit of any of
the foregoing) that, upon a transfer of any portion thereof, will create in the
transferee thereof, directly or indirectly, a majority of any class of stock or
other equity interests of such Person.
Claims: As defined in Section 12.2.
COBRA: As defined in Subsection 8.2(b).
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Section 2.1.
Competitive Set: As defined in the STR Reports. Lessor and Lessee
shall work in good faith to determine any additions and deletions to the Hotel's
Competitive Set, on or before November 15th of each year, with such changes to
be applicable for the following Fiscal Year. In the event Lessor and Lessee
cannot agree to the Hotel's Competitive Set by November 15th of any year, such
unagreed items shall be determined by Smith Travel Research (or, if it refuses
or is unable to do so, by arbitration pursuant to Section 25.2). The costs of
resetting the Hotel's Competitive Set shall be borne equally by the parties.
Comparison Month: As defined in Subsection 3.1(d).
Condemnation, Condemnor: As defined in Section 15.1
Consolidated Financials: For any fiscal year or other accounting
period for Lessee and its consolidated subsidiaries, if any, statements of
earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as at the end of such
period,
3
<PAGE>
together with the notes thereto, all in reasonable detail and setting forth in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year, and prepared in accordance with generally accepted
accounting principles and audited by independent certified public accountants
acceptable to Lessor in its sole discretion.
Consumer Price Index: The "U.S. City Average, All Items" Consumer
Price Index for All Urban Consumers published by the Bureau of Labor Statistics
of the United States Department of Labor (Base: 1982-1984=100), or any successor
index thereto. If the Consumer Price Index is hereafter converted to a different
standard reference base or otherwise revised, any determination hereunder that
uses the Consumer Price Index shall be made with the use of such conversion
factor, formula or table for converting the Consumer Price Index as may be
published by the Bureau of Labor Statistics, or, if the Bureau shall no longer
publish the same, then with the use of such conversion factor, formula or table
as may be published by Prentice Hall, Inc., or, failing such publication, by any
other nationally recognized publisher of similar statistical information.
Date of Taking: As defined in Subsection 15.1(d).
Encumbrance: As defined in Section 22.1.
Environmental Audit: As defined in Subsection 8.3(b).
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 obligations to pay the
amount of any judgment or settlement, the cost of complying with any 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
4
<PAGE>
against or imposed upon Lessor, Lessee, any Predecessor, the Leased Property or
any property used therein and arising out of:
(a) Failure of Lessee, Lessor, any Predecessor or the Leased
Property to comply at any time with all Environmental Laws;
(b) Presence of any Hazardous Materials on, in, under, at or in
any way affecting the Leased Property;
(c) A Release at any time of any Hazardous Materials on, in, at,
under or in any way affecting the Leased Property;
(d) Identification of Lessee, Lessor or any Predecessor as a
potentially responsible party under CERCLA or under any Environmental Law
similar to CERCLA;
(e) 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.
Fair Market Rental: The fair market rental of the Leased Property
means the rental which a willing tenant not compelled to rent would pay a
willing landlord not compelled to lease for the use and occupancy of such Leased
Property pursuant to the Lease for the term in question, (a) assuming that
Lessee is not in default thereunder and (b) determined in accordance with the
appraisal procedures set forth in Article 24 or in such other manner as shall be
mutually acceptable to Lessor and Lessee.
Fair Market Value: The fair market value of the Leased Property
means an amount equal to the price that a willing buyer not compelled to buy
would pay a willing seller not compelled to sell for such Leased Property, (a)
assuming the same is unencumbered by this Lease, (b) determined in accordance
with the appraisal procedures set forth in Article 24 or in such other manner as
shall be mutually acceptable to Lessor and Lessee, (c) assuming that such seller
must pay customary closing costs and title premiums, and (d) taking into account
the positive or negative effect on the value of the Leased Property attributable
to the interest rate, amortization schedule, maturity date, prepayment penalty
and other terms and conditions of any encumbrance that is assumed by the
transferee. In addition, in determining the Fair Market Value with respect to
damaged or destroyed Leased Property such value shall be determined as if such
Leased Property had not been so damaged or destroyed.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act,
as amended.
5
<PAGE>
Fiscal Year: The twelve (12) month period from January 1 to
December 31, or any shorter period at the beginning or end of the Term.
Fixtures: As defined in Section 1.1.
Force Majeure: An Unavoidable Occurrence, generally affecting
travel and/or the hotel or lodging business in the market and/or submarket in
which the Hotel is located.
Franchise Agreement: Any franchise agreement or license agreement
with a franchisor (such as Promus Hotels, Inc.) under which the Hotel is
operated.
Furniture and Equipment: For purposes of this Lease, 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 Hotel, together with all replacements therefor and
additions thereto, including, without limitation, (i) all equipment and systems
required for the operation of kitchens and bars, laundry and dry cleaning
facilities, (ii) office equipment, (iii) material handling equipment, cleaning
and engineering equipment, (iv) telephone and computerized accounting systems,
and (v) vehicles.
Government: The United States of America, any state, district or
territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any agency or political
subdivision of any of the foregoing.
Gross Operating Expenses: The term "Gross Operating Expenses"
shall include (i) all costs and expenses of operating the Hotel included within
the meaning of the term "Total Costs and Expenses" contained in the Uniform
System and, (ii) without duplication, the following: all salaries and employee
expense and payroll taxes (including salaries, wages, bonuses and other
compensation of all employees of the Hotel, and benefits including life, medical
and disability insurance and retirement benefits), expenditures described in
Section 9.1, operational supplies, utilities, insurance to be provided by Lessee
under the terms of this Lease, governmental fees and assessments, common area
maintenance costs and other common area fees and assessments, food, beverages,
laundry service expense, the cost of Inventories, license fees, advertising,
marketing, reservation systems and any and all other operating expenses as are
reasonably necessary for the proper and efficient operation of the Hotel and the
Leased Property incurred by Lessee in accordance with the provisions hereof
(excluding, however, (i) federal, state and municipal excise, sales and use
taxes collected directly from patrons and guests or as a part of the sales price
of any goods, services or displays, such as gross receipts, admissions, cabaret
or similar or equivalent taxes paid over to federal, state or municipal
governments, (ii) the cost of insurance to be provided under Article 13, (iii)
expenditures by Lessor pursuant to Article 13 and (iv) payments on any Mortgage
or other mortgage or security instrument on the Hotel); all determined in
accordance with generally accepted accounting principles. No part of Lessee's
central office overhead or general or administrative expense (as opposed to that
of the Hotel) shall be deemed to be a part of Gross Operating Expenses, as
herein provided. Reasonable out-of-pocket expenses of Lessee incurred for the
account of or in connection with the Hotel operations, including but not limited
to postage, telephone charges and reasonable travel expenses of employees,
officers and other representatives and consultants of Lessee and its Affiliates,
shall be deemed to be a part of Gross Operating
6
<PAGE>
Expenses and such Persons shall be afforded reasonable accommodations, food,
beverages, laundry, valet and other such services by and at the Hotel without
charge to such Persons or Lessee.
Gross Operating Profit: For any Fiscal Year, the excess of Gross
Revenues for such Fiscal Year over Gross Operating Expenses for such Fiscal
Year.
Gross Revenues: All revenues, receipts, and income of any kind
derived directly or indirectly by Lessee from or in connection with the Hotel
(including rentals or other payments from tenants, lessees, licensees or
concessionaires but not including their gross receipts) whether on a cash basis
or credit, paid or collected, determined in accordance with generally accepted
accounting principles, excluding, however: (i) funds furnished by Lessor, (ii)
federal, state and municipal excise, sales, and use taxes collected directly
from patrons and guests or as a part of the sales price of any goods, services
or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes and paid over to federal, state or municipal governments, (iii)
the amount of all credits, rebates or refunds to customers, guests or patrons,
and all service charges, finance charges, interest and discounts attributable to
charge accounts and credit cards, to the extent the same are paid to Lessee by
its customers, guests or patrons, or to the extent the same are paid for by
Lessee to, or charged to Lessee by, credit card companies, (iv) gratuities or
service charges actually paid to employees, (v) proceeds of insurance and
condemnation, (vi) proceeds from sales other than sales in the ordinary course
of business, (vii) all loan proceeds from financing or refinancings of the Hotel
or interests therein or components thereof, (viii) judgments and awards, except
any portion thereof arising from normal business operations of the Hotel, and
(ix) items constituting "allowances" under the Uniform System.
Hazardous Materials: All chemicals, pollutants, contaminants,
wastes and toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in RCRA or any other
Environmental Law;
(b) Hazardous substances, as defined in CERCLA or any other
Environmental Law;
(c) Toxic substances, as defined in TSCA or any other
Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined in
FIFRA or any other Environmental Law; and
(e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyl, asbestos and urea formaldehyde.
Hotel: The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.
Hotel Market Decline: A period of six (6) consecutive calendar
months during which there is (i) a twenty percent (20%) decline in average hotel
occupancy for the Hotel from the average hotel occupancy levels for same period
during the prior calendar year and (ii) a twenty
7
<PAGE>
percent (20%) decline in average hotel occupancy for the Hotel's Competitive Set
from the average hotel occupancy levels for the same period during the prior
calendar year, as published in the applicable STR Reports.
Impositions: Collectively, all taxes (including, without
limitation, all ad valorem, sales and use, single business, gross receipts,
transaction, privilege, rent or similar taxes as the same relate to or are
imposed upon Lessee or its business conducted upon the Leased Property),
assessments (including, without limitation, 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 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, or (4) any single business, gross receipts
(other than a tax on any rent received by Lessor from Lessee), transaction,
privilege or similar taxes as the same relate to or are imposed upon Lessor,
except to the extent that any tax, assessment, tax levy or charge that Lessee is
obligated to pay pursuant to the first sentence of this definition and that is
in effect at any time during the Term hereof is totally or partially repealed,
and a tax, assessment, tax levy or charge set forth in clause (1) or (2) is
levied, assessed or imposed expressly in lieu 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 Sections 8.3 or 18.1.
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 without limitation linens,
china, silver, glassware and other non-depreciable personal property, and
including any property of the type described in Section 1221(1) of the Code.
Land: As defined in Section 1.1.
8
<PAGE>
Lease: This Lease.
Leased Improvements; Leased Property: Each as defined in Section
1.1.
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 or alteration thereof (whether by Lessee or
otherwise), whether now in force or 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 and regulations relating
thereto and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.
Lending Institution: Any insurance company, credit company,
federally-insured commercial or savings bank, national banking association,
savings and loan association, employees welfare, pension or retirement fund or
system, corporate profit sharing or pension trust, college or university, or
real estate investment trust, including any corporation qualified to be treated
for federal tax purposes as a real estate investment trust, such trust having a
net worth of at least $10,000,000.
Lessee: The Lessee designated on this Lease and its respective
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 (including a
stockholder's or member's interest) in Lessee, the officers, directors,
stockholders, members, managers, employees, agents and representatives of
Lessee, and the respective heirs, personal representatives, successors and
assigns of any such officer, director, stockholder, member, manager, employee,
agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
Lessee's Work: As defined in Section 10.4.
Lessor: The Lessor designated In this Lease and its respective
successors and assigns.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any
other Person against whom any claim for indemnification may be asserted
hereunder as a result of a direct or indirect ownership interest (including a
stockholder's or partnership interest) in Lessor, the officers, directors,
stockholders, members, managers, employees, agents and representatives of the
general partner of Lessor and any partner, agent, or representative of Lessor,
and the respective heirs,
9
<PAGE>
personal representatives, successors and assigns of any such officer, director,
stockholder, partner, member, manager, employee, agent or representative.
Licenses: As defined in Subsection 2.3(a).
Management Agreement: The agreement pursuant to which Manager
operates the Hotel.
Manager: Promus Hotels, Inc., a Delaware corporation, or any
successor manager that is retained by Lessee to operate the Hotel pursuant to
this Lease and the Franchise Agreement.
Minimum Price: The sum of (a) the equity in the Leased Property
at the time of acquisition of the Leased Property by Lessor, plus (b) other
capital expenditures on the Leased Property by Lessor after the date hereof
(less depreciation and amortization thereof) plus (c) the unpaid principal
balance of all encumbrances against the Leased Property at the time of purchase
of the Leased Property by Lessee, less (x) all proceeds received by Lessor from
any financing or refinancing of the Leased Property after the date hereof (after
payment of any debt refinanced and net of any costs and expenses incurred in
connection with such financing or refinancing, including, without limitation,
loan points, commitment fees and commissions and legal fees) and (y) the net
amount (after deduction of all reasonable legal fees and other costs and
expenses, including without limitation expert witness fees, incurred by Lessor
in connection with obtaining any such proceeds or award) of all insurance
proceeds received by Lessor and awards received by Lessor from any partial
Taking of the Leased Property that are not applied to restoration.
Mortgage: As defined in Section 22.2.
National Economic Decline: A period of six (6) consecutive
calendar months during which there occurs or continues a ten percent (10%)
decline in average hotel occupancy, from average hotel occupancy levels for the
same period during the prior calendar year, for all open and operating hotels in
the United States as determined from the applicable STR Reports or, if the STR
Reports are not longer published, other reputable national economic data
regarding the hospitality industry.
Notice: As defined in Article 26.
Officer's Certificate: A certificate of Lessee reasonably
acceptable to Lessor, signed by the chief financial officer or another officer
authorized so to sign by the board of directors or other governing body of
Lessee, or bylaws or limited liability company agreement of Lessee, or any other
Person whose power and authority to act has been authorized by delegation in
writing by any such officer.
Optional Termination Date: As defined in Section 2.2.
Overdue Rate: On any date, a rate equal to the Base Rate plus
five percent (5%) per annum, but in no event greater than the maximum rate then
permitted under applicable law.
10
<PAGE>
Payment Date: Any due date for the payment of any installment of
Base Rent.
Percentage Rent: As defined in Subsection 3.1(b).
Person: Any Government, natural person, corporation, general or
limited partnership, limited liability company, stock company or association,
joint venture, association, company, trust, bank, trust company, land trust,
business trust, or other entity.
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 than Inventory and other personal property owned by Lessee), together
with all replacement, 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,
either contractually or by operation of law, relating to the Leased Property.
Primary Intended Use: As defined in Subsection 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.
Quarterly Revenues Computation: As defined in Subsection 3.1(b).
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.
Regional Market Decline: A period of six (6) consecutive calendar
months during which there is a twenty percent (20%) decline in average hotel
occupancy from hotel occupancy levels for the same period during the then prior
calendar year, for all open and operating hotels in the Smith Travel Research
Region in which the Hotel is located, as determined from applicable STR Reports
or, if the STR Reports are no longer published, other reputable regional
economic data regarding the hospitality industry.
Rejectable Offer Price: An amount equal to the greater of (a) the
Fair Market Value, determined as of the applicable purchase date, or (b) the
Minimum Price.
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.
11
<PAGE>
Rent: Collectively, the Base Rent, Percentage Rent, and
Additional Charges.
Repositioning: As defined in Section 3.6.
SARA: The Superfund Amendments and Reauthorization Act of 1986,
as amended.
Solvent: As to any Person, (a) the sum of the assets of such
Person exceeds its liabilities and (b) such Person has sufficient capital with
which to conduct its business as presently conducted and as proposed to be
conducted.
State: The state or commonwealth in which the Hotel is located.
STR Reports: Reports compiled by Smith Travel Research, or its
successor, which contain historical supply and demand, occupancy, and average
rate information for the Hotel and hotels with which it competes (or, in the
event that Smith Travel Research discontinues providing such information,
reports of similar nature compiled by an authority recognized nationally in the
hospitality industry).
Subsidiaries: Persons in which Lessee owns, directly or
indirectly, more than fifty percent (50%) of the voting stock or control, as
applicable.
Suite Revenue Breakpoint: As defined in Subsection 3.1(b).
Suite Revenues: All revenues, receipts, and income of any kind
derived directly or indirectly by Lessee from or in connection with the rental
of guest rooms or suites, whether to individuals, groups or transients, at the
Hotel, whether on a cash basis or credit, paid or collected, determined in
accordance with generally accepted accounting principles, but excluding the
following:
(a) The amount of all credits, rebates or refunds to customers,
guests or patrons, and all service charges, finance charges, interest and
discounts attributable to charge accounts and credit cards, to the extent the
same are paid to Lessee by its customers, guests or patrons, or to the extent
the same are paid for by Lessee to, or charged to Lessee by, credit card
companies;
(b) All sales taxes or any other taxes imposed on the rental of
such guest rooms or suites;
(c) Gratuities or service charges actually paid to employees;
(d) Proceeds of business interruption and other insurance; and
(e) Sundry Revenues.
12
<PAGE>
Sundry Revenues: All revenues, receipts, and income derived from
the Hotel's meeting rooms, telephones, TV and movie rentals, check room,
washroom, laundry, valet, vending machines, and other sources not specified
herein as Suite Revenues.
Taking: A 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 2.1.
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delays: Delays 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 or other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto unless such lack of funds is caused by the
failure of the other party hereto to perform any obligations of such party under
this Lease or any guaranty of this Lease.
Unavoidable Occurrence. The occurrence of strikes, lockouts,
labor unrest, gasoline and other energy shortages, widespread disruption of air,
auto or other travel, inability to procure materials or services, power or other
utility failure, acts of God (such as hurricanes, tornadoes, earthquakes, floods
and mud slides), governmental restrictions, war or other enemy or terrorist
action, civil commotion, fire, casualty, condemnation, the Year 2000 Problem or
other similar causes, in each case, if such cause is beyond the reasonable
control of Lessee; provided that (i) 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 failure of the other party hereto to perform any obligations of
such party under this Lease or any guaranty of this Lease, and (ii) any such
occurrence is an extraordinary, as opposed to a routine or cyclical, material
event that was not reasonably foreseeable when the then-applicable Annual Budget
was prepared.
Uneconomic for its Primary Intended Use: A state or condition of
the Hotel such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, the Hotel cannot be operated on a commercially practicable basis
for its Primary Intended Use, taking into account, among other relevant factors,
the number of usable rooms and projected revenues, such that Lessee intends to,
and shall, complete the cessation of operations from the Leased Hotel.
Uniform System: The Uniform System of Accounts for Hotels (9th
Revised Edition, 1996) as published by the Hotel Association of New York City,
Inc., with such later revisions as may be agreed to by both Lessor and Lessee.
Unsuitable for its Primary Intended Use: A state or condition of
the Hotel such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the
13
<PAGE>
board of directors or other governing body of Lessee, due to casualty damage or
loss through Condemnation, the Hotel cannot function as an integrated hotel
facility consistent with standards applicable to a well maintained and operated
hotel.
WARN Act: As defined in Subsection 8.2(b).
Work Letter: As defined in Section 10.4.
Working Capital: Funds reasonably necessary for the day-to-day
operation of the Hotel's business for a thirty (30) day period, including,
without limitation, amounts sufficient for the maintenance of change and petty
cash funds, operating bank accounts, payrolls, accounts payable, accrued current
liabilities, and funds required to maintain Inventories.
Year 2000 Problem: The malfunction of software, hardware or an
embedded technological system due to the failure to properly process any date or
input which includes an indication of or reference to a date, including
specifically but not limited to dates that represent or reference different
centuries or more than one century, if either (i) Lessor had previously refused
to make or approve a capital expenditure reasonably proposed by Lessee to avoid
such Year 2000 Problem, or (ii) such Year 2000 Problem results from a
governmental or other third party failure to be year 2000 compliant and Lessee
has not failed to take reasonable steps to seek assurances that such parties
will be year 2000 compliant.
ARTICLE 2
TERM; TERMINATION
2.1. Term.
(a) The term of the Lease (the "Term") shall commence on the date
specified in Schedule 2.1 (the "Commencement Date"), and shall end on the tenth
(10th) anniversary of the Commencement Date, unless sooner terminated in
accordance with the provisions hereof or extended to an anniversary of the
initial expiration date pursuant to this Article 2.
(b) Lessee is granted the option to extend the Term of this Lease
for a period of five (5) years (the "First Extension"), provided that Lessee is
not in default hereunder either at the time of deemed exercise of the option or
at the end of the original Term, which option must be exercised by written
notice to Lessor at least one hundred twenty (120) days prior to the expiration
of the original Term. The First Extension shall be upon the same terms,
conditions and rentals as set forth herein for the original Term.
(c) Lessee is granted an option to extend the Term for a period
of five (5) years following the end of the First Extension (the "Second
Extension"), provided that Lessee is not in default hereunder either at the time
of exercise of the option or at the end of the First Extension, which option
must be exercised by written notice to Lessor at least one hundred twenty (120)
days prior to the expiration of the First Extension. If such option is
exercised, Lessor and Lessee shall negotiate in good faith modifications to the
Rent for the Second Extension to adjust such Rent to
14
<PAGE>
market rates for arms-length hotel REIT leases between unrelated parties for
similar hotel properties at that time. In the event Lessor and Lessee are unable
to agree upon Rent terms for the Second Extension at least ninety (90) days
prior to the expiration of the Term, the Rent terms for the Second Extension
shall be determined by a panel of three (3) persons who have generally
recognized expertise in evaluating hotel REIT leases and who are not Affiliates
of Lessor or Lessee. Lessee and the Lessor each shall have the right to
designate one panel member and the two (2) panel members so designated will
designate the third panel member. Rent terms approved by at least two (2) of the
three (3) panel members will be binding on Lessee and Lessor for the Second
Extension, which shall be otherwise on the terms set forth herein. In
determining the market rates for the Second Extension, the panel members shall
be instructed to consider hotel REIT lease terms with respect to similar hotel
property types. The Second Extension shall be otherwise upon the same terms and
conditions as set forth herein for the original Term.
2.2. Lessor's Option to Terminate Lease. In the event Lessor enters
into a bona fide contract to sell the Leased Property to a non-Affiliate, there
is a Change of Control of Lessor, or the provisions of the Code are amended to
permit Lessor to operate hotels or otherwise render the structure embodied by
this Lease to be obsolete, Lessor may terminate the Lease by giving not less
than thirty (30) days' prior Notice to Lessee of Lessor's election to terminate
the Lease effective upon, as appropriate, the closing under such contract, the
date of such Change of Control, or the effective date of such amendment to the
Code (or any other specified date within 30 days after such date) (the "Optional
Termination Date"). Effective upon the Optional Termination 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. As compensation for the early termination of its leasehold estate
under this Section 2.2, Lessor shall within 12 months of the Optional
Termination Date either (a) pay to Lessee the fair market value of Lessee's
leasehold estate hereunder plus interest thereon at the Base Rate as of the
Optional Termination Date or (b) offer to lease to Lessee one or more substitute
hotel facilities pursuant to one or more leases that would create for Lessee
leasehold estates that have an aggregate fair market value of no less than the
fair market value of the original leasehold estate, both such values as
determined as of the Optional Termination Date. Lessor also shall pay to Lessee,
or reimburse Lessee for any assignment fees, termination fees or other
liabilities arising under the Franchise Agreement or Management Agreement solely
as a result of the assignment or termination of such Franchise Agreement or
Management Agreement in connection with the termination of this Lease under this
Section 2.2. If Lessor elects and complies with the option described in (b)
above, regardless of whether Lessee enters into the lease(s) described therein,
Lessor shall have no further obligations to Lessee with respect to compensation
for the early termination of this Lease. 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 24.
For the purposes of this Article, 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, taking into account that the leasehold estate is encumbered by the
Franchise Agreement and an arm's-length Management Agreement.
15
<PAGE>
2.3. Transition Procedures. Upon the expiration or termination of the
Term of this Lease, for whatever reason (other than a purchase of the Leased
Property by Lessee), Lessor and Lessee shall do the following (and the
provisions of this Section 2.3 shall survive the expiration or termination of
this Lease until they have been fully performed) and, in general, shall
cooperate in good faith to effect an orderly transition of the management and/or
lease of the Hotel:
(a) Transfer of Licenses. Lessee shall use reasonable 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 Hotel (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; 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.
(b) Leases and Concessions. Lessee shall assign to Lessor or
Lessor's nominee simultaneously with the termination of this Lease, and the
assignee shall assume, all leases and concession agreements in effect with
respect to the Hotel then in Lessee's name.
(c) Books and Records. All books and records for the Hotel kept by
Lessee pursuant to Section 4.2 shall be delivered promptly to Lessor or Lessor's
nominee, simultaneously with the termination of this Lease, but such books and
records shall thereafter be available to Lessee at all reasonable times for
inspection, audit, examination, and transcription for a period of one (1) year
and Lessee may retain (on a confidential basis) copies or computer records
thereof.
(d) Receivables and Payables. 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 Gross Operating Expenses and all other
obligations of Lessee accrued under this Lease as of the termination date, and
Lessor or Lessor's nominee shall be responsible for all Gross Operating Expenses
of the Hotel accruing after the termination date.
(e) 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, along with a statement of any sums due from Lessee to Lessor
pursuant hereto and payment of such funds.
(f) 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 or its designee shall acquire such Inventory from
Lessee for a sale price equal to the fair market value of such Inventory.
(g) Surrender. 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
16
<PAGE>
(subject to the obligation of Lessee to maintain the Leased Property in good
order and repair, as would a prudent owner, during the entire Term of the
Lease), or damage by casualty or Condemnation (subject to the obligations of
Lessee to restore or repair as set forth in the Lease)
The provisions of this Section 2.3 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.
2.4. 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 150% of the aggregate of (a) one-twelfth of the
aggregate Base Rent and Percentage Rent payable with respect to the last Fiscal
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 3
RENT; RENT ADJUSTMENTS
3.1. Rent. Lessee will pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, in immediately available funds, at Lessor's address set forth in
Article 26 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:
(a) Base Rent: The annual sum specified in Schedule 3.1(a)
(prorated for fiscal year 1999), as adjusted pursuant to Subsection 3.1(d)
hereof, payable in advance in equal, consecutive monthly installments, on or
before the tenth day of each calendar month of the Term ("Base Rent"); provided,
however, that the first monthly payment of Base Rent shall be payable during the
second calendar month of the Term, and that the first and last monthly payments
of Base Rent shall be pro rated as to any partial month (subject to adjustment
as provided in Sections 14.5, 15.3 and 15.5).
(b) Percentage Rent: For each calendar quarter during the Term
commencing with the calendar quarter in which the Commencement Date falls and
ending with the calendar quarter in which the Term (including any applicable
extensions) ends, Lessee shall pay percentage rent ("Percentage Rent").
Percentage Rent for the applicable quarter shall be an amount equal to
the following formula:
17
<PAGE>
The amount equal to the applicable Quarterly Revenues Computation
(as defined below) less the sum of
(i) an amount equal to the Base Rent paid with respect to
such quarter and all prior calendar quarters of the applicable
Fiscal Year and
(ii) an amount equal to Percentage Rent paid with respect
to all prior calendar quarters of the applicable Fiscal Year.
For the purpose of the above formula:
The quarterly revenues computation ("Quarterly Revenues Computation")
is equal to the amount obtained by adding, for the applicable calendar quarter,
an amount equal to the sum of (i) seventeen percent (17%) of all Fiscal Year to
date Suite Revenues up to the applicable suite revenue breakpoint (the "Suite
Revenue Breakpoint") described in Schedule 3.1(b), attached hereto, (prorated
for the first and last calendar quarters of the Term (including any applicable
extensions)) and fifty-five percent (55%) of all Fiscal Year to date Suite
Revenues in excess of the applicable Suite Revenue Breakpoint. At the beginning
of each Fiscal Year, the Suite Revenue Breakpoints shall be adjusted by the same
percentage that the Base Rent is adjusted pursuant to Subsection 3.1(d). No
Percentage Rent shall be payable by Lessee with respect to Sundry Revenues.
The Percentage Rent shall be payable as follows:
(i) with respect to each calendar month of the Term, Lessee shall pay
on or before the last day of the calendar month an amount equal
to the excess, if any, of (A) seventy-five percent (75%) of the
amount of Lessee's budgeted Percentage Rent payable with respect
to the then current calendar month (which budgeted amount shall
be equal to one-third (1/3) of the quarterly estimate of
Percentage Rent included in the Annual Budget for the calendar
quarter in which the calendar month occurs) over (B) Base Rent
for such calendar month; and
(ii) with respect to each calendar quarter of the Term, Lessee shall
pay on or before the 15th day following the end of the calendar
quarter an amount equal to the amount, if any, by which the
aggregate of all payments in respect of Base Rent and Percentage
Rent for such calendar quarter shall be less than the amount
determined pursuant to the Quarterly Revenues Computation for
such calendar quarter.
In no event will the amount of Percentage Rent payable for any calendar quarter
or the result of any Quarterly Revenues Computation be less than zero, and there
shall be no reduction in the Base Rent regardless of the result of any Quarterly
Revenues Computation.
(c) Officer's Certificates. Additionally, an Officer's
Certificate shall be delivered to Lessor quarterly, together with such quarterly
Percentage Rent payment, setting forth the calculation of such rent payment for
such quarter, within thirty (30) days after each of the first three quarters of
each Fiscal Year (or part thereof) in the Term. Such quarterly payments shall be
18
<PAGE>
based on the formula set forth in Subsection 3.1(b). There shall be no reduction
in the Base Rent regardless of the result of the Quarterly Revenues
Computations.
In addition, on or before March 1 of each year, commencing with March
1, 2000, Lessee shall deliver to Lessor an Officer's Certificate reasonably
acceptable to Lessor setting forth the computation of the actual Percentage Rent
that accrued for each quarter of the Fiscal Year that ended on the immediately
preceding December 31 and shall pay to Lessor Percentage Rent, if due and
payable, for the last quarter of the applicable Fiscal Year. Additionally, if
the annual Percentage Rent due and payable for any Fiscal Year (as shown in the
applicable Officer's Certificate) exceeds the amount actually paid as Percentage
Rent by Lessee for such year, Lessee also shall pay such excess to Lessor at the
time such certificate is delivered. If the Percentage Rent actually due and
payable for such Fiscal Year is shown by such certificate to be less than the
amount actually paid as Percentage Rent for the applicable Fiscal Year, Lessor,
at its option, shall reimburse such amount to Lessee or credit such amount
against subsequent months' Base Rent and, to the extent necessary, subsequent
quarters' Percentage Rent payments. Any such credit to Base Rent shall not be
applied for purposes of calculating Percentage Rent payable for any subsequent
quarter.
Any difference between the annual Percentage Rent due and payable for
any Fiscal Year (as shown in the applicable Officer's Certificate or as adjusted
pursuant to Section 3.3) and the total amount of quarterly payments for such
Fiscal Year actually paid by Lessee as Percentage Rent, whether in favor of
Lessor or Lessee, shall bear interest at the Overdue Rate, which interest shall
accrue from the due date of the last quarterly payment for the Fiscal Year until
the amount of such difference shall be paid or otherwise discharged. Any such
interest payable to Lessor shall be deemed to be and shall be payable as
Additional Charges.
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, and Lessee's good faith best estimate of
the amount of any unresolved contractual allowances, shall be made not later
than two (2) years after such expiration or termination date, but Lessee shall
advise Lessor within sixty (60) days after such expiration or termination date
of Lessee's best estimate at that time of the approximate amount of such
adjustments, which estimate shall not be binding on Lessee or have any legal
effect whatsoever.
(d) CPI Adjustments to Base Rent and Percentage Rent. For each
year of the Term beginning on or after January 1, 2001, the Base Rent shall be
adjusted from time to time as follows:
(1) If the most recently published Consumer Price Index as of
the last day of the last month (the "Comparison Month") of any Fiscal
Year is different than the average Consumer Price Index for the twelve
(12) month period prior thereto, the Base Rent for the next Fiscal Year
shall be adjusted by the percentage change in the Consumer Price Index
calculated as follows:
19
<PAGE>
(A) The difference between the Consumer Price Index for
the most recent Comparison Month and the average Consumer Price
Index for the twelve (12) month period prior thereto shall be
divided by the average Consumer Price Index for the twenty four (24)
month period prior thereto.
(B) The Base Rent shall be multiplied by the lesser of
(i) seven percent (7%) or (ii) the quotient obtained in subparagraph
(d)(1)(A) above.
(C) The product obtained in subparagraph (d)(1)(B) above
shall be added to the Base Rent.
Adjustments in the Base Rent shall be effective on the first day of the
first calendar month of the Fiscal Year to which such adjusted Base Rent
applies. The Suite Revenue Breakpoint then included in the Quarterly Revenues
Computation pursuant to Subsection 3.1(b) shall be similarly adjusted, effective
with any such adjustment in the Base Rent.
(2) If (i) a significant change is made in the number or
nature (or both) of items used in determining the Consumer Price
Index, or (ii) the Consumer Price Index shall be discontinued for
any reason, the Bureau of Labor Statistics shall be requested to
furnish a new index comparable to the Consumer Price Index, together
with information which will make possible a conversion to the new
index in computing the adjusted Base Rent hereunder. If for any
reason the Bureau of Labor Statistics does not furnish such an index
and such information, the parties will instead mutually select,
accept and use such other index or comparable statistics on the cost
of living in Washington, D.C. that is computed and published by an
agency of the United States or a responsible financial periodical of
recognized authority.
(e) Manager Fund-up Cure Payments. If and to the extent that
Manager pays amounts to Lessee pursuant to the Management Agreement in order to
avoid termination of the Management Agreement by Lessee for Manager's failure to
meet certain performance hurdles described therein, such amounts shall be
treated as additional Suite Revenues for purposes of the Percentage Rent
calculation hereunder.
(f) Allocation of Rent. The parties hereto acknowledge and agree
that the Base Rent paid or payable by Lessee to Lessor hereunder shall, to the
extent relevant, be allocated between the personal property and real property
constituting Leased Property hereunder in direct proportion to the then
recognizable fair market value of such personal property and real property.
Percentage Rent in excess of Base Rent shall be allocated solely to real
property.
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 generally accepted
accounting principles, that will accurately record all data necessary to compute
Percentage Rent, and Lessee shall retain, for at least four (4) years after the
expiration of each Fiscal Year (and in any event until the reconciliation
described in Subsection 3.1(c) for such Fiscal Year has been made), reasonably
adequate records conforming to such accounting system showing all data necessary
to compute Percentage Rent for the applicable Fiscal
20
<PAGE>
Years. Lessor, at its expense (except as provided hereinbelow), shall have the
right from time to time, upon prior written notice to Lessee and Manager, by its
accountants or representatives to audit the information that formed the basis
for the data set forth in any Officer's Certificate provided under Subsection
3.1(c) and, in connection with such audits, to examine all Lessee's records
(including supporting data and sales and excise tax returns) reasonably required
to verify Percentage Rent, subject to any prohibitions or limitations on
disclosure of any such data under Legal Requirements; provided, however that
Lessor may only inspect or audit records in Manager's possession subject to the
terms of Lessee's access thereto under the Management Agreement. If any such
audit discloses a deficiency in the payment of Percentage Rent, and either
Lessee agrees with the result of such 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; provided, however, that as to any audit that is commenced
more than two (2) years after the date Percentage Rent for any Fiscal Year is
reported by Lessee to Lessor, the deficiency, if any, with respect to such
Percentage Rent shall bear interest at the Overdue Rate only from the date such
determination of deficiency is made unless such deficiency is the result of
gross negligence or willful misconduct on the part of Lessee, in which case
interest at the Overdue Rate will accrue from the date such payment should have
been made to the date of payment thereof. If any such audit discloses that the
Percentage Rent actually due from Lessee for any Fiscal Year exceed those
reported by Lessee by more than three percent (3%), Lessee shall pay the cost of
such audit and examination. 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 between the parties and except further that Lessor
may disclose such information to prospective lenders. The obligations of Lessee
contained in this Section shall survive the expiration or earlier termination of
this Lease.
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
Charges"), 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 on demand, as
Additional Charges, a late charge (to the extent permitted by law) computed at
the Overdue Rate on the amount of such installment, from the due date of such
installment to the date of payment thereof. To the extent that 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 same from monies
received from Lessee.
21
<PAGE>
3.4. Net Lease; No Termination, Abatement, Etc.
(a) The Rent shall be paid absolutely net to Lessor, so that this
Lease shall yield to Lessor the full amount of the installments of Base Rent,
Percentage Rent and Additional Charges throughout the Term, all as more fully
set forth in Article 5, but subject to any other provisions of this Lease that
expressly provide for adjustment or abatement of Rent or other charges or
expressly provide that certain expenses or maintenance shall be paid or
performed by Lessor.
(b) Except as otherwise specifically provided in this Lease, and
except for loss of the Franchise Agreement solely by reason of any action or
inaction by Lessor, 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 (which shall not be unreasonably withheld
or delayed) 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) the lawful or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, or any portion thereof, or the interference
with such use by any Person other than Lessor, (c) any claim which Lessee has or
might have against Lessor by reason of any default or breach of any warranty by
Lessor under this Lease or any other agreement between Lessor and Lessee, or to
which Lessor and Lessee are parties, (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Lessor or any assignee or transferee of Lessor,
or (e) 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 occurrence
whatsoever, 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 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.
3.5. Material Changes in Economic Climate.
(a) In the event of the occurrence of a Force Majeure or a Hotel
Market Decline, Lessor and Lessee shall, in good faith, negotiate possible
modifications to the Base Rent and Percentage Rent to reduce such Base Rent and
Percentage Rent to recent market rates for hotel REIT leases for similar hotel
properties in the Hotel's Competitive Set, retroactively effective as of the
first calendar month of the Term following the last day of the six-month period
during which such Hotel Market Decline has occurred with the excess of Base Rent
and Percentage Rent actually paid for such period over the reduced Base Rent and
Percentage Rent, plus interest thereon at the Base Rate, to be credited to the
next payments of Rent due and owing hereunder. If Lessor and Lessee are unable
to agree that a Force Majeure or a Hotel Market Decline has occurred, within
22
<PAGE>
thirty (30) days after the date of written certification from Lessee to Lessor
that a Force Majeure and Hotel Market Decline has occurred (accompanied by
reasonably detailed computations and documentation to support such assertion),
the matter may be submitted by either party to arbitration under Section 25.2
hereof for resolution (during which period Lessee shall continue to pay Base
Rent and Percentage Rent as required under Section 3.1 of this Lease). If,
within ninety (90) days (during which period Lessee shall continue to pay Base
Rent and Percentage Rent as required under Section 3.1 of this Lease) following
the date of such written certification from Lessee (or the date of a decision of
an arbitrator if required hereunder to determine that a Force Majeure and Hotel
Market Decline has occurred), Lessor and Lessee are unable to agree upon the
amount of reduction in Base Rent and Percentage Rent contemplated hereby, Lessee
shall have the option to terminate this Lease upon not less than thirty (30)
days prior written notice to Lessor.
(b) In the event of the occurrence of a National Economic Decline
or a Regional Market Decline, Lessor and Lessee shall, in good faith, negotiate
(i) possible modifications to the Base Rent and Percentage Rent to reduce such
Base Rent and Percentage Rent to recent market rates for hotel REIT leases for
similar hotel properties in the Hotel's Competitive Set, and (ii) possible
modifications to the Base and Percentage Rent payable under each of the Other
Leases for Other Hotels in the same Region (as defined in the STR Reports) as
the Hotel to reduce such Base Rent and Percentage Rent to recent market rates
for hotel REIT leases for similar hotel properties in the Hotel's Competitive
Set, in each case retroactively effective as of the first calendar month of the
Term following the last day of the six month period during which such Regional
Market Decline has occurred with the excess of Base Rent and Percentage Rent
actually paid for such period over the reduced Base Rent and Percentage Rent,
plus interest thereon at the Base Rent, to be credited to the next payments of
Rent due and owing hereunder. If, within thirty (30) days after the date of
written certification from Lessee to Lessor that a National Economic Decline and
Regional Market Decline has occurred (accompanied by reasonably detailed
computations and documentation to support such assertion), Lessor and Lessee are
unable to agree that a National Economic Decline or Regional Market Decline has
occurred, the matter may be submitted by either party to arbitration under
Section 25.2 hereof for resolution (during which period Lessee shall continue to
pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease).
If, within ninety (90) days (during which period Lessee shall continue to pay
Base Rent and Percentage Rent as required under Section 3.1 of this Lease)
following the date of such initial written certification from Lessee (or the
date of a decision of an arbitrator if required hereunder to determine that a
National Economic Decline and Regional Market Decline has occurred), Lessor and
Lessee are unable to agree upon the amount of reduction in Base Rent and
Percentage Rent contemplated hereby, Lessee shall have the option, upon not less
than sixty (60) days prior written notice to Lessor, to terminate all (but not
less than all) of the Existing Leases of hotels in the same Region as the Hotel,
including this Lease.
3.6. Rent Adjustment: Basic Assumptions Incorrect. Except to the extent
that doing so would cause Lessor to recognize income other than "rents from real
property" as defined in Section 856(d) of the Code, notwithstanding anything
herein (other than Article 19) to the contrary, if (i) the facts and
circumstances underlying the documented, basic assumptions upon which both
Lessor and Lessee have relied in determining the Base Rent, the Suite Revenue
Breakpoint, and the Percentage Rent payable hereunder become materially
incorrect solely as a result of (A) a decision to re-brand the Hotel that is
made after the Commencement Date, (B) the scope or cost of
23
<PAGE>
substantial renovations or other capital improvements to the Hotel, or (C) the
implementation of any other hotel repositioning strategies (that were not
planned as of the Commencement Date) resulting in significant disruption of the
operations of the Hotel (collectively, a "Repositioning"), and (ii) Lessor and
Lessee so agree in writing, then Lessor and Lessee shall, in good faith,
negotiate modifications to the Base Rent, Suite Revenue Breakpoint and
Percentage Rent to adjust (i.e., increase, decrease or reallocate among revenue
categories) such Base Rent, Suite Revenue Breakpoint and Percentage Rent to
reflect such change in basic assumptions for the affected periods, using the
same methodology and other basic assumptions as were initially utilized in
determining the Base Rent, Suite Revenue Breakpoint and Percentage Rent
hereunder. If Lessor and Lessee are unable to agree, within thirty (30) days
after the date of written certification from either Lessee or Lessor to the
other party that a good faith dispute exists, as to the existence of the
occurrence of a Repositioning or the adjustments to be made to the amounts or
percentages for the Base Rent, Suite Revenue Breakpoint and Percentage Rent
hereunder as a result of any repositioning, the dispute may be submitted by
either party to arbitration under Section 25.2 hereof for resolution (during
which period Lessee shall continue to pay Base Rent and Percentage Rent as
required under Section 3.1 of this Lease); provided, however, that for purposes
of applying the procedures in Section 25.3 to such arbitration, the target
deadline therein for concluding the arbitration shall be shortened from ninety
(90) days to thirty (30) days.
ARTICLE 4
ANNUAL BUDGETS; BOOKS AND RECORDS
4.1. Annual Budget. Not later than thirty (30) days prior to the
commencement of each Fiscal Year, Lessee shall submit the Annual Budget to
Lessor. The Annual Budget shall contain the following, to the extent included in
the operating budgets and capital budgets provided to Lessee by Manager under
the management agreement for the Hotel:
(a) Lessee's reasonable estimate of Gross Revenues (including
room rates and Suite Revenues), Gross Operating Expenses, and Gross Operating
Profits for the forthcoming Fiscal Year itemized on schedules on a quarterly
basis as approved by Lessor and Lessee, as same may be revised or replaced from
time to time by Lessee and approved by Lessor, together with the assumptions, in
narrative form, forming the basis of such schedules.
(b) An estimate of the amounts to be dedicated to the repair,
replacement, or refurbishment of Furniture and Equipment.
(c) An estimate of any amounts Lessor will be required to provide
for required or desirable capital improvements to the Hotel or any of its
components.
(d) A cash flow projection.
(e) A business plan, which shall describe business objectives and
strategies for the forthcoming Fiscal Year, and shall include without limitation
an analysis of the market area in which the Hotel competes, a comparison of the
Hotel and its business with competitive hotels, an
24
<PAGE>
analysis of categories of potential guests, and a description of sales and
marketing activities designed to achieve and implement identified objectives and
strategies.
4.2. Books and Records. Lessee shall keep full and adequate books of
account and other records reflecting the results of operation of the Hotel on an
accrual basis, all in accordance with generally accepted accounting principles
and the obligations of Lessee under this Lease. The books of account and all
other records relating to or reflecting the operation of the Hotel shall be kept
either at the Hotel or at Lessee's offices in Richmond, Virginia or at Manager's
central offices, and shall be available to Lessor and its representatives and
its auditors or accountants, at all reasonable times, upon prior written notice
to Lessee and Manager, for examination, audit, inspection, and transcription;
provided, however that Lessor may only inspect or audit records in Manager's
possession subject to the terms of Lessee's access thereto under the Management
Agreement. All of such books and records pertaining to the Hotel 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
Hotel or Lessee's offices or Manager's central offices (but may be moved among
any of the foregoing) by Lessee without Lessor approval.
ARTICLE 5
IMPOSITIONS; HOTEL COSTS
5.1. Payment of Impositions. Subject to Section 12.2 (relating to
permitted contests), Lessee will pay, or cause to be paid, all Impositions
(other than Real Estate Taxes and Personal Property Taxes, which shall be paid
by Lessor) before any fine, penalty, interest or cost may be added for
non-payment, 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 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 during the Term hereof (subject to
Lessee's right of contest pursuant to the provisions of Section 12.2) as the
same respectively become due and before any fine, penalty, premium, further
interest or cost may be added thereto. 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, Real Estate
Taxes, Personal Property 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. 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 occurred 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. Lessor and Lessee shall, upon
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may
25
<PAGE>
be necessary to prepare any required returns and reports. Lessee shall file all
Personal Property Tax returns in such jurisdictions where it is legally required
so to file. 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. Where Lessor is legally required to file
Personal Property Tax returns, Lessee shall provide Lessor with copies of
assessment notices in sufficient time for Lessor to file a protest. 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 or personal property
assessments for those Impositions to be paid by Lessor, 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, liabilities and loss against or
incurred by Lessee in connection with such cooperation. Billings for
reimbursement of Personal Property Taxes by Lessee to Lessor shall be
accompanied by copies of a bill therefor and payments thereof which identify the
personal property with respect to which such payments are made. 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 go forward
at Lessor's sole expense. Upon such Notice, Lessee, at Lessor's expense, shall
cooperate fully with such activities.
5.2. 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 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.
5.3. Adjustment of Impositions. Impositions 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.
5.4. 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.
5.5. Insurance Premiums. Lessee will pay or cause to be paid all
premiums for the insurance coverage's required to be maintained by it under
Article 13.
5.6. Franchise Fees. Lessee will maintain in full force and effect, and
pay or cause to be paid all fees and other charges payable pursuant to, any
Franchise Agreement with respect to the Hotel.
5.7. Ground Rent. In the event that Lessor's interest in the Land is
pursuant to a Ground Lease or sublease, Lessor shall be solely responsible for
the payment of any ground rent, building rent or subrent, as the case may be,
due with respect to the Leased Property.
26
<PAGE>
ARTICLE 6
LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY
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. Lessee will acquire and maintain
throughout the Term such Inventory as is required to operate the Leased Property
in the manner contemplated by this Lease. 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. Lessee, at the commencement of the Term,
and from time to time thereafter, shall provide Lessor with an accurate list of
all such items of Lessee's personal property (collectively, the "Lessee's
Personal Property"). Lessee may, subject to the first sentence of this Section
6.2 and the conditions set forth below, remove any of Lessee's Personal Property
set forth on such list at any time during the Term or upon the expiration or any
prior termination of the Term. All of Lessee's Personal Property, other than
Inventory, not removed by Lessee within ten (10) 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 Subsection 2.3(g), including repair
of all damage to the Leased Property caused by the removal of Lessee's Personal
Property, whether effected by Lessee or Lessor. Upon the expiration or earlier
termination of the Term, Lessor or its designee shall have the option to
purchase all Inventory on hand at the Leased Property at the time of such
expiration or termination for a sale price equal to the fair market value of
such Inventory. Lessee may make such financing arrangements, title retention
agreements, leases or other agreements with respect to Lessee's Personal
Property as it sees fit provided that Lessee first advises Lessor of any such
arrangement and such arrangement expressly provides that in the event of
Lessee's default thereunder, Lessor (or its designee) may assume Lessee's
obligations and rights under such arrangement.
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 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. Lessee hereby authorizes Lessor to execute and file
financing statements signed only be a representative of Lessor covering the
security interest of Lessor in Lessee's personal property.
27
<PAGE>
6.4. Lessor's Option to Purchase Assets of Lessee. Effective on not
less than ninety (90) days' prior Notice given at any time within one hundred
eighty (180) days before the expiration of the Term, but not later than ninety
(90) days prior to such expiration, or upon such shorter Notice period as shall
be appropriate if this Lease is terminated prior to its expiration date, Lessor
shall have the option to purchase all (but not less than all) of the assets of
Lessee, tangible and intangible, relating to the Leased Property (other than
this Lease), at the expiration or termination of this Lease for an amount
(payable in cash on the expiration date of this Lease) equal to the fair market
value thereof as appraised in conformity with Article 24, except that the
appraisers need not be members of the American Institute of Real Estate
Appraisers, but rather shall be appraisers having at least ten (10) years'
experience in valuing similar assets. Notwithstanding any such purchase, Lessor
shall obtain no rights to any trade name or logo used in connection with the
Franchise Agreement unless separate agreement as to such use is reached with the
applicable franchisor.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY
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" in its present condition. 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. Provided,
however, to the extent permitted by law, Lessor hereby assigns to Lessee all of
Lessor's rights to proceed against any predecessor in title (other than any
Affiliate of Lessee which conveyed the Property to Lessor) for breaches of
warranties or representations or for latent defects in the Leased Property.
Lessor shall fully cooperate with Lessee in the prosecution of any such claim,
in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against any
claims, obligations and liabilities against or incurred by Lessor in connection
with such cooperation.
7.2. Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due diligence
and will exercise reasonable efforts to obtain and to maintain all Licenses and
other approvals needed to use and operate the Leased Property and the Hotel
under applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property only
as a Homewood Suites(R) all-suite 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
28
<PAGE>
Use"). Lessee shall not use the Leased Property or any portion thereof for any
other use without the prior written consent of Lessor, which consent may be
granted, denied or conditioned in Lessor's sole discretion. No use shall be made
or permitted to be made of the Leased Property, and no acts shall be done, 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 may be prohibited by law or fire underwriter's
regulations. Lessee shall, at its sole cost, comply with all of the requirements
pertaining to the Leased Property of any insurance board, association,
organization or company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Lessee's Personal Property.
(c) Subject to the provisions of Articles 14, 15, 18 and 21,
Lessee covenants and agrees that during the Term it will (1) operate
continuously the Leased Property as a hotel facility, (2) keep in full force and
effect and comply with all the provisions of the Franchise Agreement and the
Management Agreement, (3) not terminate or amend the Franchise Agreement or the
Management Agreement without the consent of Lessor (which shall not be
unreasonably withheld or delayed), (4) maintain appropriate certifications and
Licenses for such use and (5) seek to maximize the Gross Revenues generated
therefrom consistent with sound business practices.
(d) Lessee shall not commit or suffer to be committed any waste on
the Leased Property, or in the Hotel, 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, except
as necessary in the ordinary and prudent operation of the Hotel on the Leased
Property.
7.3. Lessor to Grant Easements, Etc. Lessor will, from time to time, so
long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of Lessor,
which approval shall not be unreasonably withheld or delayed), (a) grant
easements and other rights in the nature of easements with respect to the Leased
Property to third parties, (b) release existing easements or other rights in the
nature of easements which are for the benefit of the Leased Property, (c)
dedicate or transfer unimproved portions of the Leased Property for road,
highway or other public purposes, (d) execute petitions to have the Leased
Property annexed to any municipal corporation or utility district, (e) execute
amendments to any covenants and restrictions affecting the Leased Property and
(f) execute and deliver to any Person any instrument appropriate to confirm or
effect such grants, releases, dedications, transfers, petitions and amendments
(to the extent of its interests in the Leased Property), but only upon delivery
to Lessor of an Officer's Certificate stating that such grant, release,
dedication, transfer, petition or amendment does not interfere with the proper
conduct of the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property.
29
<PAGE>
ARTICLE 8
LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS
8.1. Compliance with Legal and Insurance Requirements, Etc. Subject to
Subsection 8.3(b) below and Section 12.2 (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 (excluding any repair
or restoration of any portion of the Leased Property required to be made by
Lessor pursuant to Subsection 9.1(b) below, which repair shall be made by
Lessor), 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 Subsection 8.3(b) and Subsection 9.1(b) below,
Lessee covenants and agrees that the Leased Property and Lessee's Personal
Property shall not be used for any unlawful purpose, and that Lessee shall not
permit or suffer to exist any unlawful use of the Leased Property by others.
Lessee shall acquire and maintain all appropriate licenses, certifications,
permits and other authorizations and approvals needed 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 sub-tenants, invitees or others within its control
so to comply with all Legal Requirements). Lessee may, however, upon prior
Notice to Lessor, contest the legality or applicability of any such Legal
Requirement or any licensure or certification decision if Lessee maintains such
action in good faith, with due diligence, without prejudice to Lessor's rights
hereunder, and at Lessee's sole expense. If by the terms of any such Legal
Requirement compliance therewith pending the prosecution of any such proceeding
may legally be delayed without the occurrence of any charge or liability of any
kind, or the filing of any lien, against the Hotel or Lessee's leasehold
interest therein and without subjecting Lessee or Lessor to any liability, civil
or criminal, for failure so to comply therewith, Lessee may delay compliance
therewith until the final determination of such proceeding. If any lien, charge
or civil or criminal liability would be incurred by reason of any such delay,
Lessee, on the prior written consent of Lessor, which consent shall not be
unreasonably withheld or delayed, may nonetheless contest as aforesaid and delay
as aforesaid provided that such delay would not subject Lessor to criminal
liability and Lessee both (a) furnishes to Lessor security reasonably
satisfactory to Lessor against any loss or injury by reason of such contest or
delay and (b) prosecutes the contest with due diligence and in good faith.
(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 (the "WARN
Act") or any similar state law applicable to the Leased Property; any required
compliance
30
<PAGE>
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.
(c) 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 Hotel or (ii) the former
owner of the Hotel is holding the liquor license and continuing to exercise
management and supervision of the liquor services at the Hotel pending transfer
of the license to Lessor or Lessee, the Lessee shall indemnify and hold Lessor
harmless from any liability, damages or claims (a) arising in connection with
liquor operations at the Hotel during such period of time following the
Commencement Date, except to the extent caused by Lessor's gross negligence or
willful misconduct or (b) made by or through the former owner with respect to
liquor operations at the Hotel following the Commencement Date.
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 the later of (i) such time as
all liabilities, duties or obligations of Lessee to Lessor under the Lease have
been satisfied in full and (ii) such time as 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. Lessee agrees to give Lessor prompt 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;
(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; and (4) all facts, events or conditions that could reasonably
lead to the occurrence of any of the above-referenced matters.
(b) Lessor hereby agrees to defend, indemnify and save harmless
any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities other than (i) Environmental Liabilities resulting
from conditions disclosed in any environmental audit obtained by Lessor and
provided to Lessee prior to the execution of this Lease (the "Environmental
Audit"),
31
<PAGE>
and (ii) Environmental Liabilities which were caused by the acts or negligent
failures to act of Lessee.
(c) Lessee hereby agrees to defend, indemnify and save harmless
any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities which were (i) resulting from conditions disclosed in
the Environmental Audit, and (ii) caused by the acts or negligent failures to
act of Lessee.
(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 Subsection 8.3(b) or (c), the
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 Indemnified Party and approved by the Indemnifying Party,
which approval shall not be unreasonably withheld or delayed; 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 such counsel has been approved by the
Indemnifying Party, which approval shall not be unreasonably withheld or
delayed. The Indemnifying Party shall not be liable for any settlement of any
such Proceeding made without its consent, which shall not be unreasonably
withheld or delayed, but if settled with the consent of the Indemnifying Party,
or if settled without its consent (if its consent shall be unreasonably withheld
or delayed), 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 and loss
incurred by such Indemnified Parties by reason of such settlement or judgement.
(e) At any time any Indemnified Party has reason to believe
circumstances exist which could reasonably result in an Environmental Liability,
upon reasonable prior Notice to Lessee and Manager 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), Lessee'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 he 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.
(g) The indemnification rights and obligations provided for in
this Article 8 shall survive the termination of this Lease.
32
<PAGE>
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 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.
Notwithstanding anything to the contrary contained in this Lease, if
Lessor shall become entitled to the possession of the Leased Property by virtue
of the termination of the Lease or repossession of the Leased Property, then
Lessor may assign its indemnification rights under this Section 8.3 (but not any
other rights under this Section 8.3) to any Person to whom Lessor subsequently
transfers the Leased Property, subject to the following conditions and
limitations, each of which shall be deemed to be incorporated into the terms of
such assignment, whether or not specifically referred to therein:
(i) The indemnification rights referred to in this
section may be assigned only if a known Environmental
Liability then exists or if a Proceeding is then pending or,
to the knowledge of Lessee or Lessor, then threatened with
respect to the Leased Property;
(ii) Such indemnification rights shall be limited
to Environmental Liabilities relating to or specifically
affecting the Leased Property; and
(iii) Any assignment of such indemnification rights
shall be limited to the immediate transferee of Lessor, and
shall not extend to any such transferee's successors or
assigns.
ARTICLE 9
MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS
9.1. Maintenance and Repairs.
(a) Lessee, at its sole expense, 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, mechanical,
electrical and plumbing systems and equipment (including conduit and ductware),
and non-load bearing interior walls, and parking lot surfaces, in good order and
repair, except (i) 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) and (ii) to the extent of
damage caused by Lessor's gross negligence or willful misconduct or that of its
employees or agents, and, except as otherwise provided in Subsection 9.1(b),
Article 14 or Article 15, with reasonable promptness, make all necessary and
appropriate
33
<PAGE>
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, except as to the structural
elements of the Leased Improvements. 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.
(b) Notwithstanding Lessee's obligations under Subsection 9.1(a)
above, except to the extent of damage caused by Lessee's negligence or willful
misconduct or that of its employees or agents, Lessor shall be required to bear
the cost of maintaining any underground utilities and the structural elements of
the Leased Improvements, including exterior walls and the roof of the Hotel (but
excluding windows and plate glass, mechanical, electrical and plumbing systems
and equipment, including conduit and ductware, and non-load bearing walls, and
parking lot surfaces). Except as set forth in the preceding sentence and in
Section 10.5, Lessor shall not under any circumstances be required to build or
rebuild any improvement on the Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or description
to the Leased Property, whether ordinary or extraordinary, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, or to maintain the Leased Property in any way.
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expense of Lessor, pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted, except following default by Lessor
under this Lease, to the extent of repairs (for which Lessor is obligated
hereunder) required to be made in order for the Hotel, and Lessee's use thereof,
to comply with Lessee's obligations under the Franchise Agreement and the
Management Agreement. Lessor shall have the right to give, record and post, as
appropriate, notices of nonresponsibility 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.
9.2. Encroachments, Restrictions, Etc. Lessor represents and warrants
that the Leased Improvements do not materially encroach upon any property,
street or right-of-way adjacent to the Leased Property, or violate the
agreements or conditions contained in any lawful restrictive
34
<PAGE>
covenant or other agreement affecting the Leased Property, or any part thereof,
or impair the rights of others under any easement or right-of-way to which the
Leased Property is subject. Except to the extent that such representation and
warranty is breached by Lessor, if any of the Leased Improvements, at any time
hereafter, materially encroach upon any property, street or right-of-way
adjacent to the Leased Property, or violate the agreements or conditions
contained in any lawful restrictive covenant or other agreement affecting the
Leased Property, or any part thereof, or impair the rights of others under any
easement or right-of-way to which the 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.
ARTICLE 10
ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE
10.1. Alterations. After receiving approval of Lessor, which approval
shall not be unreasonably withheld or delayed, Lessee shall have the right 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 significantly alter the character or purposes
or significantly detract from the value or operating efficiency thereof and will
not significantly impair the revenue-producing capability of the Leased Property
or adversely affect the ability of Lessee to comply with the provisions of this
Lease. 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. Joint Use Agreements. If Lessee constructs additional
improvements that are connected to the Leased Property or share maintenance
facilities, HVAC, electrical, plumbing or other systems, utilities, parking or
other amenities, the parties shall enter into a mutually agreeable
35
<PAGE>
cross-easement or joint use agreement, the form of which has been approved in
advance by Lessor, to make available necessary services and facilities in
connection with such additional improvements, to protect each of their
respective interests in the properties affected, and to provide for separate
ownership, use, and/or financing of such improvements.
10.4. Initial Upgrade of Leased Improvements. Lessee desires to
install, construct and complete the improvements, alterations, upgrades and
refurbishments in the Leased Improvements (collectively, "Lessee's Work")
necessary to qualify the Leased Improvements to operate under the Franchise
Agreement as a "Homewood Suites" hotel. Pursuant to the terms of the Work Letter
(the "Work Letter") attached hereto as Exhibit B, Lessee agrees to perform
Lessee's Work; provided, however, Lessor shall pay the costs actually incurred
by Lessee to perform Lessee's Work, subject to and in accordance with the terms
and conditions of the Work Letter. Lessee shall pay all increased taxes and
insurance on Lessee's Work or attributable thereto.
10.5. Furniture, Fixture and Equipment Allowance. Lessor shall be
obligated to pay Lessee, when and as required to meet the requirements of the
Franchise Agreement and the Management Agreement for a reserve for periodic
repair, replacement or refurbishing of furniture, fixtures and equipment that
constitute Leased Property, an amount equal up to five percent (5%) of Suite
Revenues monthly. Upon written request by Lessee to Lessor stating the specific
use to be made and the reasonable approval thereof by Lessor (or as otherwise
required by the franchisor under the Franchise Agreement or Manager under the
Management Agreement), such reserve funds (and additional funds of Lessor, if
necessary) shall be made available by Lessor for use by Lessee for replacement
or refurbishing of furniture, fixtures and equipment that constitute Leased
Property in connection with the Primary Intended Use; provided, however, that no
amounts made available under this Article shall be used 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 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.
ARTICLE 11
COMPLIANCE WITH FRANCHISE
11.1. Compliance with Franchise Agreement and Management Agreement. To
the extent any of the provisions of the Franchise Agreement or Management
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 and the Management Agreement. It is the
intent of the parties hereto that Lessee shall comply in every respect with the
provisions of the Franchise Agreement and the Management Agreement so as to
avoid any material default thereunder during the term of this Lease. Lessee
shall not terminate, extend or enter into any material modification of the
Franchise Agreement or the Management Agreement without in each instance first
obtaining Lessor's prior written consent, which shall not be unreasonably
withheld. Lessor and Lessee agree
36
<PAGE>
to cooperate with each other in the event it becomes necessary to obtain a
franchise extension or modification (or, at Lessor's option, a new franchise)
for the Leased Property, and in any transfer of the Franchise Agreement or
Management Agreement to Lessor or any designee of Lessor or any successor to
Lessee upon the termination of this Lease. In the event of expiration or
termination of a Franchise Agreement or Management Agreement, for whatever
reason, Lessor will have the right, in the exercise of its sole discretion, to
approve any new Franchise Agreement or Management Agreement for the Hotel.
ARTICLE 12
PERMITTED LIENS AND CONTESTS
12.1. Liens. Subject to the provisions of Section 12.2 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 or any
attachment, levy, claim or encumbrance in respect of the Rent, not including,
however, (a) this Lease, (b) the matters included as exceptions 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 or any
easements granted pursuant to the provisions of Section 7.3 of this Lease, (d)
liens for those taxes upon Lessor or the Leased Property which Lessee is not
required to pay hereunder, (e) subleases permitted by Article 20 hereof, (f)
liens for Impositions or for sums resulting from noncompliance with Legal
Requirements so long as (1) the same are not yet payable or are payable without
the addition of any fine or penalty or (2) such liens are in the process of
being contested as permitted by Section 12.2, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due
provided that (1) the payment of such sums shall not be postponed under any
related contract for more than sixty (60) days after the completion of the
action giving rise to such lien and such reserve or other appropriate provisions
as shall be required by law or generally accepted accounting principles shall
have been made therefor or (2) any such liens are in the process of being
contested as permitted by Section 12.2 hereof, and (h) any liens which are the
responsibility of Lessor pursuant to the provisions of Article 22 of this Lease.
12.2. 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 Insurance Requirement or any lien, attachment, levy, encumbrance,
charge or claim ("Claims") not otherwise permitted by Section 12.1, 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 Section 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 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
37
<PAGE>
sufficient to pay the same, together with interest and penalties 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 (5) days of the same. Lessor agrees to join in any such
proceedings if the same be required legally to prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability or loss 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 liabilities, losses, 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 Section and diligently to prosecute any contest of the same, Lessor may,
upon ten (10) days' advance Notice to Lessee, and Lessee's failure to correct
the same within such ten (10) day period, pay such charges together with any
interest and penalties and the same shall be repayable by Lessee to Lessor as
Additional 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 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
INSURANCE REQUIREMENTS
13.1. General Insurance Requirements. During the Term of this Lease,
Lessor and Lessee shall at all times keep the Leased Property insured with the
kinds and amounts of insurance described below, or such other insurance
coverage(s) as may be required by the Franchise Agreement. This insurance shall
be written by companies authorized to issue insurance in the State. The policies
must name Lessor and/or Lessee, as applicable, as the insured or as an
additional named insured, as the case may be. Losses shall be payable to Lessor
or Lessee as provided in this Lease. Any loss adjustment 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 include the following:
(a) Lessor shall obtain and maintain, at its own expense:
(i) Building insurance on the "Special Form" (formerly "All
Risk" form) (including earthquake and flood in reasonable
amounts as determined by Lessor) 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
Lessee, and personal property insurance (on other than Lessee's
Personal Property) 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, now or
hereafter installed in the Hotel, in the
38
<PAGE>
minimum amount of $5,000,000 or in such greater amounts as are
then customary; and
(iii) Loss of income insurance on the "Special Form", in the
amount of one year of Base Rent and Additional Charges (to the
extent quantifiable) for the benefit of Lessor.
(b) Lessee shall obtain and maintain, at its own expense:
(i) Personal property insurance on Lessee's Personal
Property on the "Special Form" in the full amount of the
replacement cost thereof;
(ii) Comprehensive general liability insurance, with amounts
not less than $10,000,000 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;
(iii) Insurance covering such other hazards and in such
amounts as may be 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 requested by Lessor;
(iv) Fidelity bonds with limits and deductibles as may be
reasonably requested by Lessor, covering Lessee's employees in
job classifications normally bonded under prudent hotel
management practices in the United States or otherwise required
by law;
(v) Worker's compensation insurance coverage for all
persons, if any, employed by Lessee on the Leased Premises, to
the extent necessary to protect Lessor and the Leased Property
against Lessee's worker's compensation claims, such worker's
compensation insurance to be in accordance with the requirements
of applicable local, state and federal law;
(vi) Vehicle liability insurance for owned, non-owned, and
hired vehicles, in the amount of $5,000,000; and
(vii) Such other insurance as Lessor may reasonably request
for facilities such as the Leased Property and the operation
thereof.
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 (the then-replacement cost less such
39
<PAGE>
exclusions) has increased or decreased at any time during the Lease Term, it
shall have the right to have such full replacement cost re-determined.
13.3. Waiver of Subrogation. All insurance policies carried by Lessor
or Lessee covering the Leased Property, the Fixtures, the Hotel 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. The parties hereto agree that their policies
will include such waiver clause or endorsement so long as the same are
obtainable without extra cost, and in the event of such an extra charge the
other party, at its election, may pay the same, but shall not be obligated to do
so.
13.4. Form Satisfactory, Etc.
(a) All of the policies of insurance referred to in this Article
13 to be maintained by Lessee shall be written in a form, with deductibles and
by insurance companies satisfactory to Lessor. Lessee shall pay all of the
premiums therefor, and deliver such policies or certificates thereof to Lessor
prior to their effective date (and, with respect to any renewal policy, thirty
(30) days prior to the expiration of the existing policy), and in the event of
the failure of 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 Lessor at the times required, Lessor shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, and Lessee
shall reimburse Lessor for any premium or premiums paid by Lessor for the
coverages required of Lessee under this Article 13 upon written demand therefor,
and Lessee's failure to repay the same within thirty (30) days after Notice of
such failure from Lessor shall constitute an Event of Default within the meaning
of Section 16.1. 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 Lessor, that it will give to Lessor thirty (30) days' written
notice before the policy or policies in question shall be materially altered,
allowed to expire or canceled.
(b) All of the policies of insurance referred to in this Article
13 to be maintained by Lessor shall be written in a form, with deductibles and
by insurance companies satisfactory to Lessee. Lessor shall pay all of the
premiums therefor, and deliver such policies or certificates thereof to Lessee
prior to their effective date (and, with respect to any renewal policy, thirty
(30) days prior to the expiration of the existing policy), and in the event of
the failure of Lessor either to effect such insurance as herein called for or to
pay the premiums therefor, or to deliver such policies or certificates thereof
to Lessee at the times required, Lessee shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, and Lessor
shall reimburse Lessee for any premium or premiums paid by Lessee for the
coverages required under this Section 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 Lessee, that it
will give to Lessee thirty (30) days' written notice before the policy or
policies in question shall be materially altered, allowed to expire or canceled.
13.5. 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
40
<PAGE>
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 Article 13.
13.6. Blanket Policy. Notwithstanding anything to the contrary
contained in this Article 13. Lessee or Lessor 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 (or Manager) or Lessor; 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.
13.7. No Separate Insurance. Lessee shall not, on Lessee's 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 insured, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. Lessee
shall immediately notify Lessor of any such separate insurance that Lessee has
obtained or of the increase of any of the amounts of the then existing
insurance.
13.8. 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, claims for damage relating to the ownership,
operation, and maintenance of the Hotel, any damage or destruction to the Hotel
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 final copy of such report shall be
furnished to Lessor. Lessee shall be authorized to adjust, settle, or compromise
any insurance loss, or to execute proofs of such loss, in the aggregate amount
of $25,000 or less, with respect to any single casualty or other event.
ARTICLE 14
CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION
14.1. Insurance Proceeds. Subject to the provisions of Section 14.4,
all proceeds payable by reason of any loss or damage to the Leased Property, or
any portion thereof, insured under any policy of insurance required by Article
13 of this Lease, shall be paid to Lessor and held in trust by Lessor in an
interest-bearing account, shall be 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 (and accrued interest) remaining after
the completion of the restoration or reconstruction of the Leased Property, as
hereinafter set forth, shall be paid to Lessee. If neither Lessor nor Lessee is
required or elects to repair and restore, and the Lease is terminated without
purchase by Lessee as described in Section 14.2, all such insurance proceeds
41
<PAGE>
shall be retained by Lessor. All salvage resulting from any risk covered by
insurance shall belong to Lessor.
14.2. Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) Except as provided in Section 14.6, 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 Hotel thereby is rendered Unsuitable
for its Primary Intended Use, Lessee shall, at Lessee's option, either (1)
restore the Hotel to substantially the same condition as existed immediately
before the damage or destruction and otherwise in accordance with the terms of
the Lease, or (2) offer to acquire the Leased Property from Lessor for a
purchase price equal to the Rejectable Offer Price of the Leased Property. If
Lessee restores the Hotel, the insurance proceeds shall be paid out by Lessor
from time to time for the reasonable costs of such restoration upon satisfaction
of reasonable terms and conditions, and any excess proceeds remaining after such
restoration shall be paid to Lessee. If Lessee acquires the Leased Property,
Lessee shall receive the insurance proceeds. If Lessor does not accept Lessee's
offer so to purchase the Leased Property within ninety (90) days, Lessee may
withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee
may terminate the Lease with respect to the Leased Property without further
liability hereunder and Lessor shall be entitled to retain all insurance
proceeds.
(b) Except as provided in Section 14.6, if during the Term the
Leased Property is partially destroyed by a risk covered by the insurance
described in Article 13, but the Hotel is not thereby rendered Unsuitable for
its Primary Intended Use, Lessee shall restore the Hotel 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; provided, however, that if Lessee cannot within
a reasonable time obtain all necessary government approvals, including building
permits, licenses and conditional use permits, after diligent efforts to do so,
to perform all required repair and restoration work and to operate the Hotel for
its Primary Intended Use in substantially the same manner as that existing
immediately prior to such damage or destruction and otherwise in accordance with
the terms of the Lease, Lessee may offer to purchase the Leased Property for a
purchase price equal to the Rejectable Offer Price of the Leased Property,
determined without regard to such damage or destruction if insurance proceeds
are available to restore the Hotel. If Lessee makes such offer and Lessor does
not accept the same, Lessee shall withdraw such offer, in which event this Lease
shall remain in full force and effect and Lessee shall immediately proceed to
restore the Hotel to substantially the same condition as existed immediately
before such damage or destruction and otherwise in accordance with the terms of
the Lease. If Lessee restores the Hotel, the insurance proceeds shall be paid
out by Lessor from time to time for the reasonable costs of such restoration
upon satisfaction of reasonable terms and conditions specified by Lessor, and
any excess proceeds remaining after such restoration shall be paid to Lessee.
(c) If the cost of the repair or restoration exceeds the amount
of proceeds received by Lessor from the insurance it maintains as required under
Article 13, Lessee shall be obligated to contribute any excess amounts needed to
restore the Hotel. Such difference shall be paid by Lessee to Lessor promptly
after Lessee receives Lessor's written invoice therefor, to be
42
<PAGE>
held in trust in an interest-bearing account, together with any other insurance
proceeds, for application to the cost of repair and restoration.
(d) If Lessor accepts Lessee's offer to purchase the Leased
Property under this Article, this Lease shall terminate as to the Leased
Property upon payment of the purchase price, and Lessor shall remit to Lessee
all insurance proceeds pertaining to the Leased Property being held in trust by
Lessor.
14.3. Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance. Except as provided in Section 14.6, if during the Term the Hotel
is totally or materially destroyed by a risk not covered by the insurance
described in Article 13, whether or not such damage or destruction renders the
Hotel Unsuitable for its Primary Intended Use, Lessee at its option shall
either, (a) at Lessee's sole cost and expense, restore the Hotel 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) offer to purchase the Leased Property for a purchase price equal to the
Rejectable Offer Price of the Leased Property without regard to such damage or
destruction. If such damage or destruction is not material, Lessee shall restore
the Hotel to substantially the same condition as existed immediately before the
damage or destruction and otherwise in accordance with the terms of the Lease.
If Lessor does not accept Lessee's offer so to purchase the Leased Property
within ninety (90) days, Lessee may withdraw its offer to purchase the Leased
Property and, if so withdrawn, Lessee may terminate the Lease with respect to
the Leased Property without further liability hereunder.
14.4. Lessee's Property. All insurance proceeds payable by reason of
any loss of or damage to any of Lessee's Personal Property 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, this Lease shall remain in full force and effect and Lessee's
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated during the first three (3) months of any period
required for the applicable repair and restoration. Thereafter, Base Rent shall
be equitably abated.
14.6. Damage Near End of Term. Notwithstanding any provisions of
Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of
the Hotel rendering it unsuitable for its Primary Intended Use occurs during the
last twenty-four (24) months of the Term, then Lessor or Lessee shall have the
right to terminate this Lease by giving Notice, respectively, to Lessee or
Lessor within thirty (30) days after the date of damage or destruction,
whereupon all accrued Rent shall be paid immediately, and this Lease shall
automatically terminate five (5) days after the date of such Notice.
14.7. Waiver. Lessee hereby waives any statutory rights of termination
that may arise by reason of any damage or destruction of the Hotel that Lessor
is obligated to restore or may restore under any of the provisions of this
Lease.
43
<PAGE>
ARTICLE 15
CONDEMNATION; AWARD ALLOCATION
15.1. Definitions.
(a) "AWARD" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
(b) "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.
(c) "CONDEMNOR" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
(d) "DATE OF TAKING" means the date the Condemnor has the right
to possession of the property being condemned.
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 or Uneconomic for its Primary Intended
Use, Lessee and Lessor shall each 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
Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, Lessee shall
not initiate, prosecute or acquiesce in any proceedings that may result in a
diminution of any Award payable to Lessor.
15.5. Partial Taking. 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, and not Uneconomic for its Primary Intended Use, or if Lessee or
Lessor is entitled but neither elects to terminate this Lease as provided in
Section 15.3, Lessee at its cost shall with all reasonable dispatch restore the
untaken
44
<PAGE>
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 shall 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. In the event of such a partial Taking,
this Lease shall not terminate, but 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 thirty (30) days after such partial Taking, the matter may be
submitted by either party to a court of competent jurisdiction for resolution.
15.6. Temporary Taking. If the whole or any part of the Leased Property
(other than the fee) or of Lessee's interest under this Lease is condemned by
any Condemnor for its temporary use or occupancy (which shall mean a period not
to exceed two years), this Lease shall not terminate by reason thereof, and
Lessee shall continue to pay, in the manner and at the terms herein specified,
the full amounts of Base Rent and Additional Charges. In addition, Lessee shall
pay Percentage Rent at a rate equal to the average Percentage Rent during the
last three (3) preceding Fiscal Years (or if three (3) Fiscal Years shall not
have elapsed, the average during the preceding Fiscal Years). 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 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, at its sole cost and expense (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, and Lessee shall fund the balance of such costs in a
manner reasonably satisfactory to Lessor.
ARTICLE 16
DEFAULT BY LESSEE; LESSOR'S REMEDIES
16.1. Events of Default. If any one or more of the following events
(individually, an "Event of Default") occurs:
(a) if an Event of Default occurs under any other lease between Lessor
or any Affiliate of Lessor and Lessee or any Affiliate of Lessee; or
45
<PAGE>
(b) if Lessee fails to make payment of the Base Rent within ten (10)
days after the same becomes due and payable; or
(c) if Lessee fails to make payment of Percentage Rent when the same
becomes due and payable and such condition continues for a period of thirty (30)
days after the end of the applicable quarter; or
(d) if Lessee fails to observe or perform any other term, covenant or
condition of this Lease and such failure is not cured by Lessee within a period
of thirty (30) days after receipt by Lessee of Notice thereof from Lessor,
unless such failure cannot with due diligence be cured within a period of thirty
(30) days, in which case it shall not be deemed an Event of Default if Lessee
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof provided, however, in no event shall such cure
period extend beyond ninety (90) days after such Notice; or
(e) if Lessee shall file a petition in bankruptcy or reorganization for
an arrangement 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 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 Lessee shall be adjudicated a bankrupt and
such adjudication shall not be vacated or set aside or stayed within sixty (60)
days after the entry of an order in respect thereof, or if a receiver of Lessee
or of the whole or substantially all of the assets of Lessee shall be appointed
in any proceeding brought by Lessee or if any such receiver, trustee or
liquidator shall be appointed in any proceeding brought against Lessee and shall
not be vacated or set aside or stayed within sixty (60) days after such
appointment; or
(f) if Lessee is liquidated or dissolved, or begins proceedings toward
such liquidation or dissolution, or, in any manner, permits the sale or
divestiture of substantially all of its assets; or
(g) if, except as expressly permitted herein, 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 (unless Lessee is contesting such lien or attachment in good faith in
accordance with Section 12.2 hereof) or there is a Change of Control of Lessee;
or
(h) if, except as a result of damage, destruction or a partial or
complete Condemnation as contemplated by this Lease, Lessee voluntarily ceases
operations on the Leased Property for a period in excess of thirty (30) days; or
(i) if an event of default has been declared by the franchisor under
the Franchise Agreement with respect to the Hotel as a result of any action or
failure to act by Lessee or any Person with whom Lessee contracts for management
services at the Hotel, and such default is not cured by the earlier of (A) ten
(10) days following notice from Lessor or (B) such earlier date as is required
for Lessee to avoid termination of the Franchise Agreement by the franchisor;
46
<PAGE>
then, and in any such event, Lessor may exercise one or more remedies available
to it herein or at law or in equity, including but not limited to its right to
terminate this Lease by giving Lessee not less than ten (10) days' Notice of
such termination.
If litigation 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.
No Event of Default (other than a failure to make a payment of
money) shall be deemed to exist under clause (d) during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Lessee remedies such default or Event of Default
without further delay.
16.2. Surrender. If an Event of Default occurs (and the event giving
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or not
this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and Lessor may
enter upon and repossess the Leased Property by summary proceedings, ejectment
or otherwise, and may remove Lessee and all other Persons and any and all
personal property from the Leased Property, subject to rights of any hotel
guests and to any requirement of law. Lessee hereby waives any and all
requirements of applicable laws for service of notice to re-enter the Leased
Property. Lessor shall be under no obligation to, but may if it so chooses,
relet the Leased Property or otherwise mitigate Lessor's damages.
16.3. Damages. Neither (a) the termination of this Lease, (b) the
repossession of the Leased Property, (c) the failure of Lessor to relet the
Leased Property, nor (d) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Lessee shall forthwith pay to Lessor all Rent due and payable
with respect to the Leased Property to and including the date of such
termination.
Lessee shall forthwith pay to Lessor, at Lessor's option, as
and for liquidated and agreed current damages for Lessee's default, either:
(i) Without termination of Lessee's right to possession
of the Leased Property, each installment of Rent (including
Percentage Rent as determined below) and other sums payable by
Lessee to Lessor under the Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the
Overdue Rate, and Lessor may enforce, by action or otherwise,
any other term or covenant of this Lease; or
47
<PAGE>
(ii) the sum of:
(A) the unpaid Rent which had been earned at the
time of termination, repossession or reletting, and
(B) the worth at the time of termination,
repossession or reletting of the amount by which the unpaid Rent
for the balance of the Term after the time of termination,
repossession or reletting, exceeds the amount of such rental
loss that Lessee proves could be reasonably avoided and as
reduced for rentals received after the time of termination,
repossession or reletting, if and to the extent required by
applicable law, and
(C) any other amount necessary to compensate Lessor
for all the detriment proximately caused by Lessee's failure to
perform its obligations under this Lease or which in the
ordinary course of things, would be likely to result therefrom.
The worth at the time of termination, repossession or reletting
of the amount referred to in subparagraph (B) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of New York at the time
of award plus one percent (1%). Percentage Rent for the purposes of this Section
16.3 shall be a sum equal to (i) the average of the annual amounts of the
Percentage Rent for the three (3) Fiscal Years immediately preceding the Fiscal
Year in which the termination, re-entry or repossession takes place, or (ii) if
three (3) Fiscal Years shall not have elapsed, the average of the Percentage
Rent during the preceding Fiscal Years during which the Lease was in effect, or
(iii) if one Fiscal Year has not elapsed, the amount derived by annualizing the
Percentage Rent from the effective date of this Lease.
16.4. Waiver. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article 16, and (b) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate veil" of Lessee other than to the extent
funds shall have been fraudulently paid by Lessee to any Affiliate of Lessee
following a default resulting in an Event of Default.
16.5. 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.
16.6. 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
48
<PAGE>
under no obligation to) at any time thereafter 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 16.4, 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 Lessors, 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 17
DEFAULT BY LESSOR; LESSEE'S REMEDIES
17.1. Breach by Lessor. 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 thirty (30) days
after Notice thereof from Lessee, unless such failure cannot with due diligence
be cured within a period of thirty (30) days, in which case such failure shall
not be deemed to continue if Lessor, within such thirty (30) day period,
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof; provided, however, that such default shall be
cured by Lessor in any event prior to the date on which the default becomes an
event of default under the terms of the Franchise Agreement for the Hotel. 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 fails to cure any such breach within the grace period described above,
Lessee, without waiving or releasing any obligations hereunder, and in addition
to all other remedies available to Lessee at law or in equity, may purchase the
Leased Property from Lessor for a purchase price equal to the then Fair Market
Value. If Lessee elects to purchase the Leased Property it shall deliver a
Notice thereof to Lessor specifying a settlement date to occur not less than
ninety (90) days subsequent to the date of such Notice on which it shall
purchase the Leased Property, and the same shall be thereupon conveyed in
accordance with the provisions of Section 17.3; provided, however, that Lessor
shall pay the cost of Lessee's title insurance and all closing costs associated
with such purchase by Lessee following default by Lessor.
17.2. Lessee's Right to Cure. Subject to the provisions of Section
17.1, if Lessor breaches any covenant to be performed by it under this Lease,
Lessee, after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
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 or,
following entry of a final, nonappealable judgment against Lessor for such sums,
may be offset by Lessee against the Base Rent and/or Percentage Rent payments
next accruing or coming due. The rights of Lessee hereunder to cure and to
secure payment from Lessor in accordance with this Section 17.2 shall survive
the termination of this Lease with respect to the Leased Property.
49
<PAGE>
17.3. Provisions Relating to Purchase of the Leased Property by Lessee.
If Lessee purchases the Leased Property from Lessor pursuant to any of the terms
of this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase
price, together with full payment of any unpaid Rent due and payable with
respect to any period ending on or before the date of the purchase, deliver to
Lessee an appropriate limited or special warranty deed or other conveyance
conveying the entire interest of Lessor in and to the Leased Property to Lessee
free and clear of all encumbrances other than (a) those that Lessee has agreed
hereunder to pay or discharge, (b) those mortgage liens, if any, that Lessee has
agreed in writing to accept and to take title subject to, (c) those liens and
encumbrances subject to which the Leased Property was conveyed to Lessor, to the
extent not released in connection with the transactions contemplated by this
Lease, (d) encumbrances, easements, licenses or rights of way required to be
imposed on the Leased Property under Section 7.3, and (e) any other encumbrances
permitted to be imposed on the Leased Property under the provisions of Article
22 that are assumable at no cost to Lessee or to which Lessee may take subject
without cost to Lessee. The difference between the applicable purchase price and
the total of the encumbrances assumed or taken subject to shall be paid in cash
to Lessor or as Lessor may direct, in federal or other immediately available
funds, except as otherwise mutually agreed by Lessor and Lessee. All expenses of
such conveyance, including, without limitation, the cost of title examination or
title insurance, if desired by Lessee, Lessee's attorneys' fees incurred in
connection with such conveyance and release, and one-half of any transfer taxes
and recording fees, shall be paid by Lessee. Lessor shall pay one-half of any
transfer taxes and recording fees and its attorney's fees.
ARTICLE 18
INDEMNIFICATION
18.1. Indemnification.
(a) Notwithstanding the existence of any insurance, and without
regard to the policy limits of any such insurance or self-insurance, but subject
to Section 13.3 and Section 8.3, Lessee will protect, indemnify, hold harmless
and defend Lessor from and against all liabilities, losses, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses), to the extent permitted by
law, 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 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 during the Term 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 that are the obligations of
Lessee pursuant to the applicable provisions of 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
50
<PAGE>
non-performance 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.
(b) Notwithstanding the existence of any insurance, and without
regard to the policy limits of any such insurance or self-insurance, but subject
to Section 13.3 and Section 8.3, Lessor shall indemnify, save harmless and
defend Lessee Indemnified Parties from and against 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 (10) 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. 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 or delayed. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own (or Lessor's) grossly
negligent acts or omissions or willful misconduct.
(c) Lessee's or Lessor's liability for a breach of the provisions
of this Article shall survive any termination of this Lease.
ARTICLE 19
REIT REQUIREMENTS AND RESTRICTIONS
19.1. Personal Property Limitation. Anything contained in this Lease to
the contrary notwithstanding, the average of the adjusted tax bases of the items
of personal property that are leased to Lessee under this Lease at the beginning
and at the end of any Fiscal Year shall not exceed fifteen percent (15%) of the
average of the aggregate adjusted tax bases of the Leased Property at the
beginning and at the end of such Fiscal Year. This Section 19.1 is intended to
ensure that the Rent qualifies as "rents from real property," within the meaning
of Section 856(d) of the Code, or any similar or successor provisions thereto,
and shall be interpreted in a manner consistent with such intent.
19.2. Sublease Rent Limitation. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublet the Leased Property on any
basis such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (a) the 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.
51
<PAGE>
19.3. Sublease Tenant Limitation. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublease the Leased Property to
any Person in which Lessor owns, directly or indirectly, a ten percent (10%) or
more interest, within the meaning of Section 856(d)(2)(B) of the Code, or any
similar or successor provisions thereto.
19.4. Lessee Ownership Limitations.
(a) Anything contained in this Lease to the contrary
notwithstanding, neither Lessee nor an Affiliate of Lessee shall acquire,
directly or indirectly, a ten percent (10%) or more interest in Lessor within
the meaning of Section 856(d)(2)(B) of the Code, or any similar or successor
provision thereto.
(b) Lessee shall not own, operate, manage or have any interest in
any hotel or motel property in which Lessor or an Affiliate of Lessor does not
have an interest, pursuant to this Lease or another lease, agreement or
arrangement with Lessor or an Affiliate of Lessor. Lessor agrees to notify
Lessee promptly of the location of any hotel or motel property in which Lessor
or an Affiliate of Lessor has an interest.
19.5. Lessee Officer and Employee Limitation. If a Person serves as
both (a) a director of Lessee (or any Person who furnishes or renders services
to the tenants of the Leased Property, or manages or operates the Leased
Property) and (b) an officer (or employee) of the Lessor that Person shall not
receive any compensation for serving as a director of Lessee (or any Person who
furnishes or renders services to the tenants of the Leased Property, or manages
or operates the Leased Property). Furthermore, if a Person serves as both (a) a
director of the Lessor and (b) an officer (or employee) of Lessee (or any Person
who furnishes or renders services to the tenants of the Leased Property, or
manages or operates the Leased Property), that Person shall not receive any
compensation for serving as a director of the Lessor. No Person, other than
Glade M. Knight, shall serve as an officer (or employee) of both Lessor and
Lessee.
19.6. Payments to Affiliates of Lessee. During the Term, Lessee shall
not pay, or become obligated to pay, any fees to any Affiliate of Lessee in
connection with the Hotel, other than fees that are subordinated to the payments
that are required to be made to Lessor pursuant to this Lease.
ARTICLE 20
SUBLETTING AND ASSIGNMENT
20.1. Subletting and Assignment. Subject to the provisions of Article
19 and Section 20.2 and any other express conditions or limitations set forth
herein, Lessee may, but only with the consent of Lessor (which shall not be
unreasonably withheld or delayed), (a) assign this Lease or sublet all or any
part of the Leased Property to an Affiliate of Lessee, or (b) sublet any retail
or restaurant portion of the Leased Improvements in the normal course of the
Primary Intended Use; provided that any subletting to any party other than an
Affiliate of Lessee shall not individually as to any one such subletting, or in
the aggregate, materially diminish the actual or potential Percentage Rent
payable under this Lease. In the case of a subletting, the sublessee shall
comply with the provisions of Section 20.2, and in the case of an assignment,
the assignee shall assume in
52
<PAGE>
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. Notwithstanding the
above, Lessee may assign the Lease to an Affiliate without the consent of
Lessor; provided that any such assignee assumes in writing and agrees to keep
and perform all of the terms of the 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.
20.2. Attornment. Lessee shall insert in each sublease permitted under
Section 20.1 provisions to the effect that (a) such sublease is subject and
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 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.
20.3. Conveyance by Lessor. Lessor may assign this Lease to any
purchaser of the Leased Property. If Lessor or any successor owner of the Leased
Property conveys the Leased Property in accordance with the terms hereof other
than as security for a debt, and the grantee or transferee of the Leased
Property expressly assumes all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, Lessor or such
successor owner, as the case may be, 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.
ARTICLE 21
QUIET ENJOYMENT; RISK OF LOSS
21.1. 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 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, but subject to all liens and encumbrances subject
to which the Leased Property was conveyed to Lessor, to the extent not released
in connection with the transactions contemplated by this Lease, or hereafter
consented to by Lessee or provided for herein.
53
<PAGE>
Notwithstanding the foregoing, 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.
21.2. Risk of Loss. During the Term, the risk of loss or of decrease in
the enjoyment and beneficial use of the Leased Property in consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than those caused by Lessor and those claiming from, through
or under Lessor) is assumed by Lessee, and, in the absence of gross negligence,
willful misconduct or breach of this Lease by Lessor pursuant to Section 17.1,
Lessor shall in no event be answerable or accountable therefor, nor shall any of
the events mentioned in this Section entitle Lessee to any abatement of Rent
except as specifically provided in this Lease.
ARTICLE 22
LESSOR MORTGAGES; SUBORDINATION OF LEASE
22.1. Lessor May Grant Liens. Without the consent of Lessee, Lessor
may, subject to the terms and conditions set forth below in this Section 22.1,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing. Upon the request of
Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the
Leased Property, on the condition that the proposed mortgagee executes a
non-disturbance agreement recognizing this Lease in accordance with the
provisions of Section 22.2, and agreeing, for itself and its successors and
assigns, to comply with the provisions of this Article 22.
22.2. Subordination of Lease. 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
Encumbrances 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, however, that with respect to any Mortgage hereafter
granted, such subordination is conditioned upon delivery to Lessee of a
non-disturbance agreement which provides that Lessee shall not be disturbed in
its possession of the Leased Property hereunder following a foreclosure of such
Mortgage (or delivery of a deed-in-lieu-of-foreclosure) and that the holder of
such Mortgage or the purchaser at a foreclosure sale (or grantee under such
deed-in-lieu-of-foreclosure) shall perform all obligations of Lessor under this
Lease. In confirmation of such subordination, however, Lessee shall, at Lessor's
request, promptly execute, acknowledge and deliver any instrument which may be
required to evidence subordination to any Mortgage and to the holder thereof. 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.
54
<PAGE>
ARTICLE 23
ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS
23.1. Estoppel Certificates; Financial Statements.
(a) At any time and from time to time upon not less than ten (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 exists
thereunder 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 and any prospective purchaser of the Leased
Property.
(b) Lessee will furnish the following statements to Lessor:
(i) with reasonable promptness, such information respecting
the financial condition and affairs of Lessee including audited
financial statements prepared by the same certified independent
accounting firm that prepares the returns for Lessor or such
other accounting firm as may be approved by Lessor, as Lessor may
request from time to time; and
(ii) the most recent Consolidated Financials of Lessee within
forty-five (45) days after each quarter of any Fiscal Year (or,
in the case of the final quarter in any Fiscal Year, the most
recent audited Consolidated Financials of Lessee within ninety
(90) days); and
(iii) on or about the 20th day of each month, a detailed
profit and loss statement for the Leased Property for the
preceding month, a balance sheet for the Leased Property as of
the end of the preceding month, and a detailed accounting of
revenues for the Leased Property for the preceding month, each in
form acceptable to Lessor.
Lessee will permit the inclusion of such statements in any filings required to
be made by Lessor under the Securities Act of 1933 and the Securities Exchange
Act of 1934.
(c) At any time and from time to time upon not less than ten (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
reasonably requested by Lessee.
55
<PAGE>
(d) Lessee shall at all times be Solvent. Furthermore, as of the
date of this Agreement, Lessee or its Affiliate agree to establish and maintain,
in a form satisfactory to Lessor, a funding commitment in an amount equal to
$2,000,000 upon which Lessee may draw upon to pay to Lessor Base Rent,
Percentage Rent and Additional Charges. Repayment of the funding commitment
shall be subordinated to all payments of Base Rent, Percentage Rent and
additional charges under all Leases between Lessor and Lessee.
23.2. Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives as frequently as reasonably requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining thereto
and make copies thereof, during usual business hours upon reasonable advance
Notice, subject only to any business confidentiality requirements reasonably
requested by Lessee.
ARTICLE 24
APPRAISERS
24.1. 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, 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 ten (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 (5)
years' experience in the State appraising property similar to the Leased
Property, shall, within forty-five (45) days after the date of the Notice
appointing the first 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. To the extent consistent with sound
appraisal practice as then existing at the time of any such appraisal, such
appraisal shall be made on a basis consistent with the basis on which the Leased
Property was appraised for purposes of determining its Fair Market Value at the
time the Leased Property was acquired by Lessor. If two (2) appraisers are
appointed and if the difference between the amounts so determined does not
exceed five percent (5%) of the lesser of such amounts, then the Fair Market
Value or Fair Market Rental shall be an amount equal to fifty percent (50%) of
the sum of the amounts so determined. If the difference between the amounts so
determined exceeds five percent (5%) of the lesser of such amounts, then such
two appraisers shall have twenty (20) days to appoint a third appraiser. If no
such appraiser shall have been appointed within such twenty (20) days or within
ninety (90) 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
forty-five (45) days after appointment of such appraiser. The determination of
the appraiser which differs most in the terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and fifty percent
(50%) of the sum of the remaining two
56
<PAGE>
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
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 25
ARBITRATION AND DISPUTE RESOLUTION PROCEDURES
25.1. Arbitration. Except as set forth in Section 25.2, 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
25.1. The party desiring such arbitration shall give Notice to that effect to
the other party, and an arbitrator shall be selected by mutual agreement of the
parties, or if they cannot agree within thirty (30) days of such notice, by
appointment made by the American Arbitration Association ("AAA") from among the
members of its panels who are qualified and who have experience in resolving
matters of a nature similar to the matter to be resolved by arbitration.
25.2. Alternative Arbitration. In each case specified in this Lease for
a matter to be submitted to arbitration pursuant to the provisions of this
Section 25.2, Lessor and Lessee will agree upon a nationally recognized
accounting firm with a hospitality division of which neither party nor their
Affiliates of Lessor is a significant client to serve as arbitrator of such
dispute within fifteen (15) days after written demand for arbitration is
received or sent by either party. In the event the parties fail to make such
designation within such fifteen (15) day period, 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 fifteen (15) days after the parties fail to
timely make such designation. In the event Lessor fails to make such designation
within such fifteen (15) day period, Lessee shall be entitled to designate any
nationally recognized accounting firm with hospitality division of which Lessee
or an Affiliate of Lessee is not a significant client to serve as arbitrator of
such dispute within fifteen (15) days after the parties fail 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
arbitrator shall instead be administered as set forth in Section 25.1.
25.3. Arbitration Procedure. In any arbitration commenced pursuant to
Sections 25.1 or 25.2, a single arbitrator shall be designated and shall resolve
the dispute. The arbitrator's decision shall be binding on all parties, shall
not be subject to further review or appeal except as otherwise allowed by
applicable law and may be filed in and enforced by a court of competent
jurisdiction. 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 ninety (90) days of
57
<PAGE>
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 25.3. 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 Hotel during the arbitration.
ARTICLE 26
NOTICES
26.1. Notices. All notices, demands, requests, consents approvals and
other communications ("Notice" or "Notices") hereunder shall be in writing and
hand-delivered, sent by FedEx or other nationally recognized overnight courier
service, or mailed (by registered or certified mail, return receipt requested
and postage prepaid), if to Lessor at 306 East Main Street, Richmond, Virginia
23219, Attn: Glade M. Knight and if to Lessee at 306 East Main Street, Richmond,
Virginia 23219, Attn: Glade M. Knight or to such other address or addresses as
either party may hereafter designate. Personally delivered Notice shall be
effective upon receipt, and Notice given by overnight courier service or by mail
shall be complete at the time of deposit with the courier service or in the U.S.
Mail system, respectively, 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 overnight courier service
shall be extended one (1) day and by mail shall be extended five (5) days.
ARTICLE 27
MISCELLANEOUS
27.1. 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.
27.2. Remedies Cumulative. To the extent permitted by law and unless
otherwise provided herein to the contrary, 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.
27.3. Waiver of Trial by Jury. LESSOR AND LESSEE EACH WAIVE, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY
58
<PAGE>
JURY IN THE
EVENT OF A PROCEEDING WITH RESPECT TO THIS LEASE, INCLUDING, WITHOUT LIMITATION,
SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN ARTICLE 16.
27.4. 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.
27.5. 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
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.
27.6. 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.
27.7. Action for Damages. Except as otherwise expressly provided
herein, 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.
27.8. 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
this Lease pursuant to 11 U.S.C. ss.365, without seeking an extension of the
time to file said motion.
27.9. Enforceability. 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
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at 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 permitted 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.
59
<PAGE>
27.10. Memorandum of Lease. Lessor and Lessee shall promptly, upon the
request of either party, 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.
60
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
"LESSOR"
APPLE SUITES REIT LIMITED PARTNERSHIP
By: Apple Suites General, Inc., its
general partner
By: /s/ Glade M. Knight
------------------------------
Name: Glade M. Knight
Title: President
"LESSEE"
APPLE SUITES SERVICES LIMITED PARTNERSHIP
By: Apple Suites Services General, Inc.,
its general partner
By: /s/ Glade M. Knight
------------------------------
Name: Glade M. Knight
Title: President
<PAGE>
EXHIBIT A-1
LEGAL DESCRIPTION
<PAGE>
EXHIBIT "A-1"
LEGAL DESCRIPTION OF PREMISES
(North Dallas-Plano)
BEING a tract of land out of the DENTON DARBY SURVEY. Abstract No. 250, in the
City of Plano, Collin County, Texas and being all of LOT 1, BLOCK A of HOMEWOOD
SUITES at PRESTON PARK SOUTH, an addition to the City of Plano, Collin County,
Texas according to the final plat thereof recorded in Cabinet J. Slide 743 of
the Map Records of Collin County, Texas and being more particularly described as
follows:
BEGINNING at a 5/8" iron rod found in the north right-of-way line of Old Shepard
Place (85(degree) ROW), from which a 5/8" iron rod found for the west corner of
the corner slip at the intersection of said north right-of-way line of Old
Shepard Place with the west right-of-way line of Preston Park Court (80(degree)
ROW) bears South 89(degree) 43' 25" East, a distance of 255.81 feet;
THENCE with the said north right-of-way line, North 89(degree) 43' 25" West, a
distance of 293.00 feet to an aluminum disk found in concrete for the southeast
corner of THE COURTYARD AT PRESTON PARK an addition to the City of Plano, Texas
according to the plat thereof recorded in Cabinet F, Slide 153 of the Map
Records of Collin County, Texas;
THENCE leaving the north right-of-way line of Old Shepard Place with the east
line of said THE COURTYARD AT PRESTON PARK, the following courses and distances
to wit:
North 00(degree) 16' 28" East, a distance of 259.96 feet to a 1/2" iron
rod found for corner;
South 89(degree) 43' 32" East, a distance of 30.00 feet to a cross mark
found in concrete for the beginning of a non-tangent curve to the left,
having a central angle of 73(degree) 45' 48", a radius of 68.02 feet
and a chord bearing and distance of North 15(degree) 50' 51" West,
81.65 feet;
Northwesterly with the said curve, an arc distance of 87.57 feet to a
cross mark found in concrete for the beginning of a reverse curve to
the right, having a central angle of 73(degree) 45' 14", a radius of
68.02 feet and a chord bearing and distance of North 15(degree) 51' 08"
West, 81.64 feet;
Northerly with said curve, an arc distance of 87.56 feet to a cross
mark found in concrete for corner;
North 21(degree) 01' 30" East, a distance of 39.99 feet to a cross mark
set in concrete in the southerly right-of-way line of Preston Park
Boulevard (a variable width ROW):
THENCE with the said southerly right-of-way line of Preston Park Boulevard, the
following courses and distances to wit:
South 68(degree) 58' 19" East, a distance of 275.15 feet to a 1/2" iron
rod found for the beginning of a tangent curve to the left, having a
central angle of 04(degree) 56' 56", a radius of 450.00 feet and a
chord bearing and distance of South 71(degree) 26' 47" East, 38.86
feet;
Easterly with the said curve, an arc distance of 38.67 feet to an
aluminum disc found in concrete for corner;
THENCE leaving the southerly right-of-way line of Preston Park Boulevard, South
00(degree) 16' 35" West, a distance of 344.54 feet to the POINT OF BEGINNING and
containing 2.6601 acre of land.
Bearing system based on the plat recorded in Cabinet C. Slide 731 of the Map
Records of Collin County, Texas.
<PAGE>
EXHIBIT A-2
LEGAL DESCRIPTION
<PAGE>
EXHIBIT "A-2"
LEGAL DESCRIPTION OF PREMISES
(Dallas-Addison)
Being Lot 1, Addison Oaks Addition, an Addition to the Town of Addison, Dallas
County, Texas, according to the plat thereof recorded in Volume 89166, Page
1974, Map Records, Dallas County, Texas
<PAGE>
EXHIBIT A-3
LEGAL DESCRIPTION
<PAGE>
EXHIBIT "A-3"
LEGAL DESCRIPTION OF PREMISES
(Dallas-Irving/Las Colinas)
BEING a 3.378 acre tract of land situated in the City of Irving, Dallas County,
Texas, in the S.A. & M.C.R.R Survey, Abstract No. 1452, and the A. W. Carter
Survey, Abstract No. 377, said 3.378 acre tract of land being more particularly
described as follows:
BEGINNING at a 1/2 inch iron rod found for the intersection of the southeasterly
right-of-way line of Wingren Blvd. (a 100 foot right-of-way) as described by
plat recorded in Volume 80018, Page 0019, of the Map Records of Dallas County,
Texas, and the northeasterly line of John W. Carpenter Freeway, State Highway
114 (a variable width right-of-way);
THENCE along the southeasterly right-of-way line of said Wingren Boulevard,
North 50(degree) 21' 52" East, a distance of 183.29 feet to a 1/2 inch iron rod
found for the southwesterly corner of a 0.483 acre tract of land as described by
deed recorded in Volume 85228, Page 3242 of the Deed Records of Dallas County,
Texas;
THENCE along the southwesterly line of said 0.483 acre tract, the following:
South 42(degree) 30' 00" East, a distance of 132.00 feet to a 1/2 inch
iron rod found for corner;
North 47(degree) 30' 00" East, a distance of 14.71 feet to a 1/2 inch
iron rod set for corner;
South 42(degree) 30' 00" East, a distance of 122.80 feet to a nail set
for corner;
North 47(degree) 30' 00" East, a distance of 10.25 feet to a 1/2 inch
iron rod found for corner;
South 42(degree) 30' 00" East, a distance of 8.26 feet to a 1/2 inch
iron rod found for the point of tangent to spiral of a spiral curve to
the right having a spiral angle of 03(degree) 17' 20".
Southeasterly with said spiral curve to the right for a distance of
118.98 feet to a 1/2 inch iron rod found for the point of spiral to
curve of a circular curve to the right having a radius of 639.00 feet,
a chord distance of 17.23 feet and a chord bearing of South 36(degree)
26' 18" East;
Southeasterly with said curve to the right through a central angle of
01(degree) 32' 40" for an arc distance of 17.23 feet to a 1/2 inch iron
rod found for the point of curve to spiral of a spiral curve to the
right having a spiral angle of 03(degree) 17' 20";
Southeasterly with said spiral curve to the right for a distance of
118.98 feet to a 1/2 inch iron rod found for the point of spiral to
tangent;
South 30(degree) 22' 40" East, a distance of 29.36 feet to an "X" in
concrete found for corner 10 feet from the back (dry) side of a canal
wall, and on a northerly line of that certain tract of land described
by deed recorded in Volume 82117, Page 1045 of the Deed Records of
Dallas County, Texas, said 1/2 inch iron rod being on a non-tangent
curve to the right having a radius of 39.50 feet, a chord distance of
11.87 feet and a chord of South 51(degree) 04' 23" West;
<PAGE>
THENCE 10 feet from and parallel with the back (dry) side of a canal wall and
along said northerly line, the following:
Southwesterly with said curve to the right through a central angle of
17(degree) 16' 46" for an arc distance of 11.91 feet to a 1/2 inch iron
rod set for the point of tangency;
South 59(degree) 42' 46" West, a distance of 227.63 feet to a 1/2 inch
iron rod found for corner, said 1/2 inch iron rod being on a
non-tangent curve to the left having a radius of 31.00 feet, a chord
distance of 19.92 feet and a chord bearing of South 77(degree) 55' 31"
West;
THENCE continuing along said northerly line, the following:
Southeasterly with said non-tangent curve to the left through a central
angle of 37(degree) 28' 35" for an arc distance of 20.28 feet to a 1/2
inch iron rod found for corner
North 89(degree) 23'14" West, a distance of 26.36 feet to an "X" in
concrete found for corner
South 32(degree) 5' 51" West, a distance of 30.77 feet to an "X" in
concrete found for corner in the northeasterly right-of-way line of the
aforementioned State Highway 114;
THENCE along the northeasterly right-of-way line of said Highway 114, the
following:
North 37(degree) 39' 27" West, a distance of 68.87 feet to a 1/2 inch
iron rod found for corner
North 32(degree) 05' 21" West, a distance of 101.61 feet to a 1/2 inch
iron rod found on a non-tangent curve to the left having a radius of
1938.36 feet a chord distance of 264.04 feet and a chord bearing of
North 34(degree) 05' 29" West;
Northwesterly with said curve to the left through a central angle of
07(degree) 48' 39" for an arc distance of 264.24 feet to a 1/2 inch
iron rod found for corner;
North 06(degree) 16' 41" East, a distance of 83.41 feet to the POINT OF
BEGINNING:
CONTAINING a computed area of 147,140 square feet or 3.378 acres of land more or
less.
<PAGE>
EXHIBIT B
WORK LETTER
This Work Letter describes and specifies the rights and obligations of
Apple Suites REIT Limited Partnership ("Lessor"), and Apple Suites Services
Limited Partnership ("Lessee"), with respect to the design, construction,
installation and payment for the completion of Lessee's Work (as defined in
Section 10.4 of the Lease).
1. Definitions. Terms which are defined in that certain Hotel Lease
Agreement (the "Lease") executed contemporaneously herewith, by and between
Lessor and Lessee, shall have the same meaning in this Work Letter.
Additionally, as used in this Work Letter, the following terms (when delineated
with initial capital letters) shall have the respective meaning indicated for
each as follows:
(a) "Plans and Specifications" shall mean, collectively, the
plans, specifications and other information prepared or to be prepared
by Lessee's architect and, where necessary, by Lessee's electrical,
mechanical and structural engineers, which shall detail Lessee's Work
and which shall be approved in writing by both Lessee and Lessor prior
to the commencement of such work. The Plans and Specifications shall
comply with the minimum requirements established by Lessor.
(b) "Cost of the Work" shall mean the actual contract costs of
all materials and labor for the design, construction and installation
to completion of the Lessee's Work in accordance with the Plans and
Specifications.
(c) "Change Cost" shall mean any increase in the Cost of the
Work attributable to any change in the Plans and Specifications.
2. Procedure for the Completion of Plans and Specifications. The
Plans and Specifications shall be completed in accordance with the following
procedure:
(a) Design Drawings. Lessee shall submit to Lessor design
drawings specifying the intended design, character and finishing of
Lessee's Work. The design drawings shall set forth the requirements of
Lessee with respect to the installation of Lessee's Work.
i) After receipt of design drawings, Lessor shall return to
Lessee Lessor's required modifications and/or approval.
ii) If Lessor requires modifications, the design drawings
shall be revised by Lessee and resubmitted to Lessor for
approval. Unless such action is taken, Lessee will be deemed to
have accepted and approved all of Lessor's comments on the
design drawings. This process will continue until approval of
Lessor is obtained.
<PAGE>
(b) Completion of Plans and Specifications. All Plans and
Specifications shall be prepared in strict compliance with applicable
standards and requirements as set forth in the Lease, this Work Letter
and otherwise, and shall also adhere to the design drawings approved by
Lessor. Lessee shall deliver to Lessor, as soon as practicable after
the date of Lessor's approval of design drawings, the proposed Plans
and Specifications. If the Plans and Specifications are returned to
Lessee with comments, but not bearing approval of Lessor, the Plans and
Specifications shall be revised by Lessee and resubmitted to Lessor for
approval. This process will continue until approval of Lessor is
obtained.
(c) Compliance with Laws. Lessee shall have the sole
responsibility for compliance of the Plans and Specifications with all
applicable statutes, codes, ordinances and other regulations. The
approval of the Plans and Specifications or calculations included
therein by Lessor shall not constitute an indication, representation or
certification by Lessor that such Plans and Specifications or
calculations are in compliance with said statutes, codes, ordinances
and other regulations. In instances where several sets of requirements
must be met, the requirements of Lessor's insurance underwriter or the
strictest applicable requirements shall apply where not prohibited by
applicable codes.
3. Pricing. As soon as practicable after finalization of the Plans and
Specifications, as evidenced by Lessor's written approval thereof, Lessee shall
notify Lessor in writing of the Cost of the Work. Lessor shall either approve
the Cost of the Work in writing or request that the Plans and Specifications and
the Cost of the Work be revised and resubmitted to Lessor for approval. Lessee
shall revise the Plans and Specifications and the Cost of the Work and resubmit
them to Lessor for approval. This procedure shall continue until Lessor approves
the Cost of the Work.
4. Performance of Work and Delays. Lessee shall select one or more
contractors ("Contractors") to furnish labor and/or materials for the Lessee's
Work in substantial accordance with the Plans and Specifications. Each
Contractor and the contract between Lessee and such Contractor must be approved
in advance by Lessor. After Lessor's approval of the Plans and Specifications,
the Cost of the Work, Contractors and contracts, Lessee agrees to cause the
Contractors to commence the construction and installation of the Lessee's Work
as promptly as reasonably practicable and to proceed with due diligence to
perform Lessee's Work in a good and workmanlike manner. Lessee warrants to
Lessor that all materials and equipment furnished in constructing and installing
the Lessee's Work will be new, unless otherwise specified to Lessor, and that
such work shall be of good quality, free from faults and defects; provided,
however, Lessor's sole remedy for breach of the above warranty shall be that
Lessee, for a period of twelve (12) months after substantial completion of the
Lessee's Work, at its sole cost and expense, will make all necessary repairs,
replacements and corrections of any nature or description as may become
necessary by reason of faulty construction, labor or materials in the Lessee's
Work. Any delays in the completion of Lessee's Work shall not justify any
abatement or reduction of the rent payable under the Lease.
5. Payments for Cost of Work. Lessor shall be liable for payment of the
Cost of the Work. Within ten (10) days after Lessor's receipt of an invoice from
Lessee, together with supporting billing statements, architect certificates and
other detailed information required by the construction
2
<PAGE>
contracts with the Contractors, Lessor shall pay to Lessee the amount of the
invoice. Lessee shall pay over to its Contractors any payments by Lessor to
Lessee for the Cost of the Work. Lessor may, at its option, elect to make its
payments for the Cost of the Work directly to the Contractors rather than to
Lessee. Lessor shall not be obligated to pay for, and Lessee shall not pay for,
any work performed by any of the Contractors or their mechanics, workmen or
subcontractors until Lessor has received a lien waiver from any said party.
6. Change Orders. All changes and modifications in Lessee's Work from
that contemplated in the Plans and Specifications, whether or not such change or
modification gives rise to a Change Cost, must be evidenced by a written change
order executed by both Lessor and Lessee. In that regard, Lessee shall submit to
Lessor such information as Lessor shall require with respect to any change order
requested by Lessee. After receipt of any requested change order, together with
such information as Lessor shall require with respect thereto, Lessor shall
return to Lessee either the executed change order, which will evidence Lessor's
approval thereof, or the Plans and Specifications with respect thereto with
Lessor's suggested modifications. Lessee shall revise the change order and
resubmit it to Lessor. This process will continue until Lessor's approval is
obtained.
7. Punch List. Within ten (10) days after Lessor receives notice from
Lessee of the substantial completion of Lessee's Work, Lessor shall give Lessee
written notice specifying any details of construction, decoration, installation
or mechanical adjustment which remain to be performed with respect to Lessee's
Work; and except for the details contained in such written notice from Lessor,
all obligations of Lessee in regard to Lessee's Work shall be deemed to have
been satisfied. Lessor or its agents, servants, employees or contractors shall
have the right to enter the Leased Improvements during the progress and after
the completion of the Lessee's Work to inspect any details of the Lessee's Work,
and entry by Lessor, its agents, servants, employees or contractors for such
purpose shall not relieve Lessee of any of its obligations under the Lease or
impose any liability on Lessor or its agents, servants, employees or
contractors.
8. Insurance; Liability. Lessee shall procure and maintain adequate
Workmen's Compensation and public liability insurance for bodily injury and
property damage, all in amounts, with companies and in forms satisfactory to
Lessor. Lessee shall also cause each of the Contractors to provide and maintain
certificates of such insurance and furnish copies of same to Lessor prior to
proceeding with the Lessee's Work. Lessor shall not be liable in any way for any
injury, loss or damage which may occur in connection with or as a result of the
Lessee's Work, the same being solely at Lessee's risk. Lessee shall hold Lessor
harmless from any claim, demand or action arising from the construction or
installation activities in connection with Lessee's Work, the Contractors or any
workmen, mechanics or subcontractors working on the Lessee's Work.
9. Whole Agreement; No Oral Modification. This Work Letter and the
Lease embody all representations, warranties and agreements of Lessor and Lessee
with respect to the matter described herein, and this Work Letter may not be
altered or modified except by an agreement in writing signed by the parties.
3
<PAGE>
10. Paragraph Headings. The paragraph headings contained in this Work
Letter are for convenient reference only and shall not in any way affect the
meaning or interpretation of such paragraphs.
11. Notices. All notices required or contemplated hereunder shall be
given to the parties in the manner specified for giving notices under the Lease.
12. Binding Effect. This Work Letter shall be construed under the laws
of the State of Texas and shall be binding upon and shall inure to the benefit
of the parties hereto and their respective permitted successors and assigns.
13. Conflict. In the event of conflict between this Work Letter and any
other exhibits or addenda to the Lease, this Work Letter shall prevail.
DATED as of the 20th day of September, 1999.
"LESSOR"
APPLE SUITES REIT LIMITED PARTNERSHIP
By: Apple Suites General, Inc., its
general partner
By: /s/ Glade M. Knight
---------------------------------
Name: Glade M. Knight
Title: President
"LESSEE"
APPLE SUITES SERVICES LIMITED
PARTNERSHIP
By: Apple Suites Services General, Inc.,
its general partner
By: /s/ Glade M. Knight
---------------------------------
Name: Glade M. Knight
Title: President
<PAGE>
SCHEDULE 2.1
COMMENCEMENT DATES
(a) Homewood Suites-Registered Trademark- Dallas - Addison
Addison, Texas
September 20, 1999
(b) Homewood Suites-Registered Trademark- Dallas - Las Colinas
Irving, Texas
September 20, 1999
(c) Homewood Suites-Registered Trademark- North Dallas - Plano
Plano, Texas
September 20, 1999
<PAGE>
SCHEDULE 3.1(A)
BASE RENTS
(a) Homewood Suites-Registered Trademark- Dallas - Addison
Addison, Texas
$638,220
(b) Homewood Suites-Registered Trademark- Dallas - Las Colinas
Irving, Texas
$824,340
(c) Homewood Suites-Registered Trademark- North Dallas - Plano
Plano, Texas
$501,930
<PAGE>
SCHEDULE 3.1(B)
SUITE REVENUE BREAKPOINT
(A) HOMEWOOD SUITES-Registered Trademark- DALLAS - ADDISON
ADDISON, TEXAS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTERS 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1ST QUARTER $275,595 $256,255 $261,090 $265,925 $270,760 $275,595 $280,430 $285,265 $290,100 $294,935
2ND QUARTER $551,190 $512,510 $522,180 $531,850 $541,520 $551,190 $560,860 $570,530 $580,200 $589,870
3RD QUARTER $826,785 $768,765 $783,270 $797,775 $812,280 $826,785 $841,290 $855,795 $870,300 $884,805
4TH QUARTER $1,102,380 $1,025,020 $1,044,360 $1,063,700 $1,083,040 $1,102,380 $1,121,720 $1,141,060 $1,160,400 $1,179,740
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(B) HOMEWOOD SUITES-Registered Trademark- DALLAS - LAS COLINAS
IRVING, TEXAS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTERS 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1ST QUARTER $355,965 $330,985 $337,230 $343,475 $349,720 $355,965 $362,210 $368,455 $374,700 $380,945
2ND QUARTER $711,930 $661,970 $674,460 $686,950 $699,440 $711,930 $724,420 $736,910 $749,400 $761,890
3RD QUARTER $1,067,895 $992,955 $1,011,690 $1,030,425 $1,049,160 $1,067,895 $1,086,630 $1,105,365 $1,124,100 $1,142,835
4TH QUARTER $1,423,860 $1,323,940 $1,348,920 $1,373,900 $1,398,880 $1,423,860 $1,448,840 $1,473,820 $1,498,800 $1,523,780
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
(C) HOMEWOOD SUITES-Registered Trademark- NORTH DALLAS - PLANO
PLANO, TEXAS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTERS 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1ST QUARTER $216,742 $201,533 $205,335 $209,138 $212,940 $216,742 $220,545 $224,348 $228,150 $231,953
2ND QUARTER $433,485 $403,065 $410,670 $418,275 $425,880 $433,485 $441,090 $448,695 $456,300 $463,905
3RD QUARTER $650,228 $604,598 $616,005 $627,413 $638,820 $650,228 $661,635 $673,043 $684,450 $695,858
4TH QUARTER $866,970 $806,130 $821,340 $836,550 $851,760 $866,970 $882,180 $897,390 $912,600 $927,810
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
RICHMOND-WEST END, VIRGINIA
[HOMEWOOD SUITES LOGO]
PROMUS HOTELS, INC
755 CROSSOVER LANE
MEMPHIS, TENNESSEE 38117
99-hom/co
HOMEWOOD SUITES
LICENSE AGREEMENT
Dated September 20, 1999 between PROMUS HOTELS, INC., a Delaware corporation
("Licensor"), and APPLE SUITES MANAGEMENT, INC., a Virginia corporation
("Licensee"), whose address is 306 East Main Street, Richmond, Virginia 23219.
THE PARTIES AGREE AS FOLLOWS:
1. The License.
Licensor owns, operates and licenses a system designed to provide a
distinctive, high quality hotel service to the public under the name
"Homewood Suites" (the "SYSTEM"). High standards established by Licensor
are the essence of the System. Future investments may be required of
Licensee under this License Agreement ("Agreement"). Licensee has
independently investigated the risks of the business to be operated
hereunder, including current and potential market conditions, competitive
factors and risks, has read Licensor's "Franchise Offering Circular," and
has made an independent evaluation of all such facts. Aware of the relevant
facts, Licensee desires to enter into this Agreement in order to obtain a
license to use the System in the operation of a Homewood Suites hotel
located at 4100 INNSLAKE DRIVE, GLEN ALLEN, VIRGINIA 23060 (the "HOTEL")
subject to the terms of this Agreement.
A. THE HOTEL. The Hotel comprises all structures, facilities,
appurtenances, furniture, fixtures, equipment, and entry, exit,
parking and other areas from time to time located on the site approved
for the Hotel and acknowledged by Licensor in anticipation of the
execution of this Agreement, or located on any land from time to time
approved by Licensor for additions, signs or other facilities. No
change in the number of approved guest suites ("GUEST SUITES")
reflected on Attachment B (the "Rider") and no other significant
change in the Hotel may be made without Licensor's prior approval.
Redecoration and minor structural changes that comply with Licensor's
standards and specifications will not be considered significant.
Licensee represents that it is entitled to possession of the Hotel
during the entire License Term without restrictions that would
interfere with anything contemplated in this Agreement.
B. THE SYSTEM. The System is composed of elements, as designated from
time to time by Licensor, designed to identify "Homewood Suites
hotels" to the consuming public and/or to contribute to such
identification and its association with quality standards. The System
at present includes the service mark "Homewood Suites" and such other
service marks and such copyrights, trademarks and similar property
rights as may be designated from time to time by Licensor to be part
of the System; access to a reservation service; distribution of
advertising, publicity and other marketing programs and materials; the
furnishing of training programs and materials, standards,
specifications and policies for construction, furnishing, operation,
appearance and service of the Hotel, and other requirements as stated
or referred to in this Agreement and from time to time in the Manual
(as defined herein) or in other communications to Licensee; and
programs for inspecting the Hotel and consulting with Licensee.
Licensor may add elements to the System or modify, alter or delete
elements of the System (including the trade name and/or brand name of
the Hotel) at its
<PAGE>
sole discretion from time to time. Licensee is only authorized to use
"Homewood Suites" service marks and trademarks at or in connection
with the Hotel.
C. THE MANUAL. Licensee acknowledges the receipt of a current Homewood
Suites Standards Manual ("MANUAL"). The Manual contains, among other
matters, minimum standards and requirements for constructing,
equipping, furnishing, supplying, operating, maintaining and marketing
the Hotel. Licensor shall have the right to change the Manual from
time to time and Licensee agrees to abide by the Manual as changed.
The Manual shall at all times remain the sole property of Licensor.
Licensee shall use all reasonable efforts to maintain the
confidentiality of the Manual. Licensee shall not make or distribute
copies of the Manual or any portion thereof.
D. APPLICATION OF MANUAL. All hotels operated within the System will be
subject to the Manual, as it may from time to time be modified or
revised by Licensor. Licensor may, in its sole discretion, grant
limited exceptions from compliance with the Manual which may be made
based on local conditions or special circumstances. Each material
change in the Manual will be explained in writing to Licensee at least
30 days before it goes into effect. Licensee is responsible for the
costs of implementing all changes required because of modification to
the Manual.
Licensor may require that particular models or brands of furniture,
fixtures, equipment, food, and other items (collectively, the
"SUPPLIES") be used in the operation of the Hotel or be purchased from
Licensor or from a source designated by Licensor. Otherwise, Licensee
may purchase all Supplies from any source as long as the standards and
specifications in the Manual are met, which standards and
specifications may be changed by Licensor from time to time. Licensee
will be responsible for the costs, if any, associated with the
purchase of Supplies or changing brands, models or sources of supply.
2. GRANT OF LICENSE.
Licensor hereby grants to Licensee a nonexclusive license (the "License")
to use the System only at the Hotel, only in connection with the operation
of a Homewood Suites hotel, only in accordance with this Agreement and only
during the "License Term" beginning with the date hereof and terminating as
provided in Paragraph 13. The License applies to the location of the Hotel
specified herein and no other. This Agreement does not limit Licensor's
right, or the rights of any parent, subsidiary, division or affiliate of
Licensor ("ENTITIES"), to use or license to others the System or any part
thereof or to engage in or license any business activity at any other
location. Licensee acknowledges that Licensor and its Entities are and may
in the future be engaged in other business activities including activities
involving transient lodging and related activities which may be or may be
deemed to be competitive with the System; that facilities, programs,
services and/or personnel used in connection with the System may also be
used in connection with such other business activities of Licensor and its
Entities; and that Licensee is acquiring no rights hereunder other than the
non-exclusive right to use the System in connection with a Homewood Suites
hotel as specifically defined herein in accordance with the terms of this
Agreement.
3. LICENSOR'S RESPONSIBILITIES.
A. TRAINING. During the License Term, Licensor will specify required and
optional training programs and provide these programs at various
locations. Licensee may be charged for (i) required training services
and materials and (ii) for optional training services and materials if
provided to Licensee. Travel, lodging and other expenses of Licensee
and its employees will be borne by Licensee.
B. RESERVATION SERVICES. During the License Term, so long as Licensee is
in full compliance with the obligations set forth in this Agreement,
Licensor will afford Licensee access to reservation services for the
Hotel.
C. CONSULTATION. Licensor will, from time to time at Licensor's sole
discretion, make available to Licensee consultation and advice in
connection with operations, facilities and marketing.
2
<PAGE>
Licensor shall have the right to establish fees in advance for its
advice and consultation on a project-by-project basis.
D. ARRANGEMENTS FOR MARKETING, ETC. Licensor will use the
Marketing/Reservation Contribution for costs associated with
advertising, promotion, publicity, market research and other marketing
programs and related activities, including reservation programs and
services. Licensor may enter into arrangements for development,
marketing, operations, administrative, technical and support
functions, facilities, programs, services and/or personnel with any
other entity and may use any facilities, programs, services and/or
personnel used in connection with the System in connection with any
business activities of its Entities. Licensor is not obligated to
expend funds for marketing or reservation services in excess of the
amounts received from Licensees using the System. Licensor and its
designees shall have no obligation in administering any marketing and
reservation activities to make expenditures for Licensee which are
equivalent or proportionate to Licensee's payments, or to ensure that
any particular hotel benefits directly or proportionately from such
expenditures.
E. INSPECTIONS/COMPLIANCE ASSISTANCE. Licensor has the right to inspect
the Hotel at any time, with or without notice to Licensee, to
determine if the Hotel is in compliance with the standards and rules
of operation set forth in the Manual. If the Hotel fails to comply
with such standards and rules of operation, Licensor may, at its
option and at Licensee's cost, require an action plan to correct the
deficiencies. Licensee must then take all steps necessary to correct
any deficiencies within the times established by Licensor. Licensor's
approval of an action plan does not waive any rights it may have under
this Agreement nor does it relieve Licensee of any obligations under
this Agreement.
4. PROPRIETARY RIGHTS.
A. OWNERSHIP OF THE SYSTEM. Licensee acknowledges and will not contest,
either directly or indirectly, Licensor's (or its affiliates', as the
case may be) unrestricted and exclusive ownership of the System and
any element(s) or component(s) thereof, and acknowledges that Licensor
has the sole right to grant licenses to use all or any element(s) or
component(s) of the System. Licensee specifically agrees and
acknowledges that Licensor (or its affiliates) is the owner of all
right, title and interest in and to the service mark "Homewood
Suites", its distinguishing characteristics, trade names, service
marks, trademarks, logos, copyrights, slogans, etc., and all other
marks associated with the System ("MARKS") together with the goodwill
symbolized thereby and that Licensee will not contest directly or
indirectly the validity or ownership of the Marks either during the
term of this Agreement or at any time thereafter. All improvements and
additions whenever made to or associated with the System by the
parties to this Agreement or anyone else, and all service marks,
trademarks, copyrights, and service mark and trademark registrations
at any time used, applied for or granted in connection with the
System, and all goodwill arising from Licensee's use of the Marks
shall inure to the benefit of and become the property of Licensor (or
its applicable affiliate). Upon expiration or termination of this
Agreement, no monetary amount shall be assigned as attributable to any
goodwill associated with Licensee's use of the System or any
element(s) or component(s) of the System including the name or Marks.
B. USE OF NAME. Licensee will not use the word "Homewood" or "Homewood
Suites" or any similar word(s) in its corporate, partnership, business
or trade name, or in any Internet related name (including a domain
name) except as provided in this Agreement or the Manual, nor
authorize or permit such word(s) to be used by anyone else.
5. TRADEMARK AND SERVICE MARK.
A. TRADEMARK DISPUTES. Licensor will have the sole right and
responsibility to handle disputes with third parties concerning use of
all or any part of the System, and Licensee will, at its reasonable
expense, extend its full cooperation to Licensor in all such matters.
All recoveries made as a result of disputes with third parties
regarding use of the System or
3
<PAGE>
any part thereof shall be for the account of Licensor. Licensor need
not initiate suit against alleged imitators or infringers and may
settle any dispute by grant of a license or otherwise. Licensee will
not initiate any suit or proceeding against alleged imitators or
infringers or any other suit or proceeding to enforce or protect the
System.
B. PROTECTION OF NAMES AND MARKS. Both parties will make every effort
consistent with the foregoing to protect and maintain the Marks and
name "Homewood Suites" and its distinguishing characteristics as
standing for the System and only the System. Licensee agrees to
execute any documents deemed necessary by Licensor or its counsel to
obtain protection for Licensor's Marks or to maintain their continued
validity and enforceability. Licensee agrees to use such names and
Marks only in connection with the operation of a Homewood Suites hotel
and in the manner authorized by Licensor. Licensee acknowledges that
any unauthorized use of the names or Marks shall constitute
infringement of Licensor's rights. Licensee must notify Licensor
immediately, in writing, of any infringement or challenge to
Licensee's use of the Marks or of any unauthorized use or possible
misuse of Licensor's Marks or Licensor's proprietary information.
6. LICENSEE'S RESPONSIBILITIES.
A. OPERATIONAL AND OTHER REQUIREMENTS. During the License Term, Licensee
will:
(1) promptly pay to Licensor all amounts due Licensor and its
Entities as royalties or fees or for goods or services purchased
by Licensee;
(2) maintain the Hotel in a clean, safe and orderly manner and in
first class condition;
(3) provide efficient, courteous and high-quality service to the
public;
(4) operate the Hotel 24 hours a day every day, except as otherwise
permitted by Licensor based on special circumstances;
(5) strictly comply in all respects with the Manual and with all
other policies, procedures and requirements of Licensor which may
be from time to time communicated to Licensee;
(6) strictly comply with Licensor's reasonable requirements to
protect the System and the Hotel from unreliable sources of
supply;
(7) strictly comply with Licensor's requirements as to:
(a) the types of services and products that either must or may
be used, promoted or offered at the Hotel;
(b) use, display, style and type of signage;
(c) directory and reservation service listings of the Hotel;
(d) training of persons to be involved in the operation of the
Hotel;
(e) participation in all marketing, reservation service,
advertising, training and operating programs designated by
Licensor as System-wide (or area-wide) programs based on
Licensor's assessment of the long-term best interests of
hotels using the System, considering the interest of the
System overall;
(f) maintenance, appearance and condition of the Hotel;
(g) quality and types of services offered to customers at the
Hotel, and
4
<PAGE>
(h) its 100% Satisfaction Guarantee rule of operation, and any
similar rules of operation designed to maintain or improve
relationships with past, present and potential guests and
other hotel customers, as such rule or rules are in effect
or as they may be established or revised hereafter;
(8) use such automated guest service and/or hotel management and/or
telephone system(s) which Licensor deems to be in the best
interests of the System based on Licensor's assessment of the
long-term best interests of hotels using the System, considering
the interests of the System overall, including any additions,
enhancements, supplements or variants thereof which may be
developed during the term hereof;
(9) participate in and use those reservation services which Licensor
deems to be in the best interests of the System based on
Licensor's assessment of the long-term best interests of hotels
using the System, considering the interests of the System
overall, including any additions, enhancements, supplements or
variants thereof which may be developed during the term hereof;
(10) adopt improvements or changes to the System as may be from time
to time designated by Licensor;
(11) strictly comply with all governmental requirements, including the
filing and maintenance of any required trade name or fictitious
name registrations, paying all taxes, and maintaining all
governmental licenses and permits necessary to operate the Hotel
in accordance with the System;
(12) permit inspection of the Hotel by Licensor's representatives at
any time and give them free lodging for such time as may be
reasonably necessary to complete their inspections;
(13) upon request by Licensor, provide to Licensor statistics on Hotel
operations in the form specified by Licensor and using
definitions specified by Licensor;
(14) promote the Hotel on a local or regional basis subject to
Licensor's requirements as to form, content and prior approvals;
(15) ensure that no part of the Hotel or System is used to further or
promote another lodging facility or any business that competes
with any business Licensor or an affiliate engages in at any time
during the Agreement (including, but not limited to, the
timeshare resort or vacation ownership business), except for
those approved by Licensor, its parent, subsidiaries or
affiliates;
(16) use every reasonable means to encourage use of Homewood Suites
facilities everywhere by the public; provided, however, this will
not prohibit Licensor from requiring Licensee's participation in
programs designed to refer prospective customers to other hotels
(in the System or otherwise);
(17) in all respects use Licensee's best efforts to reflect credit
upon and create favorable public response to the name "Homewood
Suites";
(18) comply with Licensor's requirements concerning confidentiality of
information;
(19) not at any time during the term of this Agreement, through itself
or any member of an affiliated group (as defined by the Internal
Revenue Code) own, in whole or in part, or be the licensor of, a
hotel brand, tradename, system or chain without the written
consent of Licensor in its sole discretion. Hereafter, any entity
that, through itself or any affiliate, owns in whole or in part,
or is the licensor of a hotel brand, tradename, system or chain
shall be referred to as a COMPETITOR"; and
5
<PAGE>
(20) maintain possession and control of the Hotel and Hotel site.
B. UPGRADING OF THE HOTEL. Licensor may at any time during the License
Term require substantial modernization, rehabilitation and other
upgrading of the Hotel to meet the then current standards specified in
the Manual as long as those standards apply to a majority of the
hotels operated by Licensor and its licensees in the same brand or
category as the Hotel. Nothing in this paragraph shall be construed to
relieve Licensee from the obligation to maintain acceptable product
quality ratings at the Hotel and maintain the Hotel in accordance with
the Manual at all times during the Agreement. Limited exceptions from
those standards may be made by Licensor based on local conditions or
special circumstances. If the upgrading requirements contained in this
Paragraph 6b cause Licensee undue hardship, Licensee may terminate
this Agreement by paying a fee computed according to Paragraph 13f.
C. STAFF AND MANAGEMENT. Licensee is at all times responsible for the
management of the Hotel's business. Licensee may fulfill this
responsibility by retaining a third party management company
("MANAGER"); provided, however, Licensee shall not enter into any
lease, management agreement or other similar arrangement for the
operation of the Hotel or any part thereof with any entity without the
prior written consent of Licensor in Licensor's sole discretion (there
being no obligation on the part of Licensor to approve a third party
management company). Licensee understands that Licensor will not
normally approve a Competitor to manage the Hotel, or any entity that
(through itself or an affiliate) is the exclusive manager for a
Competitor. If a Manager becomes a Competitor at any time during the
term of the Agreement, Licensee shall have 90 days to retain a
substitute manager suitable to Licensor. As a prerequisite for
Licensor's approval of a Manager, the proposed management agreement
must provide (1) that the Manager has authority for the day-to-day
management of the Hotel; (2) that the Manager has the authority to
perform the obligations of the Licensee under this Agreement; and (3)
that in the case of any conflict between this Agreement and the
management agreement, this Agreement prevails.
7. FEES.
A. Commencing on the opening date of the Hotel as a Homewood Suites hotel
and continuing for the full term of this Agreement, for each month (or
part of a month), Licensee will pay to Licensor by the 15th of the
following month:
(1) a royalty fee equal to 4 percent of the gross revenues
attributable to or payable for rental of Guest Suites at the
Hotel with deductions for sales and room taxes only ("GROSS
SUITES REVENUE"); and
(2) a "MARKETING/RESERVATION CONTRIBUTION" equal to 4 percent of
Gross Suites Revenue. The Marketing/Reservation Contribution is
subject to change by Licensor from time to time, which
Marketing/Reservation Contributions do not include the cost,
installation or maintenance of reservation services equipment or
training; and
(3) all amounts due Licensor for any other miscellaneous fees or
invoices or for goods or services purchased by or provided to
Licensee or paid by Licensor on Licensee's behalf; and
(4) an amount equal to any sales, gross receipts or similar tax
imposed on Licensor for the receipt of the payments required in
(1), (2) and (3) of this Paragraph above, unless the tax is an
optional alternative to an income tax otherwise payable by
Licensor.
B. Licensee will operate the Hotel so as to maximize Gross Suites Revenue
consistent with sound marketing and industry practice and will not
engage in any conduct which is likely to reduce Gross Suites Revenue
in order to further other business activities.
6
<PAGE>
C. Royalties may be charged on revenues (or upon any other basis, if so
determined by Licensor) from any activity conducted at the Hotel if
added by mutual agreement and if: (i) not now offered at hotels within
the System generally and is likely to benefit significantly from or be
identified significantly with the Homewood Suites name or other
aspects of the System or (ii) designed or developed by or for
Licensor.
D. Licensor may charge for optional products or services accepted by
Licensee from Licensor either in accordance with current practice or
as developed in the future.
E. A Guest Suite addition fee for guest suite additions to a hotel set
forth in Licensor's then current "FRANCHISE OFFERING CIRCULAR" shall
be paid by Licensee to Licensor on Licensee's submission of an
application to add any Guest Suites to the Hotel. As a condition to
Licensor granting its approval of such application, Licensor may
require Licensee to upgrade the Hotel, subject to Paragraph 6b.
F. Local and regional marketing programs and related activities may be
conducted by Licensee, but only at Licensee's expense and subject to
Licensor's requirements. Reasonable charges may be made by Licensor
for optional advertising materials ordered or used by Licensee for
such programs and activities.
G. Licensee shall participate in Licensor's travel agent commission
program(s) as it may be modified from time to time and shall reimburse
Licensor on or before the 15th of each month for call costs associated
with such programs including, but not limited to, travel agent
commissions and third party reservation service charges (such as
airline reservation systems).
H. Each payment paid by Licensor under this Paragraph 7 shall be
accompanied by the monthly statement referred to in Paragraph 8.
Licensor may apply any amounts received under this Paragraph 7 to any
amounts due under this Agreement. If any amounts are not paid when
due, such non-payment shall constitute a breach of this Agreement and,
in addition, such unpaid amounts will accrue a service charge
beginning on the first day of the month following the due date of
1 1/2 percent per month but not to exceed the maximum amount permitted
by applicable law.
8. RECORDS AND AUDITS.
A. DAILY AND MONTHLY REPORTS. At the request of Licensor, Licensee shall
prepare and deliver daily reports to Licensor, which reports will
contain information reasonably requested by Licensor on a daily basis,
such as daily rate and room occupancy, and which may be used by
Licensor for its reasonable purposes. At least monthly, Licensee shall
prepare a statement which will include all information concerning
Gross Suites Revenue, other revenues generated at the Hotel, suite
occupancy rates, reservation data and other information required by
Licensor (the "DATA"). The Data will be permanently recorded and
retained as may be reasonably required by Licensor. By the 15th of
each month, Licensee will submit to Licensor a statement setting forth
the Data for the previous month and reflecting the computation of the
amounts then due under Paragraph 7. The statement will be in such form
and detail as Licensor may reasonably request from time to time, and
may be used by Licensor for its reasonable purposes.
B. MAINTENANCE OF RECORDS. Licensee shall, in a manner and form
satisfactory to Licensor and utilizing accounting and reporting
standards as reasonably required by Licensor, prepare on a current
basis (and preserve for no less than four years), complete and
accurate records concerning Gross Suites Revenue and all financial,
operating, marketing and other aspects of the Hotel, and maintain an
accounting system which fully and accurately reflects all financial
aspects of the Hotel and its business. Such records shall include
books of account, tax returns, governmental reports, register tapes,
daily reports, and complete quarterly and annual financial statements
(profit and loss statements, balance sheets and cash flow statements).
7
<PAGE>
C. AUDIT. Licensor may require Licensee to have the Gross Suites Revenue
or other monies due hereunder computed and certified as accurate by a
certified public accountant. During the License Term and for two years
thereafter, Licensor and its authorized agents shall have the right to
verify information required under this Agreement by requesting,
receiving, inspecting and auditing, at all reasonable times, any and
all records referred to above wherever they may be located (or
elsewhere if reasonably requested by Licensor). If any such inspection
or audit discloses a deficiency in any payments due hereunder,
Licensee shall immediately pay to Licensor (i) the deficiency, (ii) a
service charge thereon as provided in Paragraph 7h, and (iii) all
inspection and audit costs (including travel, lodging, meals, salaries
and other expenses of the inspecting or auditing personnel).
Licensor's acceptance of Licensee's payment of any deficiency as
provided for herein shall not waive Licensor's right to terminate this
Agreement as provided for herein in Paragraph 13. If the audit
discloses an overpayment, Licensor shall refund the overpayment to
Licensee within 30 days.
D. ANNUAL FINANCIAL STATEMENTS. Licensee will submit to Licensor complete
year-end financial statements for the Hotel, Licensee and/or any
guarantors as soon as available but not later than 90 days after the
end of Licensee's fiscal year. Licensee will certify them to be true
and correct and to have been prepared in accordance with generally
accepted accounting principles consistently applied, and any false
certification will be a breach of this Agreement.
E. All of the information provided to Licensor pursuant to this paragraph
or any other part of this Agreement, or pursuant to any agreement
ancillary to this Agreement (including agreements relating to the
System 21 business system or other property management system provided
by Licensor) (the "INFORMATION"), shall be the property of Licensor.
HOWEVER, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT,
INFORMATION, SUCH AS FINANCIAL STATEMENTS, PREPARED FOR THE HOTEL,
LICENSEE AND/OR GUARANTORS, WHICH ANY SUCH PARTIES ARE REQUIRED BY LAW
OR BY THEIR NORMAL BUSINESS PRACTICES TO USE FOR OTHER PURPOSES (SUCH
AS IN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION OR OTHER
GOVERNMENTAL AUTHORITIES OR FOR TRANSMISSION TO SHAREHOLDERS) MAY BE
USED BY THEM FOR SUCH PURPOSES, AND SUCH PARTIES SHALL RETAIN
OWNERSHIP IN SUCH INFORMATION TO THE EXTENT NECESSARY TO PERMIT SUCH
USE. NEVERTHELESS, LICENSOR SHALL OWN THE COPIES OF ANY SUCH
INFORMATION PROVIDED BY ANY SUCH PARTIES IN ACCORDANCE WITH THE TERMS
OF THIS AGREEMENT. Licensor will use reasonable efforts to sort,
categorize, classify and otherwise analyze the information to help
licensees market their hotels. The Information will remain the
proprietary information of Licensor which Licensor will share with
licensees only as determined by Licensor in its sole discretion.
Licensor and its affiliates may use the Information for any reason
whatsoever, including an earnings claim in Licensor's offering
circular.
8
<PAGE>
9. INDEMNITY.
SUBJECT TO THE PROVISIONS OF ANY MANAGEMENT AGREEMENT BETWEEN LICENSOR (AS
MANAGER THEREUNDER) AND LICENSEE (AS OWNER THEREUNDER), Licensee will
indemnify, during and after the term of this Agreement, Licensor and its
affiliates, and their respective officers, directors, employees, agents,
predecessors, successors and assigns ("INDEMNIFIED PARTIES") against, hold
them harmless from, and promptly reimburse them for, all payments of money
(fines, damages, legal fees, expenses, etc.) by reason of any claim,
demand, tax, penalty, or judicial or administrative investigation or
proceeding (even where negligence of Licensor and/or its Entities and/or
their Indemnified Parties is actual or alleged) arising from any claimed
occurrence at the Hotel or arising from, as a result of, or in connection
with the development or operation of the Hotel (including, but not limited
to, the design, construction, financing, furnishing, equipment, acquisition
of supplies or operation of the Hotel in any way), or any other of
Licensee's acts, omissions or obligations or those of anyone associated or
affiliated with Licensee or the Hotel in any way arising out of or related
to this Agreement. At the election of Licensor, Licensee will also defend
Licensor and/or its Entities and/or their Indemnified Parties against the
same. In any event, Licensor will have the right, through counsel of its
choice, to control any matter to the extent it could directly or indirectly
affect Licensor and/or its Entities and/or their Indemnified Parties
financially. Licensee will also reimburse Licensor for all expenses,
including attorneys' fees and court costs, reasonably incurred by Licensor
to protect itself and/or its Entities and/or their Indemnified Parties
from, or to remedy Licensee's defaults or to collect any amounts due under
this Agreement.
10. INSURANCE.
A. Licensee will comply with Licensor's specifications for insurance as
to amount and type of coverage as may be reasonably specified by
Licensor from time to time in writing and will in any event maintain
as a minimum the following insurance underwritten by an insurer
approved by Licensor:
(1) employer's liability and workers' compensation insurance as
prescribed by applicable law; and
(2) liquor liability insurance, if applicable, naming Licensor and
its then current Entities and their predecessors, successors and
assigns as additional insureds with single-limit coverage for
personal and bodily injury and property damage of at least
$10,000,000 for each occurrence; and
(3) commercial general liability insurance (with products, completed
operations and independent contractors coverage) and
comprehensive automobile liability insurance, all on an
occurrence and per location basis naming Licensor, its Entities
and their predecessors, successors and assigns as additional
insureds and underwritten by an insurer approved by Licensor,
with single-limit coverage for personal and bodily injury and
property damage of at least $10,000,000 for each occurrence; and
(4) in connection with all construction at the Hotel during the
License Term, Licensee will cause the general contractor to
maintain with an insurer approved by Licensor commercial general
liability insurance (with products, completed operations, and
independent contractors coverage including workers' compensation
and automobile liability insurance for such independent
contractors) in at least the amount of $10,000,000 for each
occurrence for personal and bodily injury and property damage
with Licensor, its Entities and their predecessors, successors
and assigns as additional insureds.
B. EVIDENCE OF INSURANCE/CHANGES. This coverage shall be evidenced by
original certificates of insurance submitted to Licensor
simultaneously herewith, annually hereafter and each time a change is
made in any insurance or insurance carrier, Licensee will furnish to
Licensor certificates of insurance including the term and coverage of
the insurance in force, the persons insured, and a statement that the
coverage may not be cancelled,
9
<PAGE>
altered or permitted to lapse or expire without 30 days advance
written notice to Licensor. Licensor will send Licensee notice of any
policy or coverage which Licensor, in its sole discretion, finds
unacceptable and upon receipt of such notice, Licensee will promptly
undertake to change such policy or coverage.
C. If Licensee fails or neglects to obtain or maintain the insurance or
policy limits required by this Agreement, Licensor shall have the
option, without notice, to obtain and maintain such insurance for
Licensee, and Licensee shall pay immediately upon demand therefore,
the premiums and the cost incurred by Licensor in taking such action.
11. TRANSFER.
A. TRANSFER OF THIS AGREEMENT BY LICENSOR. Licensor shall have the right
to transfer or assign this Agreement or any of Licensor's rights,
obligations, or assets under this Agreement to any person or legal
entity provided that the transferee assumes all of Licensor's
obligations to Licensee under this Agreement.
B. TRANSFERS BY LICENSEE.
(1) General Statement of Explanation and Intent.
This Agreement is not transferable by Licensee, and a change in
ownership of the Hotel or the licensed business (i.e., either
this Agreement, the Licensee or any indirect ownership interest
in the Licensee) is not allowed under this Agreement. Certain
intra-family transfers of interest and (in the case of corporate
licensees) corporate restructurings are permitted as long as the
requirements described below are met. However, Licensor has
entered into this Agreement with a particular Licensee or its
owners. If the Licensee wants to transfer the Hotel or its
interest in the licensed business, such a transfer will
constitute a "change of ownership". If the transferee wants to
continue to operate the Hotel as a Homewood Suites hotel, the
transferee will have to apply for a new license which, if
approved, will last at most for the balance of the term of this
Agreement. If the change of ownership is not approved, or if the
transferee does not want to continue to operate the Hotel as a
Homewood Suites hotel, Licensor may refuse to consent to the
termination of this Agreement. If Licensor does consent to
termination, this Agreement will terminate and Licensee will owe
liquidated damages. In addition, if the transfer is to a
Competitor, Licensor has the right to buy the Hotel. The
foregoing explanation is more fully described and qualified by
the following specific provisions.
(2) Licensee understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Licensee, and that
Licensor has entered into this Agreement in reliance on the
business skill, financial capacity, and personal character of
Licensee (if Licensee is an individual), and that of the
partners, members, or stockholders of Licensee (if Licensee is a
partnership, company, corporation, or other legal entity).
Accordingly, no direct or indirect interest in the Hotel or in
this Agreement, and no direct or indirect Equity Interest (as
defined herein) in Licensee may be sold, leased, assigned, or
transferred, (such instances hereafter referred to collectively
as a "Transfer"), without the consent of the Licensor. Nothing
herein shall require Licensor's approval for any pledge,
mortgage, or hypothecation of all or any part of the assets of
the licensed business (other than this Agreement or any Equity
Interest in Licensee) to banks or other lending institutions.
(3) Any purported Transfer, by operation of law or otherwise, not in
accordance with the provisions of this Agreement shall be null
and void and shall constitute a breach of this Agreement, for
which Licensor may terminate this Agreement upon notice without
opportunity to cure pursuant to Paragraph 13d, and as a result of
which Licensee will owe liquidated damages.
10
<PAGE>
(4) References in this Agreement to "EQUITY INTERESTS" shall mean any
direct or indirect beneficial interest in Licensee (an "indirect"
interest is an interest in an entity other than the Licensee that
either itself, or through others, has an interest in the
Licensee). In addition, "PUBLICLY-TRADED EQUITY INTEREST" shall
mean any Equity Interest which is traded on any securities
exchange or is quoted in any publication or electronic reporting
service maintained by the National Association of Securities
Dealers, Inc. or any of its successors. In computing changes of
Equity Interests, limited partners will not be distinguished from
general partners. Licensor's judgment will be final if there is
any question as to the definition of Equity Interest or as to the
computation of relative Equity Interests, the principal
considerations being: direct and indirect (i) power to exercise
control over the affairs of Licensee; (ii) right to share in
Licensee's profits; and (iii) exposure to risk in the Licensee's
business.
(5) Licensee represents that the Equity Interests are directly and
(if applicable) indirectly owned as shown on the Rider.
C. PROCEDURES FOR TRANSFERS. Licensee must provide written notice to
Licensor in advance of any proposed Transfer stating the identity of
the prospective transferee, purchaser, or lessee and the terms and
conditions of the conveyance. As a condition to consenting to the
transfer, Licensor may require any one or more of the following to be
met:
(1) Licensee will upon request provide a copy of any proposed
agreement of transfer and all other information with respect
thereto which Licensor may reasonably require;
(2) Licensee will upon request provide documents showing ownership
structure of the Licensee, site control by the Licensee,
possession or management control by the Licensee, financial
statements of any participants, and any other documents
reasonably requested by Licensor;
(3) Licensee will upon request pay a processing fee to Licensor of up
to $5,000 to cover Licensor's costs to review and consent to the
Transfer; provided however, in the case of a transfer of Equity
Interests which require registration under any federal or state
securities law, Licensee will pay a processing fee that will not
exceed $25,000;
(4) Licensee and all participants in any proposed public offering
(including the sale of partnership or membership interests) (i)
agree to fully indemnify Licensor in connection with the
registration, (ii) furnish Licensor with all information
requested, and (iii) avoid using Licensor's service marks or
trademarks or otherwise implying Licensor's participation in or
endorsing of any public offering;
(5) Licensee will at all times adequately provide for the management
of the Hotel during any Transfer; or
(6) Licensor may require the transferee to promptly execute a new
license agreement on Licensor's then current license agreement
for the unexpired term of this Agreement, and Licensor may
require the guarantee of the new license agreement by the same
guarantors of this Agreement (or substitute guarantors approved
by Licensor in its sole discretion).
D. PERMITTED TRANSFERS. Licensor will not unreasonably withhold consent
to any of the following Transfers provided Licensee complies with all
the requirements specified by Licensor pursuant to Subparagraph c
above (it being understood that if Licensee is in default of any of
its obligations under the Agreement, it will not be unreasonable for
Licensor to refuse to consent to any of these Transfers):
11
<PAGE>
(1) Equity Interests which are not publicly-traded may be
transferred, if after the transaction, 50 percent or less of all
Equity Interests will have changed hands since the date of this
Agreement.
(2) Publicly-traded equity interests may be transferred (without
Licensor's consent and without notification) if such transfer is
exempt from registration under federal securities law and if
immediately before and after the transfer, the transferor and
transferee respectively each own less than 25 percent of the
Equity Interests in Licensee.
(3) Licensee, if a natural person, may transfer its interest in the
License or Equity Interest in the Licensee to one or more of
Licensee's spouse, parents, siblings, nephews, descendants or
spouses' descendants or to a corporation entirely owned by
Licensee ("PERMITTED TRANSFEREES").
(4) If Licensee is a natural person, upon the Licensee's death, the
License or Licensee's Equity Interest in the Licensee will pass
in accordance with Licensee's will, or, if Licensee dies
intestate, in accordance with laws of intestacy governing the
distribution of the Licensee's estate, as the case may be,
provided the transferee is one or more of the decedent's
Permitted Transferees (excluding corporations formerly owned by
the Licensee) and within one year after the death the Permitted
Transferees meet all Licensor's normal requirements of an
approved applicant.
(5) Licensee may sell or lease the Hotel, the Hotel site, or any
portion thereof if, in the reasonable judgment of Licensor, after
such transfer, Licensee will retain possession and control of the
Hotel site and management control of the Hotel operations (which
may be via third party management contract pursuant to Paragraph
6c). If, in the reasonable judgment of Licensor, the transfer of
the Hotel will result in the loss of possession or control of the
Hotel or Hotel site or management of the Hotel, the transfer will
constitute a change of ownership as described in Subparagraph e.
E. CHANGE OF OWNERSHIP.
(1) Any Transfer that does not qualify as a permitted transfer under
Subparagraph d above shall constitute a change of ownership. If
in the case of a change of ownership, the transferee desires to
continue to operate the Hotel as a Homewood Suites hotel, the
transferee must submit an application for a new license
agreement. The new license, if approved, will be at most for the
unexpired term of this Agreement. The transferee shall be
responsible for all normal fees and costs (including application
fees and costs of improvements to the Hotel).
(2) Licensor shall process such change of ownership application in
good faith and in accordance with Licensor's then current
procedures, criteria and requirements regarding upgrading of the
Hotel, credit, operational abilities and capabilities, prior
business dealings, market feasibility, guarantees, and other
factors deemed relevant by Licensor. If such change of ownership
application is approved, Licensor and the new owner shall, upon
surrender of this Agreement, enter into a new license agreement.
The new license agreement shall be on Licensor's then current
form and contain Licensor's then current terms (except for
duration), and if applicable, the new license agreement will
contain specified upgrading and other requirements. If the
application is approved, Licensee submits a voluntary termination
of this Agreement and signs a release (in a form satisfactory to
Licensor) of all claims against Licensor, and the proposed new
owner executes a new license within 30 days of the sale of the
Hotel, no liquidated damages described in Paragraph 13 will be
owed by Licensee for the termination of this Agreement.
12
<PAGE>
(3) If a change of ownership application for the proposed transferee
is not approved by Licensor or the transferee does not want to
continue to operate the Hotel as a Homewood Suites hotel,
Licensor may refuse consent to the transfer and reserve all
remedies; if Licensee does consent and the Transfer occurs, then
this Agreement shall terminate pursuant to Paragraph 13d hereof
and Licensor shall be entitled to all of its remedies including
liquidated damages.
F. TRANSFER TO COMPETITOR. Notwithstanding any of the foregoing, if the
Licensee receives a bona fide offer from a Competitor to purchase or
lease the Hotel or to purchase Licensee or any entity that controls
Licensee, or to purchase an interest in either, and Licensee or any
person or entity that owns or controls Licensee wishes to accept such
offer, Licensee shall give written notice thereof to Licensor, stating
the name and full identity of the prospective purchaser or tenant, as
the case may be, including the names and addresses of the owners of
the capital stock, partnership interests or other proprietary
interests of such prospective purchaser or tenant, the price or rental
and all terms and conditions of such proposed transaction, together
with all other information with respect thereto which is requested by
Licensor and reasonably available to Licensee. Within 60 days after
receipt by Licensor of such written notice from Licensee, Licensor
shall elect by written notice to Licensee one of the following four
alternatives:
(1) If the proposed transaction is a sale or lease of the Hotel,
Licensor (or its designee) shall have the right to purchase or
lease the Hotel premises and related property at the same price
or rental and upon the same terms and conditions as those set
forth in such bona fide offer from a Competitor. In such event
Licensee and Licensor (or its designee) shall promptly enter into
an agreement for sale or lease at the price or rental and on
terms consistent with such bona fide offer.
(2) If the proposed transaction is a purchase of all or a portion of
the stock or assets (which includes the Hotel) of Licensee or the
person that owns or controls Licensee, Licensor (or its designee)
shall have the right to purchase the Hotel premises and related
property. If the parties are unable to agree as to a purchase
price and terms within thirty days of Licensor's election, the
fair market value of the Hotel premises and related property
shall be determined by arbitration as follows: Either party may
by written notice to the other appoint an arbitrator. Thereupon,
within 15 days after the giving of such notice, the other shall
by written notice to the former appoint another arbitrator, and
in default of such second appointment the arbitrator first
appointed shall be the sole arbitrator. When any two arbitrators
have been appointed as aforesaid, they shall, if possible, agree
upon a third arbitrator and shall appoint him by notice in
writing, signed by both of them in triplicate, one of which
triplicate notices shall be given to each party hereto; but if 15
days shall lapse without the appointment of the third arbitrator
as aforesaid, then such third arbitrator shall be appointed by
the American Arbitration Association from its qualified panel of
arbitrators, and shall be a person having at least ten (10)
years' recent professional experience as to the subject matter in
question. Upon appointment of the third arbitrator (whichever way
appointed as aforesaid), the three arbitrators shall meet and
render their decision. The decision of a majority of the
arbitrators so chosen shall be conclusive. Licensor (or its
designee) shall have the right, at any time within 30 days of
being notified in writing of the decision of the arbitrators as
aforesaid, to purchase the Hotel premises and related property at
the valuation fixed by the arbitrators. The parties shall share
equally the expense of such arbitration.
(3) To terminate this Agreement, in which event Licensee shall be
obligated to pay to Licensor liquidated damages pursuant to a
Special Termination as set forth in Paragraph 13f.
(4) To refuse to consent to the Transfer, reserving all remedies
under the applicable law.
13
<PAGE>
G. FINANCING. The construction and/or operation of the Hotel may not be
financed by a public offering of any right, title or interest in the
Hotel, the property upon which it is built or the receipts from its
operation without the prior review and approval of the applicable
documentation by Licensor. Licensee shall submit a non-refundable
$25,000 fee with said documentation.
12. CONDEMNATION AND CASUALTY.
A. CONDEMNATION. Licensee shall, at the earliest possible time, give
Licensor notice of any proposed taking by eminent domain. If Licensor
agrees that the Hotel or a substantial part thereof is to be taken,
Licensor may, in its sole discretion and within a reasonable time of
the taking (within four months) transfer this Agreement to a nearby
location selected by Licensee. If Licensor approves the new location
and authorizes the transfer and if within one year of the closing of
the Hotel Licensee opens a new hotel at the new location in accordance
with Licensor's specifications, then the new hotel will be deemed to
be the Hotel licensed under this Agreement. If a condemnation takes
place and a new hotel does not, for whatever reason, become the Hotel
under this Agreement in strict accordance with this paragraph (or if
it is reasonably evident to Licensor that such will be the case), this
Agreement will terminate immediately upon notice thereof by Licensor
to Licensee, without the payment of liquidated damages as calculated
in Paragraph 13f.
B. CASUALTY. If the Hotel is damaged by fire or other casualty, Licensee
will expeditiously repair the damage. If the damage or repair requires
closing the Hotel, Licensee will immediately notify Licensor, will
repair or rebuild the Hotel according to Licensor's standards, will
commence reconstruction within four months after closing, and will
reopen the Hotel for continuous business operations as soon as
practicable (but in any event within one year after the closing of the
Hotel), giving Licensor ample advance notice of the date of reopening.
If the Hotel is not reopened according to this Paragraph, this
Agreement will terminate immediately, upon notice thereof by Licensor
to Licensee, with the payment of liquidated damages as calculated in
Paragraph 13f, provided however, if Licensee's insurer fails to pay
the applicable insurance policy proceeds to Licensee, or if Licensee's
lender, pursuant to a valid agreement with Licensee, refuses to allow
the insurance proceeds to be used for repair or rebuilding, the
Agreement may be terminated by Licensee without payment of the
liquidated damages in Paragraph 13f. In such case Licensee shall
notify Licensor and provide any reasonable proof requested by
Licensor.
C. NO EXTENSIONS OF TERM. Nothing in this Paragraph 12 will extend the
License Term but Licensee shall not be required to make any payments
pursuant to Paragraph 7 for periods during which the Hotel is closed
by reason of condemnation or casualty.
13. TERMINATION.
A. EXPIRATION OF TERM. Unless terminated earlier, this Agreement will
expire without notice 20 years from the Effective Date of this
Agreement, as defined on Attachment B herein.
B. PERMITTED TERMINATION PRIOR TO EXPIRATION OF TERM. Licensee may
terminate this Agreement on the tenth or fifteenth anniversary date of
the opening of the Hotel by giving at least 12 but not more than 15
months advance notice to Licensor accompanied by the payment as
provided in Paragraph 13f herein.
C. TERMINATION OR SUSPENSION BY LICENSOR ON ADVANCE NOTICE. This
Agreement may be terminated if Licensee fails to satisfy any
obligations under this Agreement or any attachment hereto. Except in
the case of an immediate termination as provided in subparagraph 13d
below, this Agreement shall terminate if Licensee fails to cure an
Event of Default after the Licensor furnishes adequate notice of
termination based on the Event of Default.
14
<PAGE>
(1) An "EVENT OF DEFAULT" shall occur if the Licensee fails to
satisfy or comply with any of the requirements, conditions, or
terms set forth in (i) this Agreement or any attachment
including, but not limited to, any provisions regarding: any
transfer of the Hotel, or any direct or indirect interest in the
Agreement or Licensee, any representation or warranty, any fee
obligation, any operational requirements (including the standards
in the Manual); trademarks usage; maintenance of records,
insurance and indemnity; or (ii) any other agreement between
Licensor (or an affiliate) and Licensee relating to the Hotel,
including, but not limited to, any property management system
agreement, such as the System 21 business system agreement, or
any agreement to manage the Hotel.
(2) Notice of termination shall be adequate, if mailed thirty (30)
days (or such longer period required by applicable law) in
advance of the termination date.
(3) Licensor's notice of termination shall not relieve Licensee of
its obligations under this Agreement or any attachment.
(4) As a result of Licensee's efforts to comply with the terms and
conditions contained on Attachment A and elsewhere in this
Agreement, Licensee will incur substantial expense and expend
substantial time and effort. Licensee acknowledges and agrees
that Licensor shall have no liability or obligation to Licensee
for any losses, obligations, liabilities or expenses incurred by
Licensee if (i) Licensee commits an Event of Default as described
in Paragraph 13c(1); (ii) the Hotel is not authorized by Licensor
to Open as defined in Attachment A or (iii) this Agreement is
terminated because Licensee has not complied with the terms and
conditions of this Agreement.
(5) Notwithstanding the foregoing, following an Event of Default,
Licensor may at any time, in its sole discretion, suspend its
obligations under this Agreement (including reservation
services).
D. IMMEDIATE TERMINATION BY LICENSOR. Notwithstanding the foregoing
paragraph, this Agreement may be immediately terminated (or terminated
at the earliest time permitted by applicable law) if one or more of
the following material breaches to this Agreement or any Attachment
occur:
(1) Any Event of Default where a prior Event of Default had also
occurred during the preceding 12 months, but the License was not
terminated because Licensee cured the prior Event of Default;
(2) Licensee or any guarantor of Licensee's obligations hereunder
shall:
(a) generally not pay its debts as they become due or shall
admit in writing its inability to pay its debts, or shall
make a general assignment for the benefit of creditors; or
(b) commence any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or any
substantial part of its property; or
(c) take any corporate or other action to authorize any of the
actions set forth above in Paragraphs (a) or (b).
(3) Any case, proceeding or other action against Licensee or any such
guarantor shall be commenced seeking to have an order for relief
entered against it as debtor, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or
15
<PAGE>
composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its
property, and such case, proceeding or other action (i) results
in the entry of an order for relief against it which is not fully
stayed within seven business days after the entry thereof or (ii)
remains undismissed for a period of 45 days; or
(4) an attachment remains on all or a substantial part of the Hotel
or of Licensee's or any such guarantors assets for 30 days; or
(5) Licensee or any such guarantor fails within 60 days of the entry
of a final judgment against Licensee in any amount exceeding
$50,000 to discharge, vacate or reverse the judgment, or to stay
execution of it, or if appealed, to discharge the judgment within
30 days after a final adverse decision in the appeal; or
(6) Licensee loses possession or the right to possession of all or a
significant part of the Hotel or Hotel site; or
(7) Licensee fails to continue to identify the Hotel to the public as
a Homewood Suites hotel; or
(8) Licensee contests in any court or proceeding Licensor's ownership
of the System or any part of the System, or the validity of any
service marks or trademarks associated with Licensor's business;
or
(9) Any action is taken toward dissolving or liquidating Licensee or
any such guarantor, if it is a corporation or partnership, except
for death of a partner; or
(10) Licensee or any of its principals is, or is discovered to have
been convicted of a felony (or any other offense if it is likely
to adversely reflect upon or affect the Hotel, the System, the
Licensor and/or its Entities in any way; or
(11) Licensee maintains false books and records of accounts or submits
false reports or information to Licensor.
(12) Licensee becomes a Competitor (as defined in Paragraph 6a(19).
E. DE-IDENTIFICATION OF HOTEL UPON TERMINATION. Upon termination or
expiration of the term, Licensee will take whatever action is
necessary to assure that no use is made of any part of the System
(including but not limited to the Marks) at or in connection with the
Hotel or otherwise. Licensee shall return to Licensor the Manual and
all other proprietary materials, remove all distinctive System
features of the Hotel, including the primary freestanding sign down to
the structural steel, and take all other actions ("De-identification
Actions") required to preclude any possibility of confusion on the
part of the public that the Hotel is still using all or any part of
the System or is otherwise holding itself out to the public as a
Homewood Suites hotel. If within 30 days after termination of this
Agreement Licensee fails to comply with this paragraph, Licensor or
its agents at Licensee's expense, may enter the premises of the Hotel
to perform the De-identification Actions. The preceding sentence shall
not in any way limit Licensor's other rights or remedies under this
Agreement.
F. LIQUIDATED DAMAGES. The parties recognize the difficulty of
ascertaining damages to Licensor resulting from premature termination
of this Agreement, and have provided for liquidated damages, which
represent the parties' best estimate as to the damages arising from
the circumstances in which they are provided and which are only
damages for the premature termination of this Agreement, and not as a
penalty or as damages for breaching this Agreement or in lieu of any
other payment. If this Agreement is terminated other than by the
expiration of the term described in Paragraph 13a, Licensee will pay
Licensor, within 10 days of termination, liquidated damages in an
amount determined as follows:
16
<PAGE>
(1) an amount equal to the amount payable under Paragraph 7
(regarding Fees) for the three years prior to termination; or
(2) if the Hotel opened but has been Open for less than three years,
an amount equal to the greater of: (i) 36 times the monthly
average payable under Paragraph 7, or (ii) 36 times the amount
payable under Paragraph 7 for the last full month prior to
termination; or
(3) if the Hotel opened, but has not been in operation for one full
month, an amount equal to $3,000 per Guest Suite in the Hotel; or
(4) if the Agreement is terminated before the commencement of
construction or of the Work (as described in the applicable
attachment), an amount equal to the initial application fee that
would be due for a license application according to Licensor's
then current franchise offering circular (in addition to any
initial application fee already paid); or
(5) if the Agreement is terminated after commencement of construction
or of the Work but before opening of the Hotel, an amount equal
to two times the initial application fee; or
(6) if the Agreement is terminated pursuant to Paragraph 13b
(permitted termination after 10th or 15th year) only, an amount
equal to the amount payable under Paragraph 7 for the two years
prior to notice of termination.
Furthermore, Licensee recognizes the additional harm by way of
confusion with respect to national accounts, greater difficulty in
re-entering the market, and damage to goodwill of the Marks that
Licensor will suffer in the case of (i) a Licensee who terminates two
or more license agreements with Licensor at approximately the same
time (between either itself or its affiliates and Licensor) or (ii) a
license that terminates as a result of the Hotel or Licensee being
acquired by a Competitor, and the Licensor is unable or elects not to
buy the Hotel pursuant to Paragraph 11f (each of these will be
referred to as a "Special Termination"). Licensee agrees that in the
case of a Special Termination, the amount of liquidated damages as
calculated above will be doubled.
14. RENEWAL.
This Agreement is non-renewable.
15. RELATIONSHIP OF PARTIES.
A. NO AGENCY RELATIONSHIP. Licensee is an independent contractor. Neither
party is the legal representative or agent of, or has the power to
obligate (or has the right to direct or supervise the daily affairs
of) the other for any purpose whatsoever. Licensor and Licensee
expressly acknowledge that the relationship intended by them is a
business relationship based entirely on, and defined by, the express
provisions of this Agreement and that no partnership, joint venture,
agency, fiduciary or employment relationship is intended or created by
reason of this Agreement.
B. LICENSEE'S NOTICES TO PUBLIC CONCERNING INDEPENDENT STATUS. Licensee
will take all necessary steps including those reasonably requested by
Licensor to minimize the chance of a claim being made against Licensor
for anything that occurs at the Hotel, or for acts, omissions or
obligations of Licensee or anyone associated or affiliated with
Licensee or the Hotel. Such steps may, for example, include giving
notice in Guest Suites, public rooms and advertisements, on business
forms and stationery, etc., making clear to the public that Licensor
is not the owner or operator of the Hotel and is not accountable for
what happens at the Hotel. Unless required by law, Licensee will not
use the words "Homewood", "Homewood Suites" or any other names or mark
associated with the System to incur any obligation or indebtedness on
behalf of Licensor. Licensee shall not enter into or execute
17
<PAGE>
any contracts in the name "Homewood Suites hotel", and all contracts
for the Hotel's operations and services at the Hotel shall be in the
name of Licensee or Licensee's management company. Likewise, the words
"Homewood", "Homewood Suites", or any similar words will not be used
to name or identify developments adjacent to or associated with the
Hotel, nor will Licensee use such names in its general business in any
manner separated from the business of the Hotel.
16. MISCELLANEOUS.
A. SEVERABILITY AND INTERPRETATION. The remedies provided in this
Agreement are not exclusive. If any provision of this Agreement is
held to be unenforceable, void or voidable as being contrary to the
law or public policy of the jurisdiction entitled to exercise
authority hereunder, all remaining provisions shall nevertheless
continue in full force and effect unless deletion of such provision(s)
impairs the consideration for this Agreement in a manner which
frustrates the purpose of the parties or makes performance
commercially impracticable. The provisions of this Agreement shall be
interpreted based on the reasonable intention of the parties in the
context of this transaction without interpreting any provision in
favor of or against any party whether or not such party was the
drafting party or by such party's position relative to the other
party. Any covenant, term or provision of this Agreement which, in
order to effect the intent of the parties, must survive the
termination of this Agreement, shall survive any such termination.
B. CONTROLLING LAW. This Agreement shall become valid when signed by the
parties hereto. It shall be deemed made and entered into in the State
of Tennessee and shall be governed and construed under and in
accordance with the laws of the State of Tennessee. In entering into
this Agreement, Licensee acknowledges that it has sought, voluntarily
accepted and become associated with Licensor who is headquartered in
Memphis, Tennessee, and that this Agreement contemplates and will
result in business relationships with Licensor's headquarter's
personnel. The choice of law designation permits, but does not require
that all suits concerning this Agreement be filed in the State of
Tennessee.
C. EXCLUSIVE BENEFIT. This Agreement is exclusively for the benefit of
the parties hereto, and it may not give rise to liability to a third
party, except as otherwise specifically set forth herein. No agreement
between Licensor and anyone else is for the benefit of Licensee.
D. ENTIRE AGREEMENT. Licensor and the Licensee each acknowledge and
warrant to each other that they wish to have all terms of this
business relationship defined in this written agreement. Neither
Licensor nor Licensee wishes to enter into a business relationship
with the other in which any terms or obligations are the subject of
alleged oral statements or in which oral statements serve as the basis
for creating rights or obligations different than or supplementary to
the rights and obligations set forth in this Agreement. Accordingly,
Licensor and Licensee agree that this Agreement and any Attachments
hereto and the documents referred to herein, shall be construed
together and shall supersede and cancel any prior and/or
contemporaneous discussions or writings (whether described as
representations, inducements, promises, agreements or any other term)
between Licensor or anyone acting on its behalf and Licensee or anyone
acting on his, her or its behalf, which might be taken to constitute
agreements, representations, inducements, promises or understandings
(or any equivalent to such terms) with respect to this Agreement or
the relationship between the parties and Licensor and Licensee each
agree that they have placed, and will place, no reliance on any such
discussions or writings. This Agreement (including any Attachments and
the documents referred to herein), is the entire agreement between the
parties and contains all of the terms, conditions, rights and
obligations of the parties with respect to the Hotel or any other
aspect of the relationship between the parties. No future license or
offer of a license for additional locations or any other business
activity have been promised to Licensee and no such license or offer
shall come into existence, except by means of a separate writing,
executed by Licensor's officer or such other entity granting the
license and specifically identified as a License Agreement. No change,
modification, amendment or waiver of any of the provisions of this
Agreement will be effective and binding upon Licensor unless it is in
writing, specifically identified as an
18
<PAGE>
amendment to this Agreement and signed by Licensor's officer.
E. LICENSOR'S WITHHOLDING CONSENT. Licensor may withhold its consent,
wherever required under this Agreement, if any default or breach by
Licensee exists under this Agreement. Approvals and consents by
Licensor will not be effective unless evidenced by a writing duly
executed on behalf of Licensor.
F. NOTICES. Any notice must be in writing and will be effective on either
(1) the day it is sent via facsimile with a confirmation of receipt;
or (2) the third day after it is mailed by first class mail; or (3)
the day it is delivered by express delivery service; or (4) the third
day after it is sent by certified mail to the appropriate party at its
address first stated above or to such person and at such address as
may be designated by notice hereunder.
G. GENERAL RELEASE. Licensee and its respective heirs, administrators,
executors, agents, representatives and their respective successors and
assigns, hereby release, remise, acquit and forever discharge Licensor
and its Entities and their officers, directors, employees, agents,
representatives and their respective successors and assigns from any
and all actions, claims, causes of action, suits, rights, debts,
liabilities, accounts, agreements, covenants, contracts, promises,
warrants, judgments, executions, demands, damages, costs and expenses,
whether known or unknown at this time, of any kind or nature, absolute
or contingent, if any, at law or in equity, on account of any matter,
cause or thing whatsoever which has happened, developed or occurred at
any time from the beginning of time to and including the date of
Licensee's execution and delivery to Licensor of this Agreement and
that they will not institute any suit or action at law or otherwise
against Licensor directly or indirectly relating to any claim released
hereby by Licensee. This release and covenant not to sue shall survive
the termination of this Agreement. Licensee shall take whatever steps
are necessary or appropriate to carry out the terms of this release
upon Licensor's request.
H. DESCRIPTIVE HEADINGS. The descriptive headings in this Agreement are
for convenience only and shall not control or affect the meaning or
construction of any provision in this Agreement.
I. WARRANTIES. Licensee warrants, represents and agrees that all
statements made by Licensee in the Application submitted to Licensor
in anticipation of this Agreement and all other documents and
information submitted by Licensee are true, correct and complete as of
the date hereof and will continue to be updated so that they are true,
correct and complete. This warranty and representation shall survive
the termination of this Agreement.
J. TIME. Time is of the essence in this Agreement.
K. INCLUDING. Including shall mean including, without limitation.
L. COUNTERPARTS. This Agreement may be executed in counterparts, and each
copy so executed and delivered shall be deemed an original.
M. AMENDMENTS. If an amendment to this Agreement is required prior to its
execution, said amendment shall be made a part of this Agreement as an
Attachment. If an amendment to this Agreement is necessary after its
execution, said amendment shall be made a part of this Agreement in
the form of a separate document.
N. PERFORMANCE REQUIREMENTS/RESPONSIBILITIES. Attachment A is hereby
incorporated by reference and made a part of this Agreement to set
forth certain of Licensee's performance conditions and requirements.
O. BUSINESS JUDGMENT. The parties hereto recognize, and any mediator or
judge is affirmatively advised, that certain provisions of this
Agreement describe the right of Licensor to take (or refrain from
taking) certain actions in the exercise of its assessment of
19
<PAGE>
the long-term best interests of hotels using the System, considering
the interests of the System overall. Where such decisions have been
taken by Licensor and are supported by the business judgment of
Licensor, neither a mediator nor a judge nor any other person
reviewing such decisions shall substitute his, her or its judgment for
the judgment so exercised by Licensor.
17. EXPIRATION OF OFFER.
This Agreement constitutes an offer which must be accepted by the Licensee
named on the signature page hereof by dating, executing and returning to
Licensor two copies hereof (and all attachments hereto, including, if
required, the Guaranty) on or before the date specified on the Rider.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first stated above.
LICENSEE: LICENSOR:
APPLE SUITES MANAGEMENT, INC. PROMUS HOTELS, INC.
BY: /S/ GLADE M. KNIGHT BY:
------------------------------ --------------------------------
NAME: GLADE KNIGHT NAME: THOMAS P. POWELL
---------------------------- -------------------------------
TITLE: CHIEF EXECUTIVE OFFICER TITLE: SR. VICE PRESIDENT-DEVELOPMENT
--------------------------- ------------------------------
WITNESS: WITNESS:
------------------------- ----------------------------
DATE: DATE:
---------------------------- -------------------------------
20
<PAGE>
GUARANTY
Location: 4100 INNSLAKE DRIVE, RICHMOND-WEST END, VIRGINIA
As an inducement to Promus Hotels, Inc. ("LICENSOR") to execute the above
License Agreement, the undersigned, jointly and severally, hereby
unconditionally warrant to Licensor and its successors and assigns that all of
Licensee's representations in the License Agreement and the application
submitted by Licensee to obtain the License Agreement are true and guarantee
that all of Licensee's obligations under the above License Agreement, including
any amendments thereto whenever made (the "Agreement"), will be punctually paid
and performed.
Upon default by Licensee or notice from Licensor, the undersigned will
immediately make each payment required of Licensee under the Agreement. Without
affecting the obligations of the undersigned under this Guaranty, Licensor may
without notice to the undersigned extend, modify or release any indebtedness or
obligation of Licensee, or settle, adjust or compromise any claims against
Licensee. The undersigned waive notice of amendment of the Agreement and notice
of demand for payment or performance by Licensee.
Upon the death of an individual guarantor, the estate of such guarantor will be
bound by this Guaranty but only for defaults and obligations hereunder existing
at the time of death, and the obligations of the other guarantors will continue
in full force and effect.
The Guaranty constitutes a guaranty of payment and not of collection, and each
of the guarantors specifically waives any obligation of Licensor to proceed
against Licensee on any money or property held by Licensee or by any other
person or entity as collateral security, by way of set off or otherwise. The
undersigned further agree that this Guaranty shall continue to be effective or
be reinstated as the case may be, if at any time payment or any of the
guaranteed obligations is rescinded or must otherwise be restored or returned by
Licensor upon the insolvency, bankruptcy or reorganization of Licensee or any of
the undersigned, all as though such payment has not been made.
This Guaranty shall be governed and construed under and in accordance with the
laws of the State of Tennessee.
IN WITNESS WHEREOF, each of the undersigned has signed this Guaranty as of the
date of the above Agreement.
Witnesses: Guarantors:
Apple Suites, Inc.
By: /s/ Glade M. Knight (Seal)
- --------------------------------- ---------------------------
Glade Knight, President
21
<PAGE>
ATTACHMENT A - PERFORMANCE CONDITIONS
CHANGE OF OWNERSHIP
I. CONSULTATION. Licensee or its representative(s) shall meet with Licensor
at a location selected by Licensor, within 30 days following the date of
Licensee's receipt of a request from Licensor for consultation and
coordination with the project manager assigned to Licensee by Licensor.
II. WORK AND PURCHASE REQUIREMENT. Attachment C, the Product Improvement Plan
(the "PIP"), is incorporated by reference, attached to and made a part of
this Agreement. Licensee shall perform the renovation and/or construction
work and purchase the items described on the PIP (the "Work") on or before
the completion date specified on the Rider. Whether or not indicated on
the PIP, the Work shall include Licensee's purchasing and/or leasing and
installing all fixtures, equipment, furnishings, furniture, signs,
computer terminals and related equipment, supplies and other items which
would be required of a new Homewood Suites licensee under the Manual and
such other equipment, furnishings and supplies as may be required by
Licensor in order to operate the Hotel. Licensee shall be solely
responsible for obtaining all necessary licenses, permits and zoning
variances required for the Hotel.
III. APPROVAL OF ARCHITECT/ENGINEER AND CONTRACTOR. Licensor shall have the
right to approve the architect/engineer, general contractor and major
subcontractors for the Work. The Work shall not commence until such
approval has been granted, which approvals may be conditioned on bonding
of the contractors. Prior to commencement of the Work, if requested by
Licensor, Licensee shall submit to Licensor, resumes and financial
statements of the architect/engineer, general contractor and any major
sub-contractors for the Work and such additional information concerning
their experience and financial responsibility as Licensor may request.
IV. APPROVAL OF PLANS. On or before the Plans submission date specified on the
Rider, Licensee shall submit to Licensor, Licensee's plans and
specifications and drawings for the Work, including the proposed
furnishings, fixtures, equipment and signs (collectively, "Plans") for
approval. Licensor may supply Licensee with representative prototype Guest
Room and public area plans and schematic building plans as a guide for
preparation of plans and specifications for the Hotel. Once Licensor has
approved the Plans, no change shall be made to the Plans without the
advance consent of Licensor. In approving the Plans, Licensor does not in
any manner warrant the depth of its analysis or assume any responsibility
for the efficacy of the Plans or the resulting construction. Licensee
shall cause the Hotel renovation and/or construction to be in accordance
with this Agreement, the approved Plans, the Manual and the PIP.
V. COMMENCEMENT; COMPLETION. Licensee shall commence the Work on or before
the date specified on the Rider and shall continue the Work uninterrupted
(except for interruption by reason of events constituting force majeure)
until it is completed. Notwithstanding the occurrence of any events
constituting force majeure, or any other cause, the Work shall be
completed and the Hotel shall be furnished, equipped, and shall otherwise
be in compliance with this Agreement not later than the date specified on
the Rider. Licensor shall have the sole right to determine whether the
Work has been completed in accordance with this Agreement, the approved
Plans, the Manual and the PIP.
VI. INSPECTION. During the course of the Work, Licensee shall, and Licensee
shall cause the architect, engineer, contractors, and subcontractors to
cooperate fully with Licensor for the purpose of permitting Licensor to
inspect the Hotel in order to determine whether the Work is being done in
accordance with this Agreement and shall provide Licensor with samples of
construction materials, etc. as Licensor may request.
VII. REPORTS. Licensee shall submit to Licensor each month after the date
hereof (or more frequently if Licensor shall so request) a report showing
progress made toward fulfilling the terms of this Agreement.
VIII. ACQUISITION OF EQUIPMENT, FURNISHINGS, AND SUPPLIES/STAFFING. Licensee
shall order, purchase
Attachment A - 1
<PAGE>
and/or lease and install all fixtures, equipment, furnishings, furniture,
signs, computer terminals and related equipment, supplies and other items
required by Licensor, this Agreement, the approved Plans, the Manual and
the PIP.
In accordance with the Manual and such other instructions as are furnished
to Licensee by Licensor, Licensee shall cause to be hired a staff to
operate the Hotel, and all such personnel shall be trained as required by
the Manual. All costs and expenses incurred directly or indirectly in
hiring and training such staff shall be paid by Licensee, except as
expressly provided otherwise in the Manual.
IX. COST OF CONSTRUCTION AND EQUIPPING. Licensee shall bear the entire cost of
the Work, including the cost of the plans, professional fees, licenses and
permits, equipment, furniture, furnishings and supplies.
X. LIMITATION OF LIABILITY. Notwithstanding the right of Licensor to approve
the Plans, the architect, engineer and certain contractors, and to inspect
the Work and the Hotel, Licensor shall have no liability or obligation
with respect to the Work, or the design and construction of the Hotel, as
the rights of Licensor are being exercised solely for the purpose of
assuring compliance with the terms and conditions of this Agreement.
Licensor does not undertake to approve the Hotel as complying with
governmental requirements or as being safe for guests or other third
parties. Licensee should not rely upon Licensor's approval for any purpose
whatsoever except compliance with Licensor's then prevailing standards and
requirements of the Manual.
XI. CONDITIONAL AUTHORIZATION. Licensor may conditionally authorize Licensee
to continue to operate the Hotel as a Homewood Suites hotel even though
Licensee has not fully complied with the terms of this Agreement. Under
certain circumstances, Licensor may suspend services to the Hotel
(including reservation services) while the Work is being performed by
Licensee.
XII. PERFORMANCE OF AGREEMENT. Licensee agrees to satisfy all of the terms and
conditions of this Agreement, and to equip, supply and staff the Hotel in
accordance with this Agreement and to cooperate with Licensor in
connection therewith. As a result of Licensee's efforts to comply with the
terms and conditions of this Agreement, Licensee will incur substantial
expense and expend substantial time and effort. Licensee acknowledges and
agrees that Licensor shall have no liability or obligation to Licensee for
any losses, obligations, liabilities or expenses incurred by Licensee if
this Agreement is terminated because Licensee has not complied with the
terms and conditions of this Agreement.
Attachment A - 2
<PAGE>
ATTACHMENT B
RIDER TO LICENSE AGREEMENT
<TABLE>
<S> <C> <C>
1. Name and Address of Licensee: Apple Suites Management, Inc.
306 East Main Street
Richmond, Virginia 23219
2. Location of Hotel: 4100 Innslake Drive
Glen Allen, Virginia 23060
3. Number of Approved Guest Rooms: 123
4. Effective Date of License: Date Apple Suites, Inc. closes the
purchase of and obtains possession
and control of the Hotel ("Closing")
It shall be a condition precedent to
the validity of this Agreement, and
this Agreement shall be of no force
and effect and Licensee shall have
no rights hereunder unless and until
on or before September 7, 1999,
Licensee shall have submitted to
Licensor, written verification, in a
form satisfactory to Licensor, that
Closing has occurred. Within five
days of Closing, Licensee shall
submit to Licensor (i) a copy of the
deed, as recorded, transferring the
Hotel to Apple Suites, Inc., (ii) a
copy of the lease agreement between
Licensee and Apple Suites, Inc., and
(iii) the franchise application fee
in the amount of $55,350
5. Term of License to Expire: 20 years from the date of Closing
6. Plans Submission Dates: as required under the Product Improvement Plan
(Attachment C)
7. Construction or Work Commencement Date: upon Closing
8. Construction or Work Completion Date: within 90 days of Closing but not later than
December 7, 1999
9. Offer Expiration Date [Paragraph 17]: September 3, 1999
10. Ownership of Licensee: Apple Suites Management, Inc. 100%
Stockholder:
Glade Knight 100%
</TABLE>
Attachment B - 1
EXHIBIT 10.8
<PAGE>
Exhibit 10.8 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.7. The following
list sets forth the material details in which the document described as Exhibit
10.8 differs from the document filed as Exhibit 10.7:
1. It pertains to the Homewood Suites hotel located at 4451 Beltline
Road, Addison, Texas 75001.
2. The Licensee is Apple Suites Services Limited Partnership.
3. Attachment B is as set forth on the following page.
<PAGE>
ATTACHMENT B
RIDER TO LICENSE AGREEMENT
<TABLE>
<S> <C>
1. Name and Address of Licensee: Apple Suites Services Limited Partnership
Attn: Glade Knight
306 East Main Street
Richmond, Virginia 23219
2. Location of Hotel: 4451 Beltline Road
Addison, Texas 75001
3. Number of Approved Guest Rooms: 120
4. Effective Date of License: as of September 20, 1999
It shall be a condition precedent to the validity of this
Agreement, and this Agreement shall be of no force and
effect and Licensee shall have no rights hereunder unless
and until on or before September 20, 1999, Licensee shall
have submitted to Licensor, written verification, in a form
satisfactory to Licensor, that Apple Suites REIT Limited
Partnership has closed on the purchase of and obtained
possession and control of the Hotel ("Closing"). Within five
days of Closing, Licensee shall submit to Licensor (i) a
copy of the deed, as recorded, transferring the Hotel to
Apple Suites REIT Limited Partnership, (ii) a copy of the
lease agreement between Licensee and Apple Suites REIT
Limited Partnership, and (iii) the franchise application fee
in the amount of $54,000
5. Term of License to Expire: September 19, 2019
6. Plans Submission Dates: as required under the Product Improvement Plan (Attachment C)
7. Construction or Work Commencement Date: September 20, 1999
8. Construction or Work Completion Date: December 20, 1999
9. Offer Expiration Date [Paragraph 17]: September 30, 1999
10. Ownership of Licensee: Apple Suites Services Limited Partnership 100%
General Partner:
Apple Suites Services General, Inc. 1%
Apple Suites Management, Inc. 100%
Glade Knight 100%
Limited Partner:
Apple Suites Services LP, Inc. 99%
Apple Suites Management, Inc. 100%
Glade Knight 100%
</TABLE>
Attachment B - 1
EXHIBIT 10.9
<PAGE>
Exhibit 10.9 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.7. The following
list sets forth the material details in which the document described as Exhibit
10.9 differs from the document filed as Exhibit 10.7:
1. It pertains to the Homewood Suites hotel located at 4300 Wingren
Drive, Irving, Texas 75039.
2. The Licensee is Apple Suites Services Limited Partnership.
3. Attachment B is as indicated on the attached page.
<PAGE>
ATTACHMENT B
RIDER TO LICENSE AGREEMENT
<TABLE>
<S> <C>
1. Name and Address of Licensee: Apple Suites Services Limited Partnership
Attn: Glade Knight
306 East Main Street
Richmond, Virginia 23219
2. Location of Hotel: 4300 Wingren Drive
Irving, Texas 75039
3. Number of Approved Guest Rooms: 136
4. Effective Date of License: as of September 20, 1999
It shall be a condition precedent to the validity of this
Agreement, and this Agreement shall be of no force and
effect and Licensee shall have no rights hereunder unless
and until on or before September 20, 1999, Licensee shall
have submitted to Licensor, written verification, in a form
satisfactory to Licensor, that Apple Suites REIT Limited
Partnership has closed on the purchase of and obtained
possession and control of the Hotel ("Closing"). Within five
days of Closing, Licensee shall submit to Licensor (i) a
copy of the deed, as recorded, transferring the Hotel to
Apple Suites REIT Limited Partnership, (ii) a copy of the
lease agreement between Licensee and Apple Suites REIT
Limited Partnership, and (iii) the franchise application fee
in the amount of $61,200
5. Term of License to Expire: September 19, 2019
6. Plans Submission Dates: as required under the Product Improvement Plan (Attachment C)
7. Construction or Work Commencement Date: September 20, 1999
8. Construction or Work Completion Date: December 20, 1999
9. Offer Expiration Date [Paragraph 17]: September 30, 1999
10. Ownership of Licensee: Apple Suites Services Limited Partnership 100%
General Partner:
Apple Suites Services General, Inc. 1%
Apple Suites Management, Inc. 100%
Glade Knight 100%
Limited Partner:
Apple Suites Services LP, Inc. 99%
Apple Suites Management, Inc. 100%
Glade Knight 100%
</TABLE>
Attachment B - 1
EXHIBIT 10.10
<PAGE>
Exhibit 10.10 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.7. The following
list sets forth the material details in which the document described as Exhibit
10.10 differs from the document filed as Exhibit 10.7:
1. It pertains to the Homewood Suites hotel located at 4705 Old
Sheppard Place, Plano, Texas 75093.
2. The Licensee is Apple Suites Services Limited Partnership.
3. Attachment B is as set forth on the following page.
<PAGE>
ATTACHMENT B
RIDER TO LICENSE AGREEMENT
<TABLE>
<S> <C>
1. Name and Address of Licensee: Apple Suites Services Limited Partnership
Attn: Glade Knight
306 East Main Street
Richmond, Virginia 23219
2. Location of Hotel: 4705 Old Shepard Place
Plano, Texas 75093
3. Number of Approved Guest Rooms: 99
4. Effective Date of License: as of September 20, 1999
It shall be a condition precedent to the validity of this
Agreement, and this Agreement shall be of no force and
effect and Licensee shall have no rights hereunder unless
and until on or before September 20, 1999, Licensee shall
have submitted to Licensor, written verification, in a form
satisfactory to Licensor, that Apple Suites REIT Limited
Partnership has closed on the purchase of and obtained
possession and control of the Hotel ("Closing"). Within five
days of Closing, Licensee shall submit to Licensor (i) a
copy of the deed, as recorded, transferring the Hotel to
Apple Suites REIT Limited Partnership, (ii) a copy of the
lease agreement between Licensee and Apple Suites REIT
Limited Partnership, and (iii) the franchise application fee
in the amount of $45,000
5. Term of License to Expire: September 19, 2019
6. Plans Submission Dates: as required under the Product Improvement Plan
(Attachment C)
7. Construction or Work Commencement Date: September 20, 1999
8. Construction or Work Completion Date: December 20, 1999
9. Offer Expiration Date [Paragraph 17]: September 30, 1999
10. Ownership of Licensee: Apple Suites Services Limited Partnership 100%
General Partner:
Apple Suites Services General, Inc. 1%
Apple Suites Management, Inc. 100%
Glade Knight 100%
Limited Partner:
Apple Suites Services LP, Inc. 99%
Apple Suites Management, Inc. 100%
Glade Knight 100%
</TABLE>
Attachment B - 1
Richmond, VA
MANAGEMENT AGREEMENT
This Management Agreement (as the same may be amended, modified or
supplemented from time to time, this "Agreement") is made and entered into as of
the 20th day of September, 1999 ("Effective Date") between Apple Suites
Management, Inc., a Virginia corporation, whose address is 306 East Main Street,
Richmond, Virginia 23219 ("Owner") and Promus Hotels, Inc., a Delaware
corporation, whose address is 755 Crossover Lane, Memphis, Tennessee 38117
("Manager").
ARTICLE 1
THE HOTEL
Section 1.01. The Hotel. The subject matter of this Agreement is the
management of the "Hotel", as defined in the Homewood Suites License Agreement
attached hereto as Exhibit "A" (hereinafter collectively referred to as the
"License Agreement"), by Manager. The Hotel is owned in fee by Apple Suites,
Inc., a Virginia corporation ("Fee Owner") and leased to Owner pursuant to a
lease of even date herewith between Fee Owner and Owner covering the Hotel
(hereinafter the "Percentage Lease"). The License Agreement shall exclusively
govern Owner's right to use the Homewood Suites "System" (as defined in the
License Agreement) in the operation of the Hotel. Fee Owner shall have no right
to use the Homewood Suites "System" except as expressly set forth in the License
Agreement. Owner hereby expressly acknowledges that neither it nor Fee Owner
shall derive any rights in or to the use of the "Homewood Suites" name or the
Homewood Suites "System" from this Agreement.
ARTICLE 2
TERM
Section 2.01. Term. The term shall commence on the Effective Date and
continue for the term of years from the Effective Date set forth on Exhibit "B"
("Term").
ARTICLE 3
MANAGER'S OBLIGATIONS
Section 3.01. Manager's Obligations. Manager shall, on behalf of Owner
and at Owner's expense, direct the operation of the Hotel pursuant to the terms
of this Agreement and the License Agreement. Manager shall be exclusively
responsible for directing the day-to-day activities of the Hotel and
establishing all policies and procedures relating to the management and
operation of the Hotel. Except as specifically otherwise provided, all cost(s)
and expense(s) incurred by Manager in association with the performance of the
obligations hereinafter set forth shall be, regardless of the
<PAGE>
designation of a portion thereof as Fee Ownership Costs (as herein defined),
operating costs and shall accordingly be paid from the Bank Account(s) as
hereinafter defined in Section 3.01(iv) below. Manager, during the Term, shall
have the following obligations:
(i) Costs of Fee Owner and Owner. Pursuant to the terms of the
Percentage Lease, Manager understands that Fee Owner has agreed
to pay, among other things (i) land, building and personal
property taxes and assessments applicable to the Hotel, (ii)
premiums and charges for the casualty insurance coverages
specified on Exhibit "D", (iii) expenditures for capital
replacements, (iv) expenditures for maintenance and repair of
underground utilities and structural elements of the Hotel and
(v) the payments of principal, interest and other sums payable
under the Acquisition Loan (as herein defined) (collectively,
"Fee Ownership Costs"). To the extent this Agreement obligates
or authorizes Manager to pay any such Fee Ownership Costs,
Manager shall pay such Fee Ownership Costs on behalf of Fee
Owner to the extent of funds in the Bank Account(s) (as herein
defined) in the order of priority set forth in Exhibit B or the
Reserve Fund (as herein defined) and Fee Owner and Owner shall
make such adjustments and payments to each other as may be
necessary from time to time to take into account any such
payments by Manager. Manager shall have no duty, obligation or
liability to Fee Owner or Owner (i) to make any determination as
to whether any expense required to be paid by Manager hereunder
is a Fee Ownership Cost or a cost of Owner, (ii) to make any
determination as to whether funds in the Bank Account(s) or the
Reserve Fund belong to Fee Owner or Owner or (iii) to require
that Fee Ownership Costs be paid from funds which can be
identified as belonging to Fee Owner, or that other costs and
expenses required to be paid by Owner be paid from funds which
can be identified as belonging to Owner; it being the intent of
the parties to this Agreement that (i) Owner and Fee Owner shall
look only to each other and not to Manager with respect to
moneys that may be owed one to the other as a consequence of
Manager's performance under this Agreement and (ii) Manager need
only look to Owner to pay operating costs, including, without
limitation, those designated herein as Fee Ownership Costs;
(ii) Personnel. Manager shall be the sole judge of the fitness and
qualification of all personnel working at the Hotel ("Hotel
Personnel") and shall have the sole and absolute right to hire,
supervise, order, instruct, discharge and determine the
compensation, benefits and terms of employment of all Hotel
Personnel. All Hotel Personnel shall be employees of Manager.
Manager shall also have the right to use employees of Manager,
Manager's parent and subsidiary and affiliated companies, not
located at the Hotel to provide services to the Hotel ("Off-Site
Personnel") and the right to have the general manager of the
hotel serve as the regional manager for other hotels managed by
Manager. All expenses, costs (including, but not limited to,
salaries, benefits and severance pay), liabilities and claims
which are related to Hotel Personnel and Off-Site Personnel
shall be
2
<PAGE>
operating costs; provided, however, with respect to any moving
expenses for any Hotel Personnel who has not been an employee at
the Hotel for at least twelve (12) months, only that portion of
such moving expenses equal to Owner's Share (as hereinafter
defined) shall constitute operating costs and the balance shall
be paid by Manager and/or such employee. Manager shall also have
the right to have Off-Site Personnel performing regional or area
duties relating to the Hotel and other hotels managed by Manager
lodged at the Hotel from time to time free of charge. "Owner's
Share" shall mean a fraction having twelve (12) as its
denominator and the number of months or part thereof such person
has been one of the Hotel Personnel as its numerator. All
expenses for Off-Site Personnel shall be included as a separate
category or item of the Operating Budgets or shall otherwise be
approved by Owner.
Manager agrees that it will consult with Owner regarding the
hiring, transferring, or terminating of the general manager and
director of sales for the Hotel. Owner shall be afforded an
opportunity to review the resumes of, and to interview, the
candidates for these positions, all within a time frame
established by Manager, which shall be reasonable under the
circumstances in question. Manager and Owner shall consult with
each other concerning such decisions and Manager agrees to give
serious consideration to the views of Owner prior to Manager's
making a final decision with respect to any such individual;
(iii) Hotel Policies. Manager shall determine the terms of guest
admittance to the Hotel, establish room rates, and use of rooms
for commercial purposes;
(iv) Bank Accounts. Manager shall open and operate the Hotel's bank
accounts. All sums received from the operation of the Hotel and
all items paid by Manager arising by virtue of Manager's
operation of the Hotel shall pass through bank account(s)
established by Manager in Owner's name at such banks as Manager
and Owner shall mutually agree ("Bank Account(s)"); only
Manager's designees shall be exclusively authorized to operate
and draw from the Bank Account(s). Each fiscal month Manager, on
behalf of Owner, shall disburse funds from the Bank Account(s)
in the order of priority and to the extent available in
accordance with the priority schedule set forth on Exhibit "B";
(v) Operating Budgets. Manager has submitted to Owner, for Owner's
approval, a proposed operating budget for the ensuing full or
partial fiscal year, as the case may be ("Operating Budget").
Hereafter, Manager shall, not less than forty-five (45) days
prior to the commencement of each full fiscal year, submit to
Owner, for Owner's approval, a proposed Operating Budget for the
ensuing full or partial fiscal year, as the case may be. Each
Operating Budget shall be accompanied by, and shall include, a
business plan which shall describe business objectives and
strategies for the period
3
<PAGE>
covered by the Operating Budget. The business plan shall
include, without limitation, an analysis of the market area in
which the Hotel competes, a comparison of the Hotel and its
business with competitive hotels, an analysis of categories of
potential guests, and a description of sales and marketing
activities designed to achieve and implement identified
objectives and strategies. Fee Owner shall have no right to
approve any Operating Budget.
Owner's approval of the Operating Budget shall not be
unreasonably withheld and shall be deemed given unless a
specific written objection thereto is delivered by Owner to
Manager within fifteen (15) days after submission. Owner shall
review the Operating Budget on a line-by-line basis. To be
effective, any notice which disapproves a proposed Operating
Budget must contain specific objections in reasonable detail to
individual line items.
If the initial Operating Budget contains disputed budget
item(s), said item(s) shall be deemed adopted until Owner and
Manager have resolved the item(s) objected to by Owner or the
Accountant(s) (hereinafter defined in Section 10.02) have
resolved the item(s) objected to by Owner. Thereafter, if Owner
disapproves or raises objections to a proposed Operating Budget
in the manner and within the time period provided therefor, and
Owner and Manager are unable to resolve the disputed or
objectionable matters submitted by Owner prior to the
commencement of the applicable fiscal year, the undisputed
portions of the proposed Operating Budget shall be deemed to be
adopted and approved and the corresponding line item contained
in the Operating Budget for the preceding fiscal year shall be
adjusted as set forth herein and shall be substituted in lieu of
the disputed items in the proposed Operating Budget. Those line
items which are in dispute shall be determined by increasing the
preceding fiscal year's corresponding line items by an amount
determined by Manager which does not exceed the Consumer Price
Index for All Urban Consumers published by the Bureau of Labor
Statistics of the United States Department of Labor, U.S. City
Average, all items (1984-1986=100) for the fiscal year prior to
the fiscal year with respect to which the adjustment to the line
item is being calculated or any successor or replacement index
thereto. The resulting Operating Budget obtained in accordance
with the preceding sentence shall be deemed to be the Operating
Budget in effect until such time as Manager and Owner have
resolved the items objected to by Owner.
Manager shall revise the Operating Budget from time to time, as
necessary, to reflect any unpredicted significant changes,
variables or events or to include significant, additional,
unanticipated items of income or expense. Any such revision
shall be submitted to Owner for approval, which approval shall
not be unreasonably withheld, delayed or conditioned. Manager
shall be permitted to reallocate part or all of the
4
<PAGE>
amount budgeted with respect to any line item to another line
item and to make such other modifications to the Operating
Budget as Manager deems necessary, provided, however, that
Manager may not reallocate from one Department to another
without Owner's consent, which shall not be unreasonably
withheld or delayed. The term "Department" shall mean and refer
to those general divisional categories shown in the Operating
Budget (e.g., Guest Services Department or Administration
Department), but shall not mean or refer to subcategories (e.g.,
linen replacement or uniforms) appearing in a divisional
category. In addition, in the event actual Adjusted Gross
Revenues (as defined in Exhibit "C" hereto) for any calendar
period are greater than those provided for in the Operating
Budget, the amounts approved in the Operating Budget for suite
maintenance, guest services, food and beverage, telephone,
utilities, marketing and hotel repair and maintenance for any
calendar month shall be automatically deemed to be increased to
an amount that bears the same relationship (ratio) to the
amounts budgeted for such items as actual Adjusted Gross Revenue
for such month bears to the projected Adjusted Gross Revenue for
such month. Owner acknowledges that the Operating Budget is
intended only to be a reasonable estimate of the Hotel's income
and expenses for the ensuing fiscal year. Manager shall not be
deemed to have made any guarantee, warranty or representation
whatsoever in connection with the Operating Budget;
(vi) Operating Statement. Manager shall prepare and furnish Owner, on
or before the twentieth (20th) day of the fiscal month
immediately following the close of a fiscal month, with a
detailed operating statement setting forth the results of the
Hotel's operations. Within ninety (90) days after the end of
each fiscal year, Manager shall furnish Owner with a detailed
operating statement setting forth the results of the Hotel's
operations for the fiscal year;
(vii) Capital Budgets. Manager shall, not less than forty-five (45)
days prior to the commencement of each fiscal year, submit to
Owner, for Owner's approval, a recommended "Capital Budget" for
the ensuing full or partial fiscal year, as the case may be, for
furnishings, equipment, and ordinary Hotel capital replacement
items as shall be required to operate the Hotel in accordance
with the standards referred to in the License Agreement.
Manager, to the extent it is able to do so without compromising
compliance with the minimum standards required under the terms
of the License Agreement, shall take into consideration, among
other factors, the amount of funds available to pay for the
proposed capital expenditures. Manager shall also identify for
Owner those projects that are required to meet the minimum
standards of the License Agreement and give priority to such
items. Owner and Manager shall meet to discuss the proposed
Capital Budget and Owner shall be required to make specific
written objections to a proposed Capital Budget in the manner
and within the same time periods specified in Section 3.01(v)
with respect to an
5
<PAGE>
Operating Budget. Owner agrees not to unreasonably withhold or
delay its consent. If Owner does not approve the Capital Budget,
Manager (i) with respect to Capital Improvements (as herein
defined) required to meet the minimum standards of the License
Agreement, will be entitled to spend such amounts as are
necessary to meet such minimum standards and (ii) with respect
to any other Capital Improvements, will only spend such amounts
as are approved by Owner, acting reasonably, provided, however,
that in any event Manager shall be entitled to spend up to three
percent (3%) of Adjusted Gross Revenue for capital expenditures
in the first full year after the Effective Date, four percent
(4%) of Adjusted Gross Revenue for capital expenditures during
the second full year after the Effective Date and five percent
(5%) of Adjusted Gross Revenue for capital expenditures each
year thereafter until the disputed Capital Budget item(s) have
been resolved in accordance with Section 10.02.1(e). Manager, at
Owner's expense, shall be responsible for supervising the
design, installation and construction of alterations or
additions to, or rebuilding or renovation of, the Hotel,
including any additions to Hotel furnishings and equipment
(collectively, "Capital Improvements"). Owner shall have the
right to approve and inspect the installation and construction
of Capital Improvements and any mortgagee having a first lien on
Owner's leasehold estate in the Hotel ("Owner's Leasehold
Mortgagee") or a first lien on Fee Owner's fee estate in the
Hotel (the "Fee Owner's Mortgagee") shall also have any right of
approval or inspection of the installation and construction of
the Capital Improvements to the extent set forth in the
mortgage, deed of trust or other loan documents (collectively,
the "Mortgage Documents") (but only if and to the extent the
Manager has been provided with copies of the Mortgage
Documents). Fee Owner shall not have the right to approve any
Capital Budget.
After a Capital Budget has been adopted, it shall be subject to
review and modification in the event unpredicted or
unanticipated capital expenditures are required during any
calendar year. Manager and Owner each agree not to unreasonably
withhold or delay its consent to a proposed modification of a
Capital Budget. Any amendment that is mutually agreed upon shall
be set forth in writing and signed by both parties. It is
acknowledged by Owner that capital expenditures required as a
result of an emergency situation shall not reduce amounts
available pursuant to the Capital Budget or otherwise hereunder,
other than to the extent a Capital Budget item is subsumed
within the capital expenditures required as a result of the
occurrence of the emergency;
(viii) General Maintenance Non-Capital Replacements. Manager shall
supervise the maintenance, repair and replacement of non-capital
replacements;
(ix) Operating Equipment. Manager shall select and purchase all
operating equipment for the Hotel such as linens, utensils,
uniforms and other
6
<PAGE>
similar items, provided, however, that if Owner determines that
it can purchase operating equipment of a quality at least equal
to that which Manager generally uses at a price lower than the
price obtained by Manager, Manager shall purchase such operating
equipment from the vendor designated by Owner;
(x) Operating Supplies. Manager shall select and purchase all
operating supplies for the Hotel such as food, beverages, fuel,
soap, cleansing items, stationery and other consumable items,
provided, however, that if Owner determines that it can purchase
operating supplies of a quality at least equal to that which
Manager generally uses at a price lower than the price obtained
by Manager, Manager shall purchase such operating supplies from
the vendor designated by Owner;
(xi) Accounting Standards. Manager shall maintain the books and
records reflecting the operations of the Hotel in accordance
with the accounting practices of Manager in conformity with
generally accepted accounting practices consistently applied and
shall adopt and follow the fiscal accounting periods utilized by
Manager in its normal course of business. The Hotel level
generated accounting records reflecting detailed day-to-day
transactions of the Hotel's operations, shall be kept by Manager
at the Hotel or at Manager's regional offices or corporate
headquarters, or at such other location as Manager shall
reasonably determine. Manager shall receive a monthly fee for
accounting services provided to the Hotel ("Accounting Fee").
The current Accounting Fee is set forth on Exhibit "B". The
Accounting Fee shall be adjusted by Manager from time to time
and set forth in the annual Operating Budget;
(xii) Marketing and Advertising. Manager shall advertise and promote
the Hotel in coordination with the sales and marketing programs
of Manager and other Homewood Suites hotels. Manager may
participate in sales and promotional campaigns and activities
involving complimentary rooms. Manager, in marketing and
advertising the Hotel, shall have the right to use marketing and
advertising services of employees of Manager and its parent and
affiliated companies not located at the Hotel. Manager may
charge the Hotel for personnel and other costs and expenses
incurred in providing such services; provided that (i) Manager's
allocation of such costs and expenses among hotels, including
the Hotel, shall be pro rated among all hotels owned or managed
by Manager and (ii) the annual allocation of such costs and
expenses to the Hotel shall not exceed $10,000.00. Such costs
and expenses shall be reflected in the budgets and operating
statements required to be prepared and submitted by Manager
under this Agreement;
(xiii) Permits and Licenses. Manager shall obtain and maintain the
various permits and licenses required or permitted to be held in
its name that are necessary to enable Manager to operate the
Hotel in accordance with the
7
<PAGE>
terms of this Agreement and the License Agreement, provided,
however, that Manager shall only hold liquor licenses and
alcoholic beverage licenses if required by the laws of the
jurisdiction in which the Hotel is located. In addition, Manager
shall upon request cooperate with and assist Owner in obtaining
the various permits and licenses that are required to be held in
the name of either or both of Owner and Fee Owner that are
necessary to enable Manager to operate the Hotel. Manager, at
Owner's cost and expense, shall use all reasonable efforts, to
the extent within its control, to comply with the terms and
conditions of all licenses and permits issued with respect to
the Hotel and the business conducted at the Hotel, including,
without limitation, the terms and conditions of the License
Agreement;
(xiv) Owner Meetings. The Hotel's general manager shall meet with
Owner's Representative as hereinafter defined in Section
4.01(viii) quarterly to review and discuss the previous and
future month's operating statement, cash flow, budget, capital
expenditures, important personnel matters and the general
concerns of Owner and Manager. In addition, a representative of
Manager's corporate staff shall meet with Owner's Representative
quarterly to review and discuss the previous and future
quarter's operating statement, cash flow, budget, capital
expenditures, important personnel matters and the general
concerns of Owner and Manager. Except to the extent otherwise
mutually agreed upon by Owner and Manager, the quarterly
meetings described in this clause (xiv) shall be held at the
Hotel;
(xv) Insurance. Manager shall procure and maintain throughout the
Term the insurance coverages set forth on Exhibit "D";
(xvi) Compliance with Law. Manager, at Owner's cost and expense, shall
use all reasonable efforts to comply with all laws, ordinances,
regulations and requirements of any federal, state or municipal
government that are applicable to the use and operation of the
Hotel, as well as with all orders and requirements of the local
fire department, of which Manager has knowledge; provided,
however, that Owner shall have the right to contest by proper
legal proceedings, the validity of any such law, ordinance,
rule, regulation, order, decision or requirement and may
postpone compliance therewith to the extent and in the manner
provided by law until final determination of any such
proceedings. Manager promptly shall notify Owner in writing of
all notices of legal requirements applicable to the Hotel that
are received by Manager;
(xvii) Satisfaction of Obligations. Manager agrees to pay, when due,
all amounts due under any equipment leases and all other
contracts and agreements relating to the operation or
maintenance of the Hotel, and, if requested by Owner, any
Mortgage Documents relating to the loan from Owner's Leasehold
Mortgagee ("Owner's Mortgage Documents"), but solely from and to
the extent that funds are available in the Bank
8
<PAGE>
Account(s), and to comply, at Owner's cost and expense, with all
other covenants and obligations contained in the equipment
leases and all utility contracts, concession agreements, and
service and maintenance contracts, and, if requested by Owner,
Owner's Mortgage Documents to the extent that compliance
therewith is within the reasonable control of Manager by reason
of its management and operation of the Hotel pursuant to this
Agreement; provided, however, Manager shall have no obligation
to comply with any provisions in the Mortgage Documents that
conflict with its rights and obligations under this Agreement.
Manager shall have no obligation to perform or comply with any
obligations of (i) Fee Owner or Owner under the Percentage Lease
or (ii) Fee Owner under any Mortgage Documents relating to the
loan from Fee Owner's Mortgagee (other than any right to approve
or inspect Capital Improvements contemplated by Section
3.01(vii) above);
(xviii) Requests for Information. Manager shall respond, with reasonable
promptness, to any information requests by Owner's Leasehold
Mortgagee in accordance with Owner's Mortgage Documents, to the
extent such information is required to be furnished by Manager
to Owner pursuant to this Agreement. Any additional information
or reports requested by Owner's Leasehold Mortgagee shall be
provided by Manager only if Owner so directs Manager in writing
and, to the extent such information or reports are not being
prepared for Owner in the ordinary course of business pursuant
to this Agreement, Owner agrees to pay the reasonable expenses
of preparing such information and reports;
(xix) Tax and Insurance Accruals. If requested by Owner, Manager shall
accrue and set aside on a monthly basis funds from Adjusted
Gross Revenues if available in the priority set forth on Exhibit
B for the payment of real estate taxes and insurance premiums,
and such accruals shall be deposited in a separate account and
not commingled with other operating accounts for Hotel
operations generally, provided, however, that to the extent such
accruals exceed the amount necessary to pay the actual amount of
real estate taxes and insurance premiums, such excess shall be
available for operating costs, ownership costs, Owner's Basic
Return, the Subordinated Management Fee and the others items set
forth on, and in the priority set forth on, Exhibit B. If such
accruals do not exceed the actual amounts due in respect of real
estate taxes and insurance premiums but Owner and Manager agree
in writing, the tax and insurance accruals on deposit may be
used from time to time to pay operating costs if Adjusted Gross
Revenues are not otherwise sufficient to pay such operating
costs.
9
<PAGE>
ARTICLE 4
OWNER'S OBLIGATIONS
Section 4.01. Owner's Obligations. During the Term, Owner shall have the
obligations set forth below:
(i) License Agreement. Owner shall comply with all the terms and
conditions of the License Agreement (specifically including, but
not limited to, Licensee's obligation to pay the fees, charges
and contributions set forth in paragraphs 3.c. and 7 of the
License Agreement) and keep the License Agreement in full force
and effect from the Effective Date through the remainder of the
Term. Nothing in this Agreement shall be interpreted in a manner
which would relieve Owner of any of its obligations under the
License Agreement;
(ii) Licenses and Permits. Owner shall obtain and maintain, with
Manager's assistance and cooperation, all governmental
permissions, licenses and permits required to be held in Owner's
and/or Fee Owner's name that are necessary to enable Manager to
operate the Hotel in accordance with the terms of this Agreement
and the License Agreement;
(iii) Insurance. Owner shall procure and maintain throughout the Term
the insurance coverages set forth on Exhibit "E";
(iv) Intentionally Omitted;
(v) Operating Funds. Owner shall provide all funds necessary to
enable Manager to manage and operate the Hotel in accordance
with the terms of this Agreement and the License Agreement,
regardless of the designation of a portion of the operating
costs as Fee Ownership Costs. Owner agrees to deliver to Manager
for deposit into the Bank Account(s) on the Effective Date the
amount specified on Exhibit "B" which amount shall be the
"Minimum Balance" to be maintained by Owner during the first
year of the Hotel's operation. The Minimum Balance thereafter
shall be no less than the Hotel's operating costs for the
preceding fiscal month. The Minimum Balance shall serve as
working capital for the Hotel's operations. Owner agrees, upon
Manager's written request, to immediately furnish Manager with
sufficient funds to make up any deficiency in the Minimum
Balance;
(vi) Capital Funds. Owner shall expend such amounts for renovation
programs, furnishings, equipment and ordinary Hotel capital
replacement items as are required from time to time to (a)
maintain the Hotel in good order and repair, (b) comply with the
standards referred to in the License Agreement, and (c) comply
with governmental regulations and orders. Owner shall cooperate
fully with Manager in establishing appropriate
10
<PAGE>
procedures and timetables for Owner to undertake capital
replacement projects.
It is recognized that expenditures for capital replacements are
incapable of precise calculation in advance. Therefore, with
respect to the first year, three percent (3%) of Gross Revenues,
with respect to the second year, four percent (4%) of Gross
Revenues and thereafter, five percent (5%) of Gross Revenues
shall be paid over in cash in each calendar month after the
Effective Date into a Reserve Fund (as hereinafter defined) to
pay for capital replacements. In lieu of funding monthly into
the Reserve Fund as contemplated above, Owner shall have the
right, but not the obligation, to deposit into the Reserve Fund,
on or about the commencement of each year, the full amount set
forth in the Capital Budget. Manager shall establish a reserve
for capital replacements on the books of account for the Hotel
and the cash amounts required for such reserve shall be placed
into an interest-bearing account (the "Reserve Fund")
established in the Hotel's name at the bank at which the Bank
Account(s) are established, with Manager's designees being the
only authorized signatories on said account. All amounts on
deposit in the Reserve Fund shall be Owner's. Any expenditures
for capital replacements during any calendar year which have
been included in an approved Capital Budget may be made without
Owner's or Fee Owner's additional approval and, to the extent
available, shall be made by Manager from the Reserve Fund
(including accrued interest and unused accumulations from prior
calendar years). Any amounts remaining in the Reserve Fund at
the close of each calendar year shall be carried forward and
retained in the Reserve Fund until fully used as herein
provided. To the extent the Reserve Fund is insufficient at a
particular time or to the extent the Reserve Fund plus
anticipated contributions for the ensuing calendar year is less
than the budgeted expenditures set forth in the approved Capital
Budget for the ensuing calendar year then in either such event,
Manager shall give Owner written notice thereof at least sixty
(60) days before the anticipated date such funds will be needed.
Owner shall supply the necessary funds by deposit to the Reserve
Fund at least fifteen (15) days before the anticipated date such
funds will be needed. All proceeds from the sale of capital
items no longer needed for the operation of the Hotel shall be
deposited to the Reserve Fund. Sale of such items shall be at
the discretion of Manager, and conducted in a commercially
reasonable manner. Manager shall not dispose of any capital item
or group of capital items having a value in excess of ten
thousand dollars ($10,000) without Owner's prior written consent
unless the replacement of such capital item or group of capital
items has been contemplated in the applicable Capital Budget.
Manager also shall obtain the consent of Owner's Leasehold
Mortgagee when required for any disposition of capital items
otherwise prohibited under the terms of Owner's Mortgage
Documents, provided, however, that to the extent a capital item
is being replaced because the same is defective or obsolete or
with an item of equal or greater value no such consent need be
11
<PAGE>
obtained from Owner's Leasehold Mortgagee. Upon termination of
this Agreement for whatever reason or upon sale of the Hotel,
Manager's right to expend any unused portion of the Reserve Fund
shall terminate and the balance of the fund shall be paid over
to Owner, less any sums then due Manager.
To the extent any expenditure under this Section 4.01(vi) shall
exceed twenty thousand dollars ($20,000), Manager shall first
solicit bids from at least three different reputable and
qualified third parties, and the lowest of the bidders shall be
selected unless acceptance of a higher bid has been approved by
Owner in writing or unless Manager provides a reasonably
detailed explanation for its selection of a bid higher than the
lowest of the bidders;
(vii) Payments to Manager. Owner shall promptly pay to Manager all
amounts due Manager under this Agreement;
(viii) Owner's Representative. Owner shall appoint a representative to
represent Owner in all matters relating to this Agreement and/or
the Hotel ("Owner's Representative"). Owner's initial Owner's
Representative shall be the individual named on Exhibit "B".
Manager shall have the right to deal solely with the Owner's
Representative on all such matters. Manager may rely upon
statements and representations of Owner's Representative as
being from and binding upon Owner. Owner may change its Owner's
Representative from time to time by providing written notice to
Manager in the manner provided for herein. Owner shall cause the
Owner's Representative to attend all quarterly meetings referred
to in Section 3.01(xiv);
(ix) Owner's Audits. Owner shall have the right to have its
independent accounting firm examine the books and records of the
Hotel at any reasonable time upon forty-eight (48) hours notice
to Manager;
(x) Right of Inspection and Review. Owner, Owner's Leasehold
Mortgagee, Fee Owner and Fee Owner's Mortgagee and their
respective accountants, attorneys, agents and other
representatives and invitees, shall have the right to enter upon
any part of the Hotel at all reasonable times during normal
business hours and during the term of this Agreement upon
reasonable prior notice to Manager for the purpose of examining
or inspecting the Hotel, showing the Hotel to prospective
purchasers or mortgagees, or auditing, examining or making
extracts of books and records of the Hotel, or for any other
purpose which Owner, in its reasonable discretion, shall deem
necessary or advisable, but the same shall be done with as
little disruption to the business of the Hotel as under the
circumstances is reasonable; and
12
<PAGE>
(xi) Quiet and Peaceable Operation. Owner shall ensure that Manager
is able to peaceably and quietly operate the Hotel in accordance
with the terms of this Agreement, free from molestation,
eviction and disturbance by Owner or by any other person or
persons claiming by, through or under Owner. Owner shall
undertake and prosecute all reasonable and appropriate actions,
judicial or otherwise, required to assure such quiet and
peaceable operations by Manager.
ARTICLE 5
MANAGEMENT FEE
Section 5.01. Management Fee. On the first day of each fiscal month
after the Effective Date, Manager is authorized by Owner to pay itself from the
Bank Account(s) the Management Fees calculated in the manner set forth on
Exhibit "C".
ARTICLE 6
CLAIMS AND LIABILITY
Section 6.01. Claims and Liability. Owner and Manager mutually agree for
the benefit of each other to look only to the appropriate insurance coverages in
effect pursuant to this Agreement in the event any demand, claim, action,
damage, loss, liability or expense occurs as a result of injury to person or
damage to property regardless whether any such demand, claim, action, damage,
loss, liability or expense is caused or contributed to, by or results from the
negligence of Owner or Manager or their subsidiaries, affiliates, employees,
directors, officers, agents or independent contractors and regardless whether
the injury to person or damage to property occurs in and about the Hotel or
elsewhere as a result of the performance of this Agreement. Nevertheless, in the
event the insurance proceeds are insufficient or there is no insurance coverage
to satisfy the demand, claim, action, loss, liability or expense and the same
did not arise out of the gross negligence or willful misconduct of Manager,
Owner agrees, at its expense, to indemnify and hold Manager and its
subsidiaries, affiliates, officers, directors, employees, agents or independent
contractors harmless to the extent of the excess liability.
Section 6.02. Survival. The provisions of this Article 6 shall survive
any cancellation, termination or expiration of this Agreement and shall remain
in full force and effect until such time as the applicable statute of limitation
shall cut off all demands, claims, actions, damages, losses, liabilities or
expenses which are the subject of the provisions of this Article 6.
13
<PAGE>
ARTICLE 7
CLOSURE, EMERGENCIES AND DELAYS
Section 7.01. Events of Force Majeure. If at any time during the Term of
this Agreement it becomes necessary, in Manager's opinion, to cease operation of
the Hotel in order to protect the Hotel and/or the health, safety and welfare of
the guests and/or employees of the Hotel for reasons beyond the reasonable
control of Manager, such as, but not limited to, acts of war, insurrection,
civil strife and commotion, labor unrest, governmental regulations and orders,
shortage or lack of adequate supplies or lack of skilled or unskilled employees,
contagious illness, catastrophic events or acts of God, which shall not include
Manager's computer systems and software not being able to accurately process
date data and information, including, but not limited to, calculating, comparing
and sequencing from, into and between the twentieth century, the year 2000 and
the twenty-first century ("Force Majeure"), then in such event or similar events
Manager may close and cease operation of all or any part of the Hotel, reopening
and commencing operation when Manager deems that such may be done without
jeopardy to the Hotel, its guests and employees.
Manager and Owner agree, except as otherwise provided herein, that the
time within which a party is required to perform an obligation and Manager's
right to manage the Hotel under this Agreement shall be extended for a period of
time equivalent to the period of delay caused by an event of Force Majeure.
Section 7.02. Emergencies. If a condition of an emergency nature should
exist which requires that immediate repairs be made for the preservation and
protection of the Hotel, its guests or employees, or to assure the continued
operation of the Hotel, Manager is authorized to take all actions and to make
all expenditures necessary to repair and correct such condition, regardless
whether provisions have been made in the applicable budget for such emergency
expenditures. Expenditures made by Manager in connection with an emergency shall
be paid, in Manager's sole discretion, out of the Bank Account(s). Owner shall
immediately replenish such funds paid from the Bank Account(s). Manager shall
endeavor to communicate with Owner prior to making any expenditures to correct
an emergency condition, but in any event shall promptly notify Owner after the
emergency expenditures have been made.
ARTICLE 8
CONDEMNATION AND CASUALTY
Section 8.01. Condemnation. If the Hotel is taken in any eminent domain,
expropriation, condemnation, compulsory acquisition or similar proceeding by a
competent authority, this Agreement shall automatically terminate as of the date
of taking or condemnation. Any compensation for the taking or condemnation of
the physical facility comprising the Hotel shall be paid to Owner. Manager,
however, with the full cooperation of Owner, shall have the right to file a
claim with the appropriate authorities for the loss of Management Fee income for
the remainder of the Term and any extension
14
<PAGE>
thereof because of the condemnation or taking. If only a portion of the Hotel is
so taken and the taking does not make it unreasonable or imprudent, in Manager's
and Owner's opinion, to operate the remainder as a hotel of the type immediately
preceding such taking, this Agreement shall not terminate. Any compensation
shall be used, however, in whole or in part, to render the Hotel a complete and
satisfactory architectural unit as a hotel of the same type and class as it was
immediately preceding such taking or condemnation.
Section 8.02. Casualty. In the event of a fire or other casualty, Owner
shall comply with the terms of the License Agreement and this Agreement shall
remain in full force and effect so long as the License Agreement remains in full
force and effect.
ARTICLE 9
TERMINATION RIGHTS
Section 9.01. Bankruptcy and Dissolution. If either party is voluntarily
or involuntarily dissolved or declared bankrupt, insolvent, or commits an act of
bankruptcy, or if a company enters into liquidation whether compulsory or
voluntary otherwise than for the purpose of amalgamation or reconstruction, or
compounds with its creditors, or has a receiver appointed over all or any part
of its assets, or passes title in lieu of foreclosure, the other party may
terminate this Agreement immediately upon serving notice to the other party,
without liability on the part of the terminating party.
Section 9.02. Manager's Termination Right Upon the Termination of
License Agreement. If the License Agreement is terminated for any reason,
Manager may terminate this Agreement immediately upon serving notice to Owner,
without liability on the part of Manager. Upon such termination, unless
specifically provided otherwise herein, Manager shall be entitled to receive the
Sale Termination Fee calculated in the manner set forth on Exhibit "B".
Notwithstanding anything contained herein, Manager shall not be entitled to
receive the Sale Termination Fee if the License Agreement is terminated because
of Manager's failure to perform its obligations hereunder and Manager's failure
was not caused by the failure of Owner to perform its obligations hereunder.
Section 9.03. (a) Owner's Default. The following shall, at the election
of Manager, constitute events of default by Owner under this Agreement (each
such event being referred to herein as an "Owner's Default"):
(i) The failure of Owner to pay any amount to Manager provided for
herein for a period of ten (10) days after written notice by
Manager of such failure to pay.
(ii) Failure of Owner to keep or perform any duty, obligation,
covenant or agreement of Owner under this Agreement (other than
the obligation to pay that is the subject of paragraph (i)
above) and such failure continues for a period of thirty (30)
days after receipt of written notice thereof from
15
<PAGE>
Manager; provided, however, if such failure cannot reasonably be
remedied or corrected within such thirty (30) day period, then
such thirty (30) day period shall be extended for such
additional period as may be reasonably required to cure such
default but only if Owner promptly commences to cure such
default and continues thereafter with all due diligence to
complete such a cure to the satisfaction of Manager.
(iii) The occurrence of a default under or other termination of the
Percentage Lease.
(iv) Failure of Fee Owner to keep or perform any duty, obligation,
covenant or agreement of Fee Owner under the "Comfort Letter" of
even date herewith from Manager to Fee Owner agreed to and
accepted by Fee Owner (the "Comfort Letter") relating to the
Hotel and such failure continues for a period of thirty (30)
days after receipt of written notice thereof from Manager;
provided, however, if such failure cannot reasonably be remedied
or corrected within such thirty (30) day period, then such
thirty (30) day period shall be extended for such additional
period as may be reasonably required to cure such default, but
only if Fee Owner promptly commences to cure such default and
continues thereafter with all due diligence to complete such a
cure to the satisfaction of Manager.
(v) The occurrence of an "Event of Default" (as defined in the
Acquisition Mortgage Documents (as herein defined)) under the
Acquisition Mortgage Documents.
On the occurrence of any Owner's Default, Manager shall have the right
to terminate this Agreement by written notice to Owner, in addition to its
rights to seek damages or other remedies available to it at law or in equity.
(b) Manager Default. The following shall, at the election of Owner,
constitute an event of default by Manager under this Agreement (such event being
referred to herein as the "Manager Default"): Failure of Manager to keep or
perform any duty, obligation, covenant or agreement of Manager under this
Agreement and such failure shall continue for a period of thirty (30) days after
receipt of written notice thereof from Owner; provided, however, if such failure
cannot reasonably be remedied or corrected within such thirty (30) day period,
then such thirty (30) day period shall be extended for such additional period as
may be reasonably required to cure such default provided that Manager promptly
commences to cure such default and continues thereafter with all due diligence
to complete such cure to the satisfaction of Owner. Upon the occurrence of the
Manager Default, Owner shall have the right to terminate this Agreement by
written notice to Manager, in addition to its right to seek damages or other
remedies available to it at law or in equity.
Section 9.04. Owner's -- Termination Rights. (a) Provided Owner is not
in default under this Agreement at the time of delivery of the Termination
Notice (as defined herein) or on the Termination Date (as defined herein), Owner
shall have the
16
<PAGE>
right, after the tenth anniversary of the Effective Date, to terminate this
Agreement by giving written notice (a "Termination Notice") to Manager setting
forth an effective termination date which shall be the last day of a month (the
"Termination Date") and which shall be not less than six (6) months nor more
than twelve (12) months after the date of such Termination Notice and shall in
no event be prior to the tenth anniversary of the Effective Date. If Owner
terminates this Agreement pursuant to this Section 9.04(a), in addition to
payment of all other fees and reimbursable sums due to Manager on the
Termination Date, Manager shall have the right to receive the Cancellation
Termination Fee calculated in the manner set forth on Exhibit "B". Such
termination shall be effective so long as on or before the Termination Date (x)
Owner pays to Manager the Cancellation Termination Fee and all amounts
determined by Owner and Manager, each acting reasonably and in good faith, to be
due and owing to Manager pursuant to the terms and provisions of this Agreement
and (y) all sums then outstanding under the Acquisition Loan shall have been
paid in full.
(b) (i) Provided Owner is not in default under this Agreement, Owner
shall have the right to terminate this Agreement if, beginning in the first full
calendar year of Hotel operations, Manager fails to achieve, in any two
consecutive calendar years, a Gross Operating Profit (as herein defined) which
is at least eighty-five percent (85%) of the amount set forth in the respective
annual Operating Budget for Gross Operating Profit ("Budgeted GOP"); provided,
however, that, if within sixty (60) days of receipt of a notice from Owner that
Owner intends to terminate this Agreement pursuant to this Section 9.04(b)(i),
Manager pays in cash to Owner the difference between the achieved Gross
Operating Profit and eighty-five percent (85%) of the Budgeted GOP for the
second of the two consecutive calendar years in which shortfalls occurred, then
Owner shall not be entitled to terminate this Agreement. If Owner is entitled to
and elects to terminate this Agreement, Owner shall give written notice to
Manager within ninety (90) days following delivery to Owner of the annual
financial statements for the calendar year. If such notice is not provided by
Owner to Manager within such ninety (90) day period, Owner shall be deemed to
have waived its right hereunder to terminate this Agreement with respect to the
calendar year as to which the failure occurred. In the event Owner has the right
to terminate with respect to a calendar year but waives such right, Owner's
right to terminate shall carry forward and shall be applicable to the next
succeeding calendar year if Manager fails to achieve eighty-five percent (85%)
of Budgeted GOP for the next succeeding year, subject to Manager's right to cure
for such calendar year. For purposes of this section, the term "Gross Operating
Profit" shall mean the amount, if any, by which Adjusted Gross Revenues for any
calendar year exceed operating costs for such calendar year.
(ii) The provisions of clause (b)(i) above shall not apply in any
calendar year in which the operation of the Hotel, or the use of the Hotel's
facilities, are significantly disrupted by casualty loss, strike, eminent
domain, or other events of Force Majeure that are beyond the reasonable control
of Manager, or major repairs to or refurbishment of the Hotel. In the event
Owner exercises the right of termination contemplated in clause (b)(i) above,
(a) Owner shall have no obligation to pay any termination fee or other damages
to Manager as a consequence of such termination, except that Owner shall be
liable to Manager and shall pay immediately upon such termination all fees
earned and other
17
<PAGE>
amounts and expenses payable or reimbursable to Manager pursuant to this
Agreement and (b) the exercise of the right of termination shall only be valid
if on or prior to the termination date all sums outstanding under the
Acquisition Loan shall have been paid in full.
Section 9.05. Manager's Right to Terminate Upon Sale. If there is to be
a "Change in Ownership" as defined in the License Agreement and the new owner of
the Hotel has not received a Homewood Suites License Agreement for the operation
of the Hotel (for purposes of this Section 9.05, said agreement shall be
referred to as the "License Agreement"), Manager shall have the right upon
giving notice to Owner to terminate this Agreement on the date the Change of
Ownership occurs. If there is a Change of Ownership and the new owner of the
Hotel receives a License Agreement, but does not enter into an assumption
agreement, pursuant to which the new owner assumes all of Owner's obligations
hereunder, with Manager prior to the date the Change of Ownership occurs,
Manager shall have the right, upon giving notice to Owner, to terminate this
Agreement on the date the Change of Ownership occurs. If Manager terminates this
Agreement pursuant to this Section 9.05 (in addition to payment of all other
fees and reimbursable sums due to Manager to the date of termination), Manager
shall have the right to receive the Sale Termination Fee calculated in the
manner set forth on Exhibit "B". If a Change of Ownership occurs, and the new
owner obtains a License Agreement and the new owner and Manager enter into an
assumption agreement pursuant to which this Agreement remains in full force and
effect, Manager shall not receive a Termination Fee and references in this
Agreement to License Agreement shall be to the License Agreement with such new
owner.
Section 9.06. Delays. Notwithstanding any other provision of this
Agreement, if any event of the type described in Article 7 or 8 occurs after the
Effective Date and Manager is unable to operate the Hotel for a period of ninety
(90) days, Manager shall have the option to terminate this Agreement upon thirty
(30) days' prior written notice to Owner, without liability on the part of
Manager, its parent or their subsidiaries or affiliates. Under any such
circumstances, the Acquisition Loan shall be repaid in full.
Section 9.07. Employment Solicitation Restriction Upon Termination.
Owner and its affiliates and subsidiaries and their successors hereby agree not
to solicit the employment of the Hotel general manager, assistant general
manager or director of sales at any time during the term of this Agreement
without Manager's prior written approval. Furthermore, Owner and its affiliates
and subsidiaries and successors agree not to employ the Hotel's general manager,
assistant general manager or director of sales for a period of twelve (12)
months after the termination or expiration of this Agreement, without Manager's
prior written approval.
Section 9.08. Transition Upon Termination. Upon any termination of this
Agreement, all fees and payments due to Manager as of the effective date of
termination, including all accrued and unpaid fees and reimbursable charges and
expenses, shall be paid to Manager within ten (10) days after delivery to Owner
of an itemized statement of such fees and payments. Manager shall be entitled to
exercise the right of setoff provided
18
<PAGE>
in Section 11.16 hereof with respect to such fees, charges and expenses. Manager
shall deliver to Owner, or such other person or persons as Owner may designate,
copies of all books and records of the Hotel and all funds in the possession of
Manager belonging to Owner or received by Manager pursuant to the terms of this
Agreement, and shall assign, transfer or convey to such person or persons all
service contracts and personal property relating to or used in the operation and
maintenance of the Hotel, except any personal property which is owned by
Manager. Manager also shall, for a period of thirty (30) days after such
expiration or termination, make itself available to consult with and advise
Owner or such other person or persons regarding the operation and maintenance of
the Hotel at a consultation fee to be agreed upon between Manager and Owner.
ARTICLE 10
APPLICABLE LAW AND ARBITRATION
Section 10.01. Applicable Law. The interpretation, validity and
performance of this Agreement shall be governed by the procedural and
substantive laws of the state of Tennessee and any and all disputes, except
those specifically referred to below, shall be brought and maintained within
that state. If any judicial authority holds or declares that the law of another
jurisdiction is applicable, this Agreement shall remain enforceable under the
laws of that jurisdiction.
Section 10.02. Arbitration of Financial Matters.
Subsection 10.02.1. Matters to be Submitted to Arbitration. In
the case of a dispute with respect to any of the following matters,
either party may submit such matter to arbitration which shall be
conducted by the Accountants (as hereinafter defined in Subsection
10.02.2): (a) computation of the Management Fees; (b) reimbursements due
to Manager under the provisions of Section 11.15; (c) any adjustment in
the Minimum Balance under the provisions of Section 4.01(v); (d) any
adjustment in dollar amounts of insurance coverages required to be
maintained; and (e) any dispute concerning the approval of an Operating
Budget.
All disputes concerning the above matters shall be submitted to
the Accountants. The decision of the Accountants with respect to any
matters submitted to them under this Subsection 10.02.1 shall be binding
on both parties hereto.
Subsection 10.02.2. The Accountants. The "Accountants" shall be
one of three (3) firms of certified public accountants of recognized
national standing in the hotel industry. Until otherwise agreed to by
the parties, the three (3) firms shall be Arthur Andersen & Co.,
PriceWaterhouseCoopers, and Ernst & Young, notwithstanding any existing
relationships which may exist between Owner and such accounting firms or
Manager and such accounting firms. The party desiring to submit any
matter to arbitration under Subsection 10.02.1 shall do so by written
notice to the other party, which notice shall set forth the items to be
arbitrated and
19
<PAGE>
such party's choice of one of the three (3) accounting firms. The party
receiving such notice shall within fifteen (15) days after receipt of
such notice either approve such choice, or designate one of the
remaining two (2) firms by written notice back to the first party, and
the first party shall within fifteen (15) days after receipt of such
notice either approve such choice or disapprove the same. If both
parties shall have approved one of the three (3) firms under the
preceding sentence, then such firm shall be the "Accountants" for the
purposes of arbitrating the dispute; if the parties are unable to agree
on an accounting firm, then the third firm, which was not designated by
either party, shall be the "Accountants" for such purpose. The
Accountants shall be required to render a decision in accordance with
the procedures described in Subsection 10.02.3 within fifteen (15) days
after being notified of their selection. The fees and expenses of the
Accountants will be paid by the non-prevailing party.
Subsection 10.02.3. Procedures. In all arbitration proceedings
submitted to the Accountants, the Accountants shall be required to agree
upon and approve the substantive position advocated by Owner or Manager
with respect to each disputed item. Any decision rendered by the
Accountants that does not reflect the position advocated by Owner or
Manager shall be beyond the scope of authority granted to the
Accountants and, consequently, may be overturned by either party. All
proceedings by the Accountants shall be conducted in accordance with the
Uniform Arbitration Act, except to the extent the provisions of such act
are modified by this Agreement or the mutual agreement of the parties.
Unless otherwise agreed, all arbitration proceedings shall be conducted
at the Hotel.
Section 10.03. Performance During Disputes. It is mutually agreed that
during any kind of controversy, claim, disagreement or dispute, including a
dispute as to the validity of this Agreement, Manager shall remain in possession
of the Hotel as Manager; and Owner and Manager shall continue their performance
of the provisions of this Agreement and its exhibits. Manager shall be entitled
to injunctive relief from a civil court or other competent authority to maintain
possession in the event of a threatened eviction during any dispute,
controversy, claim or disagreement arising out of this Agreement.
ARTICLE 11
GENERAL PROVISIONS
Section 11.01. Authorization. Owner and Manager represent and warrant to
each other that their respective corporations have full power and authority to
execute this Agreement and to be bound by and perform the terms hereof. On
request, each party shall furnish the other evidence of such authority.
Section 11.02. Relationship. Manager and Owner shall not be construed as
joint venturers or partners of each other by reason of this Agreement and
neither shall have the power to bind or obligate the other except as set forth
in this Agreement.
20
<PAGE>
Section 11.03. Manager's Contractual Authority in the Performance of
this Agreement. Manager is authorized to make, enter into and perform in the
name of and for the account of Owner any contracts deemed necessary by Manager
to perform its obligations under this Agreement. In exercising its authority
hereunder, Manager shall be entitled to execute and enter into contracts without
the specific approval of Owner and Fee Owner so long as each such contract (i)
requires expenditures or otherwise establishes liability of twenty-five thousand
dollars ($25,000) or less and (ii) has a term (excluding options in favor of
Manager and Owner to renew) of one (1) year or less or can be cancelled without
penalty upon sixty (60) days' notice or less, provided, however, that any
contract entered into pursuant to the last paragraph of Section 4.01(vi) shall
be governed by the provisions of said Section 4.01(vi). Any contract that does
not satisfy the conditions set forth in the preceding sentence shall require the
prior approval in each instance of Owner, regardless whether such expenditure is
authorized in an applicable budget, unless the form of the contract proposed to
be entered into has been approved in advance by Owner. Owner agrees to promptly
respond to any request for approval and further agrees that its consent shall
not be unreasonably withheld or delayed. Manager shall be authorized to enter
into contracts with affiliates of Manager, but only so long as Owner shall have
approved in advance the cost of the service or product to be provided.
Section 11.04. Further Actions. Owner and Manager agree to execute all
contracts, agreements and documents and to take all actions necessary to comply
with the provisions of this Agreement and the intent hereof.
Section 11.05. Successors and Assigns. Owner's consent shall not be
required for Manager to assign any of its rights, interests or obligations as
Manager hereunder to any parent, subsidiary or affiliate of Manager or Promus
Hotel Corporation, provided that any such assignee agrees to be bound by the
terms and conditions of this Agreement and provided, further, that such assignee
has received an assignment of all or substantially all of the management
agreements entered into by Manager with respect to other Homewood Suites hotels.
The acquisition of Manager or its parent company by a third party shall not
constitute an assignment of this Agreement by Manager and this Agreement shall
remain in full force and effect between Owner and Manager. Except as herein
provided, Manager shall not assign any of its obligations hereunder without the
prior written consent of Owner, which shall not be unreasonably withheld or
delayed. Owner shall be deemed to have consented to such an assignment of this
Agreement if Owner has not notified Manager in writing to the contrary within
fifteen (15) days after Owner has received Manager's request for Owner's consent
to an assignment. Manager shall have the right to pledge or assign its right to
receive the Management Fees hereunder without the prior written consent of
Owner.
Owner shall have the right to assign this Agreement to the person or
entity which has obtained (i) leasehold title to the Hotel in accordance with
the Comfort Letter and (ii) a Homewood Suites License Agreement for the Hotel.
Except as hereinabove provided, Owner shall not have the right to assign this
Agreement.
Section 11.06. Notices. All notices or other communications provided for
in this Agreement shall be in writing and shall be either hand delivered,
delivered by
21
<PAGE>
certified mail, postage prepaid, return receipt requested, delivered by an
overnight delivery service, or delivered by facsimile machine (with an executed
original sent the same day by an overnight delivery service), addressed as set
forth on Exhibit "B". Notices shall be deemed delivered on the date that is four
(4) calendar days after the notice is deposited in the U.S. mail (not counting
the mailing date) if sent by certified mail, or, if hand delivered, on the date
the hand delivery is made, or if delivered by facsimile machine, on the date the
transmission is made. If given by an overnight delivery service, the notice
shall be deemed delivered on the next business day following the date that the
notice is deposited with the overnight delivery service. The addresses given
above may be changed by any party by notice given in the manner provided herein.
Section 11.07. Documents. Owner shall furnish Manager copies of all
leases, title documents, property tax receipts and bills, insurance statements,
all financing documents (including notes and mortgages) relating to the Hotel
and such other documents pertaining to the Hotel as Manager shall request.
Section 11.08. Defense. Manager shall defend and/or settle any claim or
legal action brought against Manager or Owner, individually, jointly or
severally in connection with the operation of the Hotel. Manager shall retain
and supervise legal counsel, accountants and such other professionals,
consultants and specialists as Manager deems appropriate to defend and/or settle
any such claim or cause of action. Owner shall have the right to participate
actively in the defense of any such claim or cause of action in which Owner is a
named defendant. Owner's approval shall be required with respect to any proposed
settlement of any claim or cause of action in which Owner is a named party or
that is not covered by insurance (excluding any deductible amount specified in
the applicable policy of insurance). Manager shall confer with Owner concerning
any settlement proposal that Manager is considering accepting, regardless of
whether Owner is a named party, but Owner's approval shall not be required if
Owner is not a named party and the settlement is covered by insurance. All
liabilities, costs, and expenses, including attorneys' fees and disbursements,
incurred in defending and/or settling any such claim or legal action which are
not covered by insurance shall be paid by Owner.
Section 11.09. Waivers. No failure or delay by Manager or Owner to
insist upon the strict performance of any covenant, agreement, term or condition
of this Agreement, or to exercise any right or remedy consequent upon the breach
thereof, shall constitute a waiver of any such breach or any subsequent breach
of such covenant, agreement, term or condition. No covenant, agreement, term, or
condition of this Agreement and no breach thereof shall be waived, altered or
modified except by written instrument. No waiver of any breach shall affect or
alter this Agreement, but each and every covenant, agreement, term and condition
of this Agreement shall continue in full force and effect with respect to any
other then existing or subsequent breach thereof.
Section 11.10. Changes. Any change to or modification of this Agreement,
including, without limitation, any change in the application of this Agreement
to the Hotel, must be evidenced by a written document signed by both parties
hereto.
22
<PAGE>
Section 11.11. Captions. The captions for each Article and Section are
intended for convenience only.
Section 11.12. Severability. If any of the terms and provisions hereof
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any of the other terms or provisions hereof. If, however, any
material part of a party's rights under this Agreement shall be declared invalid
or unenforceable (specifically including Manager's right to receive its
Management Fees), the party whose rights have been declared invalid or
unenforceable shall have the option to terminate this Agreement upon thirty (30)
days' written notice to the other party, without liability on the part of the
terminating party.
Section 11.13. Interest. Any amount payable to Manager or Owner by the
other which has not been paid when due shall accrue interest at the lesser of:
(a) the highest legal limit in the state in which the Hotel is located, (b) the
highest legal limit in the state of Tennessee, or (c) two percentage points (2%)
over the published base rate of interest charged by Citibank, N.A., New York,
New York, to borrowers on ninety (90) day unsecured commercial loans, as the
same may be changed from time to time.
Section 11.14. Reimbursement. The performance by Manager of its
responsibilities under this Agreement are conditioned upon Owner providing
sufficient funds to Manager on a timely basis to enable Manager to perform its
obligations hereunder. Nevertheless, Manager shall be entitled, at its option,
after first providing not less than ten (10) days' prior written notice to Owner
specifying the obligations to be satisfied and the amount of money to be
advanced, to advance funds or contribute property, on behalf of the Owner, to
satisfy obligations of Owner in connection with the Hotel and this Agreement.
Manager shall keep appropriate records to document all reimbursable expenses
paid by Manager, which records shall be made available for inspection by Owner
or its agents upon request. Owner agrees to reimburse Manager with interest upon
demand for money paid or property contributed by Manager to satisfy obligations
of Owner in connection with the Hotel and this Agreement. Interest shall be
calculated at the rate set forth in Section 11.13 from the date Owner was
obligated to remit the funds or contribute the property for the satisfaction of
such obligation to the date reimbursement is made.
Section 11.15. Travel and Out-of-Pocket Expenses. Manager shall be
reimbursed for all reasonable travel and out-of-pocket expenses of Manager's
employees reasonably incurred in the performance of this Agreement, provided,
however, that travel and out-of-pocket expenses of officers of Manager, its
parent and affiliates shall not be reimbursable by Owner. Manager shall have
sole discretion, which shall not be unreasonably exercised, to determine the
necessity for such travel or other expenses.
Section 11.16. Set off. Without prejudice to Manager's right to
terminate this Agreement pursuant to the provisions of this Agreement, Manager
may at any time and without notice to Owner set off or transfer any sum or sums
held by Manager or other affiliate of Promus Hotels, Inc. to the order or on
behalf of Owner or Fee Owner or standing to the credit of Owner or Fee Owner in
the Bank Account(s) in or towards
23
<PAGE>
satisfaction of any of Owner's liabilities to Manager in respect of all sums due
to Manager under the terms of this Agreement.
Section 11.17. Third Party Beneficiary. This Agreement is exclusively
for the benefit of the parties hereto and it may not be enforced by any party
other than the parties to this Agreement and shall not give rise to liability to
any third party other than the authorized successors and assigns of the parties
hereto.
Section 11.18. Brokerage. Manager and Owner represent and warrant to
each other that neither has sought the services of a broker, finder or agent in
this transaction, and neither has employed, nor authorized, any other person to
act in such capacity. Manager and Owner each hereby agrees to indemnify and hold
the other harmless from and against any and all claims, loss, liability, damage
or expenses (including reasonable attorneys' fees) suffered or incurred by the
other party as a result of a claim brought by a person or entity engaged or
claiming to be engaged as a finder, broker or agent by the indemnifying party.
Section 11.19. Survival of Covenants. Any covenant, term or provision of
this Agreement which, in order to be effective, must survive the termination of
this Agreement, shall survive any such termination.
Section 11.20. Estoppel Certificate. Manager and Owner agree to furnish
to the other party, from time to time upon request, an estoppel certificate in
such reasonable form as the requesting party may request stating whether there
have been any defaults under this Agreement known to the party furnishing the
estoppel certificate and such other information relating to the Hotel as may be
reasonably requested.
Section 11.21. Other Agreements. Except to the extent as may now or
hereafter be specifically provided, nothing contained in this Agreement shall be
deemed to modify any other agreement between Owner and Manager with respect to
the Hotel or any other property. This Agreement, together with the Comfort
Letter, contains the entire agreement between Owner and Manager regarding the
management of the Hotel.
Section 11.22. Periods of Time. Whenever any determination is to be made
or action is to be taken on a date specified in this Agreement, if such date
shall fall on a Saturday, Sunday or legal holiday under the laws of the states
of Tennessee and Virginia and/or the state in which the Hotel is located, then
in such event said date shall be extended to the next day which is not a
Saturday, Sunday or legal holiday.
Section 11.23. Preparation of Agreement. This Agreement shall not be
construed more strongly against either party regardless of who is responsible
for its preparation.
Section 11.24. Exhibits. All exhibits attached hereto are incorporated
herein by reference and made a part hereof as if fully rewritten or reproduced
herein.
Section 11.25. Attorneys' Fees and Other Costs. The parties to this
Agreement shall bear their own attorneys' fees in relation to negotiating and
drafting this
24
<PAGE>
Agreement. Should Owner or Manager engage in litigation to enforce their
respective rights pursuant to this Agreement, the prevailing party shall have
the right to indemnity by the non-prevailing party for an amount equal to the
prevailing party's reasonable attorneys' fees, court costs and expenses arising
therefrom.
Section 11.26. Agreement Not an Interest in Real Property. This
Agreement is not, and shall not be deemed at any time to be or to create, an
interest in real estate or a lien or other encumbrance of any kind whatsoever
against the Hotel or the land on which it is erected.
Section 11.27. Acquisition Loan; Agency Coupled With an Interest; No
Termination While the Acquisition Loan Remains Outstanding. In accordance with
the Purchase Agreement (as herein defined), Promus Hotels, Inc. (in its capacity
as lender, the "Acquisition Lender") has loaned to Fee Owner the sum of
$26,625,000 (the "Acquisition Loan") as purchase money financing for the
acquisition of the properties (the "Properties") conveyed pursuant to the
Purchase Agreement. The Acquisition Loan is evidenced by a note of Fee Owner of
even date herewith in the amount of $26,625,000 and is secured by, among other
things, mortgage(s), deed(s) of trust or deed(s) to secure debt of even date
herewith from Fee Owner which encumbers some or all of the Properties, which may
include the Hotel (the documents evidencing and securing the Acquisition Loan
herein referred to as the "Acquisition Mortgage Documents"). Owner and Manager
specifically acknowledge and agree that (i) Acquisition Lender has been induced,
in part, to make the Acquisition Loan to Fee Owner based upon Owner's agreement
to enter into this Agreement with Manager, (ii) Acquisition Lender required
Owner to enter into this Agreement with Manager as a condition to making the
Acquisition Loan so that (inter alia) Manager could facilitate the repayment of
the Acquisition Loan in accordance with its terms by managing and operating the
Hotel in accordance with the terms of this Agreement, and (iii) it is the
parties' intention that Owner's retention of Manager to operate the Hotel
pursuant to the terms of this Agreement is intended to, and shall, create an
"agency coupled with an interest" in favor of Manager, which agency shall be
irrevocable unless and until the Acquisition Loan is repaid in full. Manager
shall be entitled to the legal and equitable protections that the status of an
agent coupled with an interest confers on Manager for so long as the Acquisition
Loan remains outstanding. Accordingly, (x) no purported termination of this
Agreement by Owner for any reason whatsoever (including, without limitation, any
purported termination pursuant to Article 8 or Article 9) shall be effective
unless and until the Acquisition Loan shall have been repaid in full, and (y)
Manager shall have the right and option to extend the Term of this Agreement
indefinitely for so long as the Acquisition Loan remains outstanding. The
provisions of this Section shall take effect notwithstanding anything to the
contrary set forth in this Agreement.
Section 11.28. Counterparts. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original.
25
<PAGE>
The parties have respectively caused this Agreement to be executed as of
the respective dates shown below.
OWNER:
/s/ Gus G. Remppies APPLE SUITES MANAGEMENT,
- ------------------------------- INC., a Virginia corporation
Witness:
By /s/ Glade M. Knight
---------------------------------
Name: Glade M. Knight
Title: President
Date:
MANAGER:
- -------------------------------- PROMUS HOTELS, INC.
Witness:
By /s/ Rick Schultz
---------------------------------
Name: Rick Schultz
Title: Vice President
Date: September 15, 1999
<PAGE>
EXHIBIT "A"
LICENSE AGREEMENT
[Included elsewhere in this Filing.]
<PAGE>
EXHIBIT "B"
DEAL SPECIFIC TERMS
TERM: Fifteen (15) years from the Effective Date
INITIAL MINIMUM BALANCE
FOR THE BANK ACCOUNT(S): $75,000
INITIAL OWNER'S REPRESENTATIVE: Doug Schepker
DISBURSEMENT PRIORITY SCHEDULE:
Each fiscal month Manager, on behalf of Owner, shall disburse funds from
the Bank Account(s) in the following order of priority and to the extent
available:
(a) all fees, assessments and charges due and payable under the
License Agreement when issued;
(b) the Management Fee, but excluding, to the extent then
applicable, the Subordinated Management Fee;
(c) all reimbursable expenses due Manager;
(d) all other Hotel operating costs (herein and in the Agreement
referred to as "operating costs"), as such costs and expenses
are defined under the accounting practices of Manager in
conformity with generally accepted accounting practices
consistently applied, specifically including, but not limited
to, (i) the cost of operating equipment and operating supplies,
wages, salaries and employee fringe benefits, advertising and
promotional expenses, the cost of personnel training programs,
utility and energy costs, operating licenses and permits,
grounds and landscaping maintenance costs and equipment rentals
approved by Manager as an operating cost; (ii) all expenditures
made for maintenance and repairs to keep the Hotel in good
condition and repair, specifically excluding expenditures for
Capital Replacements; and (iii) premiums and charges on the
insurance coverages specified in Exhibit "D" incurred after the
Effective Date. There shall be excluded from the operating costs
of the Hotel the following, which shall be ownership costs of
the Hotel: (i) depreciation of the Hotel, furnishings, fixtures
and equipment; (ii) rental pursuant to a ground lease, if any,
or the Percentage Lease or any other lease payments; (iii) debt
service (interest and principal) on any mortgage(s) encumbering
Owner's leasehold interest in, and/or Fee Owner's fee interest
in, the Hotel; (iv) property taxes and assessments; (v)
expenditures for Capital Replacements; (vi) audit, legal and
other professional or special fees; (vii) premiums for insurance
B-1
<PAGE>
coverages specified in Exhibit "E"; (viii) administrative and
general expenses and disbursements of Owner, including
compensation of employees of Owner; (ix) Federal, State and
local Franchise and Income Taxes; (x) amortization of bond
discounts and mortgage expenses; (xi) deposits into the Reserve
Fund or amounts held pursuant to Section 3.01(xix); and (xiii)
such other costs or expenses which are normally treated as
ownership costs under the accounting practices of Manager in
conformity with generally accepted accounting practices
consistently applied;
(e) the following ownership costs, disbursed in the following order
of priority and to the extent available:
(i) an amount (annualized) to satisfy land, building and
personal property taxes and assessments;
(ii) an amount (annualized) to satisfy the premiums for the
insurance required to be obtained by Owner in accordance
with Exhibit "E";
(iii) the amount to be deposited in the Reserve Fund pursuant
to Section 4.01(d); and
(iv) any ground lease payments, but specifically excluding,
except as specifically itemized above, any sums payable
by Owner to Fee Owner pursuant to the Percentage Lease;
(f) Owner's Basic Return;
(g) the Subordinated Management Fee;
(h) payments of principal, interest and other sums payable under the
Acquisition Loan;
(i) any payments not specifically contemplated above which are
required to be paid by Owner to Fee Owner pursuant to the
Percentage Lease; and
(j) except as provided above, debt service upon any mortgage(s)
encumbering the Hotel and any capital lease payments.
After the disbursements set forth above, any excess funds remaining in
the Bank Account(s) over the Minimum Balance shall be distributed to Owner. If
after making the disbursements set forth above, there shall be a deficiency in
the Minimum Balance, Owner shall immediately provide such funds as may be
required to maintain the Minimum Balance in the Bank Account(s).
B-2
<PAGE>
NOTICES:
Owner: Apple Suites Management, Inc.
306 East Main Street
Richmond, Virginia 23219
Fax: 804/782-9302
Attention: Mr. Glade M. Knight
with a copy to:
Jenkens & Gilchrist
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Fax: 214/855-4300
Attention: Thomas E. Davis, Esq.
Manager: Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117
Fax: 901/374-5050
Attention: Corporate Secretary
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Fax: 212/259-6333
Attention: Graham R. Hone, Esq.
SALE TERMINATION FEE:
The "Sale Termination Fee" shall be: (i) if the termination of this
Agreement occurs on or before the second anniversary of the Effective Date, the
sum of $733,000; (ii) if the termination of this Agreement occurs after the
second anniversary of the Effective Date but on or before the tenth (10th)
anniversary of the Effective Date, an amount equal to the product of (x) three
(3) times (y) the quotient of the aggregate of the Management Fees earned during
the preceding twenty-four (24) month period divided by two (2); (iii) if the
termination of this Agreement occurs after the tenth (10th) anniversary of the
Effective Date but on or before the fourteenth (14th) anniversary of the
Effective Date, an amount equal to the product of (x) one and one-half (1.5)
times (y) the aggregate of the Management Fees earned during the preceding
twenty-four month period divided by two (2); and (iv) if the termination of this
Agreement occurs after the fourteenth (14th) anniversary of the Effective Date,
an amount equal to the product of (x) the aggregate of the Management Fees
earned during the preceding twenty-four (24) month period divided by 24 times
(y) the number of full calendar months remaining in the Term.
B-3
<PAGE>
CANCELLATION TERMINATION FEE:
The "Cancellation Termination Fee" shall be: (i) if the termination of
this Agreement occurs after the tenth (10th) anniversary of the Effective Date
but on or before the fourteenth (14th) anniversary of the Effective Date, an
amount equal to the product of (x) two (2) times (y) the aggregate of the
Management Fees earned during the preceding twenty-four month period divided by
two (2); and (ii) if the termination of this Agreement occurs after the
fourteenth (14th) anniversary of the Effective Date, an amount equal to the
product of (x) the aggregate of the Management Fees earned during the preceding
twenty-four (24) month period divided by 24 times (y) the number of full
calendar months remaining in the Term. [FOR EXAMPLE, . . . .]
ACCOUNTING FEE: $1,000/month
[NOTE A - THIS AMOUNT TO BE CALCULATED ON A HOTEL BY HOTEL BASIS AND WILL BE THE
AGGREGATE OF THE FIRST FIVE YEARS OF THE MANAGEMENT FEES AS SHOWN ON THE 10-YEAR
PRO FORMA FOR THE HOTEL IN QUESTION]
<PAGE>
EXHIBIT "C"
MANAGEMENT FEES
The "Management Fee" shall mean and refer to a fee equal to four percent
(4%) of Adjusted Gross Revenues (as hereinafter defined) with respect to each
fiscal month during the term of this Agreement, provided, however, that for the
first two years of the term of this Agreement a portion of the Management Fee
equal to one percent (1%) of Adjusted Gross Revenues (such portion, the
"Subordinated Management Fee") shall be subordinated to Owner's Basic Return (as
hereinafter defined). Manager and Owner agree that, in light of Manager's
agreement to subordinate the Subordinated Management Fee, the Subordinated
Management Fee, while payable monthly to the extent proceeds are available,
shall be adjusted annually and paid, to the extent Adjusted Gross Revenues after
payment of Owner's Basic Return are available therefor, within thirty (30) days
of Manager's delivery of the operating statements required pursuant to Section
3.01(vi) of the Agreement. Any Subordinated Management Fee not so paid pursuant
to the provisions of the immediately preceding sentence shall not thereafter be
payable by Owner.
The term "Gross Revenues" shall be defined as all revenues and income of
any nature derived directly or indirectly from the Hotel or from the use or
operation thereof, whether on or off the Site, including total room sales, food
and beverage sales, if any, laundry, telephone, telegraph and telex revenues,
other income, rental or other payments from lessees, sublessees, licensees and
concessionaires (but not the gross receipts of such lessees, sublessees,
licensees or concessionaires) and the proceeds of business interruption, use,
occupancy or similar insurance.
The term "Adjusted Gross Revenues" shall be defined as Gross Revenues
less the following revenues actually received by the Hotel and included in Gross
Revenues: (i) any gratuities or service charges added to a customer's bill; (ii)
any credits or refunds made to customers, guests or patrons; (iii) any sums and
credits received by Owner for lost or damaged merchandise; (iv) any sales taxes,
excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist
taxes or charges; (v) any proceeds from the sale or other disposition of the
Hotel, furnishings and equipment or other capital assets; (vi) any fire and
extended coverage insurance proceeds; (vii) any condemnation awards; (viii) any
proceeds of financing or refinancing of the Hotel; and (ix) any interest on the
Bank Account(s).
The term "Owner's Investment" shall mean the sum of (x) the purchase
price for the Hotel ("Purchase Price") as set forth in the Agreement of Sale
dated August 6, 1999 by and between Fee Owner, as purchaser, and Hampton Inns,
Inc., Promus Hotels Florida, Inc. and Promus Hotels, Inc., as sellers (the
"Purchase Agreement") plus (y) all reasonable costs and expenses incurred by Fee
Owner in connection with performing its due diligence in connection with the
Purchase Agreement and consummating the purchase contemplated by the Purchase
Agreement, including, without limitation, title and survey fees and charges,
real estate transfer taxes and reasonable attorneys' fees and
C-1
<PAGE>
charges, but specifically excluding fees and charges paid to Apple Suites
Advisors, Inc., Apple Suites Realty Group, Inc. or any other affiliate of Glade
M. Knight or any fees and charges paid in connection with offering of common
stock in Fee Owner plus (z) amounts advanced by Owner in respect of the PIP (as
defined in the License Agreement) and in respect of Hotel capital replacement
items which are in excess of amounts deposited in the Reserve Fund from Gross
Revenues.
The term "Owner's Basic Return" shall mean for the first and second
years, eleven percent (11%) of Owner's Investment.
Attached hereto and made a part hereof, as Exhibit C-1, is an example of
the calculation of, and payment of, the Management Fee (less the Subordinated
Management Fee), the Owner's Basic Return and the Subordinated Management Fee.
C-2
<PAGE>
EXHIBIT "C-1"
MANAGEMENT FEE
C-1-1
<PAGE>
EXHIBIT "D"
INSURANCE
In accordance with Section 3.01(xv), Manager shall, on behalf of Owner
and at Owner's expense, procure the insurance coverages hereinafter set forth
and ensure that they are in full force and effect as of the Effective Date and
that they remain in full force and effect throughout the Term of this Agreement.
All cost(s) and expense(s) incurred by Manager in procuring the following
insurance coverages shall be operating costs and shall be paid from the Bank
Account(s):
Coverages: Amounts of Insurance
- ---------- --------------------
Comprehensive General Liability $10,000,000 per location
-------------------------------
Including -
Premises - Operations
Products/Completed Operations
Contractual
Personal Injury
Liquor Liability/Dram Shop (if applicable)
Elevators and Escalators
Automotive Liability $10,000,000
--------------------
Owned Vehicles
Non-Owned Vehicles
Uninsured Motorist where Required by Statute
Automobile Physical Damage (Optional)
-------------------------------------
Comprehensive (To Value if insured)
Collision
Workers' Compensation Statutory
---------------------
Employer's Liability $1,000,000
--------------------
Fidelity (Employee Dishonesty) As required
--------
Money and Securities As required
--------------------
All insurance coverages provided for under this Exhibit "D" shall be
effected by policies issued by insurance companies (i) that are authorized to do
business in the state in which the Hotel is located; and (ii) that are of good
reputation and of sound and
D-1
<PAGE>
adequate financial responsibility, having a Bests Rating of B+ VI, or better, or
a comparable rating if Bests ceases to publish its ratings or materially changes
its rating standards or procedures.
Manager shall deliver to Owner duly executed certificates of insurance
with respect to all of the policies of insurance procured, including existing,
additional and renewal policies.
Each policy of insurance maintained in accordance with this Exhibit "D,"
to the extent obtainable, shall specify that such policies shall not be
cancelled or materially changed without at least thirty (30) days' prior written
notice to Owner and Manager.
Except as otherwise provided in the Agreement, Manager and Owner each
waives, releases and discharges the other from all claims or demands which each
may have or acquire against the other, or against each other's subsidiaries,
affiliates, directors, officers, agents, employees, independent contractors or
partners, with respect to any claims for any losses, damages, liabilities or
expenses (including attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property or business arising out of
the ownership, management, operation and maintenance of the Hotel, regardless
whether any such claim or demand may arise because of the fault of negligence of
the other party or its subsidiaries, affiliates, officers, employees, directors,
agents or independent contractors. Each policy of insurance maintained in
accordance with this Exhibit "D" shall contain a specific waiver of subrogation
reflecting the above with respect to insured claims.
All policies of insurance provided for under this Exhibit "D" shall be
carried in the name of the Manager. Owner's interest and that of any other
applicable party will be included in the coverage by an additional insured
endorsement.
All such policies of insurance shall be written on an "occurrence"
basis, with no per location aggregate limitation.
Either Manager or Owner, by notice to the other, shall have the right to
require that the minimum amount of insurance to be maintained with respect to
the Hotel under this Exhibit "D" be increased to make such insurance comparable
with prudent industry standards and to reflect increases in liability exposures,
taking into account the size and location of the Hotel.
Owner hereby authorizes Manager to utilize the services of and/or place
the insurance set forth in this Exhibit "D" with (i) any subsidiary or
affiliated company of Promus Hotels, Inc. in the insurance business as Manager
deems appropriate; or (ii) a third party insurance carrier meeting the
specifications set forth above.
D-2
<PAGE>
EXHIBIT "E"
INSURANCE
In accordance with Section 4.01(iii), Owner agrees, at its expense, to
procure and maintain the following insurance coverages, as reasonably adjusted
from time to time, throughout the Term of this Agreement:
Coverages: Amounts of Insurance
- ---------- --------------------
Builders Risk Completed value of the Hotel
-------------
All risk for term of the initial and any subsequent Hotel construction
and renovation.
Real and Personal Property 100% replacement value of building and
-------------------------- contents
Blanket Coverage
Replacement Cost - all risk
Boiler Machinery - written on a comprehensive form
Business Interruption Calculated yearly based on estimated
--------------------- Hotel revenues
Blanket Coverage for the perils insured against under Real and Personal
Property in this Exhibit "E". This coverage shall specifically cover
Manager's loss of Management Fees. The business interruption insurance
shall be for a twelve (12) month indemnity period.
Owner's Protective Liability $10,000,000
----------------------------
All risks from construction and renovation occurring prior to the
Opening Date and all risks from Hotel construction and renovation
projects costing more than $250,000 occurring after the Opening Date.
All insurance coverages provided for under this Exhibit "E" shall be
effected by policies issued by insurance companies (i) that are authorized to do
business in the state in which the Hotel is located; and (ii) that are of good
reputation and of sound and adequate financial responsibility, having a Bests
Rating of B+ VI, or better, or a comparable rating if Bests ceases to publish
its ratings or materially changes its rating standards or procedures.
Owner shall deliver to Manager duplicate copies of either insurance
policies or certificates of insurance (at Manager's option) with respect to all
of the policies of insurance procured, including existing, additional and
renewal policies, and in the case of insurance nearing expiration, shall deliver
duplicate copies of the insurance policies or
E-1
<PAGE>
certificates of insurance with respect to the renewal policies to Manager not
less than thirty (30) days prior to the respective dates of expiration.
Each policy of insurance maintained in accordance with this Exhibit "E,"
to the extent obtainable, shall specify that such policies shall not be
cancelled or materially changed without at least thirty (30) days' prior written
notice to Owner and Manager.
Except as otherwise provided in this Agreement, Manager and Owner each
waives, releases and discharges the other from all claims or demands which each
may have or acquire against the other, or against each other's subsidiaries,
affiliates, directors, officers, agents, employees, independent contractors or
partners, with respect to any claims for any losses, damages, liabilities or
expenses (including attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property or business arising out of
the ownership, management, operation and maintenance of the Hotel, regardless
whether any such claim or demand may arise because of the fault of negligence of
the other party or its subsidiaries, affiliates, officers, employees, directors,
agents or independent contractors. Each policy of insurance maintained in
accordance with this Exhibit "E" shall contain a specific waiver of subrogation
reflecting the above with respect to insured claims.
All policies of insurance provided for under this Exhibit "E" shall be
carried in the name of the Owner and Manager, and losses thereunder shall be
payable to the parties as their respective interests may appear. All liability
policies shall name the Owner and Manager, and in each case any of their
affiliated or subsidiary companies which they may specify, and their respective
directors, officers, agents, employees and partners as additional named
insureds.
All such policies of insurance shall be written on an "occurrence"
basis.
Either Manager or Owner, by notice to the other, shall have the right to
require the minimum amount of insurance to be maintained with respect to the
Hotel under this Exhibit "E" be increased to make such insurance comparable with
prudent industry standards and to reflect increases in liability exposures,
taking into account the size and location of the Hotel.
E-2
EXHIBIT 10.12
<PAGE>
Exhibit 10.12 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.11. The following
list sets forth the material details in which the document described as Exhibit
10.12 differs from the document filed as Exhibit 10.11:
1. The "Owner" is Apple Suites Services Limited Partnership.
2. The "Fee Owner" is Apple Suites REIT Limited Partnership.
3. The Management Agreement pertains to the Dallas-Addison hotel.
EXHIBIT 10.13
<PAGE>
Exhibit 10.13 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.11. The following
list sets forth the material details in which the document described as Exhibit
10.13 differs from the document filed as Exhibit 10.11:
1. The "Owner" is Apple Suites Services Limited Partnership.
2. The "Fee Owner" is Apple Suites REIT Limited Partnership.
3. The Management Agreement pertains to the Dallas-Irving/Las Colinas
hotel.
EXHIBIT 10.14
<PAGE>
Exhibit 10.14 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.11. The following
list sets forth the material details in which the document described as Exhibit
10.14 differs from the document filed as Exhibit 10.11:
1. The "Owner" is Apple Suites Services Limited Partnership.
2. The "Fee Owner" is Apple Suites REIT Limited Partnership.
3. The Management Agreement pertains to the North Dallas-Plano hotel.
EXHIBIT 10.15
<PAGE>
[VA]
COMFORT LETTER
September 20, 1999
Apple Suites, Inc.
306 East Main Street
Richmond, Virginia 23219
Attention: Mr. Gus G. Remppies
Re: Homewood Suites(R) hotel located at 4100
Innslak Drive, Glen Allen, Virginia (the
"Hotel")
Gentlemen:
Promus Hotels, Inc. ("Promus") is about to execute with
respect to the Hotel (i) a License Agreement and the Rider, Attachment and
Exhibits referenced therein (the "License Agreement"), dated the date hereof,
pertaining to the licensing of Apple Suites Management, Inc., a Virginia
corporation ("Lessee"), to operate the Hotel as a Homewood Suites(R) hotel, and
(ii) a management agreement of even date herewith (the "Management Agreement")
with respect to the operation of the Hotel by Promus, as Manager. In addition,
Promus has loaned to Fee Owner the sum of $26,625,000 (the "Acquisition Loan")
as purchase money financing for the acquisition of certain properties (the
"Properties") conveyed pursuant to the Purchase Agreement (as defined in the
Management Agreement), which is evidenced by a note of Fee Owner of even date
herewith in the amount of $26,625,000 and is secured by, among other things,
mortgage(s), deed(s) of trust or deed(s) to secure debt of even date herewith
from Fee Owner which encumbers some or all of the Properties, which may include
the Hotel (the documents evidencing and securing the Acquisition Loan herein
referred to as the "Acquisition Mortgage Documents"). Lessee is the owner of a
leasehold estate in the Hotel pursuant to a Lease Agreement dated the date
hereof (the "Percentage Lease") with Apple Suites, Inc. ("Fee Owner"). Although
the License Agreement is non-assignable, and is not subject to any collateral
assignment, Lessee and Fee Owner have requested that Promus enter into this
letter agreement with Fee Owner with respect to, among other things, Fee Owner's
rights with regard to the License Agreement, and Promus has requested that Fee
Owner enter into this letter agreement with Promus with respect to, among other
things, the Management Agreement and its continuing rights to operate the Hotel
for the term of the Management Agreement, subject to the terms thereof and
hereof, and to confirm certain understandings with respect to the Acquisition
Loan. No third party beneficiaries (other than Fee Owner) are intended or
implied. Fee Owner has
<PAGE>
requested that Promus inform you of the procedures Promus agrees to follow in
the event Lessee commits a breach under the provisions of the License Agreement.
So long as Fee Owner is the owner of the Hotel, and the
License Agreement is in effect, Promus will notify Fee Owner by certified mail
at the above address (or such other address as you may specify in a written
notice to Promus pursuant hereto) of any default as a result of any breach of
the License Agreement or Management Agreement by Lessee, provided, however, that
to the extent the default is a default under, or termination of, the Percentage
Lease or a default under the Acquisition Loan, Promus shall have no obligation
to notify Fee Owner as contemplated above. This notice will be in the form of a
copy of the notice of such default that is sent to Lessee. In the notice, Promus
will give Fee Owner (i) ten (10) days to cure or cause to be cured monetary
defaults identified in Promus's default notice and (ii) thirty (30) days to cure
or cause to be cured the non-monetary breach(es) identified in Promus's default
notice, provided, however, that to the extent the default identified in Promus's
default notice is not capable of being cured by Fee Owner (i.e., the bankruptcy
of Lessee or a transfer in violation of the License Agreement), Fee Owner will
not be afforded an opportunity to cure such incurable defaults. If a breach
identified in the notice is of a curable non-monetary nature which is not
reasonably capable of being cured within such thirty (30) day period, Promus
shall extend the cure period for such length of time as Promus in its sole
discretion reasonably determines is necessary for such breach to be cured (not
to exceed in any event an additional period of ninety (90) days).
In the event a default occurs under the Percentage Lease
(other than a default under the Acquisition Loan) and, as a consequence thereof,
Fee Owner elects to terminate the Percentage Lease, or remove Lessee from
possession of the Hotel without terminating the Percentage Lease or if Lessee
does not elect to extend the Percentage Lease term through the full term of the
License Agreement (any such event being referred to herein as a "Triggering
Event") while the License Agreement and/or the Management Agreement are in
effect, Fee Owner shall give Promus written notice of such termination
("Triggering Event Notice"). Fee Owner shall have a ninety (90) day period from
the date such Triggering Event Notice is given to elect to enter into a lease
agreement with a substitute lessee of the Hotel satisfying the conditions set
forth in Paragraph 1 below (a "Successor Lessee") and to obtain a new license
agreement for such Hotel in the name of such Successor Lessee, for a term equal
to the balance of the original term of the License Agreement and otherwise on
the terms and conditions set forth in the License Agreement, except that it
shall be issued to Successor Lessee without the payment of any application fee
or transfer fee. Promus's obligations to issue a new license agreement pursuant
to this paragraph are subject to and conditioned upon the satisfaction of the
following:
1. Successor Lessee shall (i) be a "Permitted Transferee" (as
hereinafter defined) and (ii) either (y) be (1) at least fifty percent (50%)
owned by Fee Owner or persons that are its "Affiliates" (as hereinafter defined)
and (2) controlled by Fee Owner or its Affiliates or (z) have complied with the
requirements of Section 11 of the applicable License Agreement.
For purposes of this letter agreement the following terms
shall have the
<PAGE>
respective meanings assigned thereto:
(a) The term "Permitted Transferee" means a person or entity
that (i) has adequate financial resources to perform all of Lessee's
obligations under and in accordance with the terms of the License
Agreement, the Percentage Lease, and/or the Management Agreement, (ii)
is not the franchisor or an operator of a chain of hotels (i.e., a
group of hotels marketed under the same brand name) which competes with
the Homewood Suites(R)system of hotels, and (iii) enjoys a favorable
reputation for integrity in his or its community; provided, however,
that an entity the stock of which is not traded on a national stock
exchange shall not qualify as a "Permitted Transferee" unless (A) all
officers, directors, managing members and general partners of such
entity and all persons having, directly or indirectly, a ten percent
(10%) or more equity or profit-sharing interest in such entity would
qualify as Permitted Transferees under clauses (ii) and (iii) of this
sentence, and (B) all officers, directors, managing members and general
partners of any entity having, directly or indirectly, a ten percent
(10%) or more equity or profit-sharing interest in such entity, the
stock of which is not traded on a national stock exchange, would
qualify as Permitted Transferees under clauses (ii) and (iii) of this
sentence. For purposes of the foregoing, it is agreed that any person
or entity who or which, because of reputation or past conduct, has been
denied or would be likely to be denied a gaming license by any
governmental authority shall not qualify as a "Permitted Transferee".
(b) The term "Affiliate" means, with respect to any person or
entity, any other person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with, such first
person or entity. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and
"under common control with"), shall mean the possession, directly or
indirectly, of the power (i) to vote more than fifty percent (50%) of
the securities having ordinary voting power for the election of
directors of the controlled person, or (ii) to direct or cause the
direction of the management and policies of the controlled person,
whether through the ownership of voting shares or by contract or
otherwise, and shall be deemed to include the directors and executive
officers of Fee Owner.
2. Successor Lessee shall also enter into a management
agreement with Promus covering the Hotel for a term equal to the balance of the
original term of the Management Agreement covering the Hotel and otherwise on
the terms and conditions set forth in such Management Agreement.
If Fee Owner fails to provide a written notice to Promus of
Successor Lessee's intention to obtain a new license within such ninety (90) day
period, the License Agreement shall, at Promus's option, terminate upon the date
of expiration of such ninety (90) day period, in which event Fee Owner shall pay
to Promus an amount, as liquidated damages, equal to the aggregate amount owed
under the License Agreement (including liquidated damages attributable to such
termination as provided in Paragraph 13 of the License Agreement) and the
Management Agreement.
<PAGE>
If Fee Owner enters into a new lease with a Successor Lessee
who intends to obtain a new license, all existing breaches under the License
Agreement and the Management Agreement (collectively, the "Hotel Agreements") of
which Promus notifies Fee Owner must be cured on or before the final day of the
ninety (90) day period, provided, however, if such breach(es) are of the type
set forth in paragraph 13.d.(3) and (4) of the License Agreement or Section 9.01
of the Management Agreement and are not capable of being cured by Fee Owner or a
Successor Lessee within such ninety (90) day period, such breach(es) need not be
cured if Fee Owner or a Successor Lessee cures all other breaches of the Hotel
Agreements. With regard to any breaches of a non-monetary nature which are not
reasonably capable of being cured within said ninety (90) day period, Promus
shall extend the cure period for such period of time as Promus in its sole
discretion reasonably determines is necessary for such breaches to be cured.
In the event Fee Owner exercises its rights under the terms of
this letter agreement to enable a Successor Lessee to obtain a new license
agreement, Lessee shall not be released from its obligations under the
applicable Hotel Agreements accruing prior to the date such Successor Lessee
obtains a new license and enters into a new management agreement with Promus.
In addition, in the event the provisions of Internal Revenue
Code, as amended, applicable to real estate investment trusts ("REIT") are
amended to permit REITs, such as Fee Owner, to operate hotels or otherwise
render the structure embodied by the Percentage Lease to be obsolete as
economically unnecessary, Fee Owner may give Promus written notice thereof (the
"Tax Event Notice") and of Fee Owner's election to terminate the Percentage
Lease and of its desire to obtain a new license agreement for the Hotel in Fee
Owner's name for a term equal to the balance of the original term of the License
Agreement and otherwise on the terms and conditions set forth in the License
Agreement, except that it shall be issued to Fee Owner without the payment of
any application fee or transfer fee. The Tax Event Notice shall, in addition,
contain Lessee's consent to the termination of the Management Agreement and the
License Agreement and acknowledgment of the provisions of the immediately
succeeding paragraph. Promus's obligations to issue a new license agreement
pursuant to this paragraph are subject to and conditioned upon the satisfaction
of the following:
1. Fee Owner shall be a "Permitted Transferee", except that
clause (i) thereof shall be amended to read "(i) has adequate financial
resources to perform all of owner's obligations under and in accordance with the
terms of the License Agreement and/or the Management Agreement".
2. Fee Owner shall also enter into a management agreement with
Promus covering the Hotel for a term equal to the balance of the original term
of the Management Agreement covering the Hotel and otherwise on the terms and
conditions set forth in the Management Agreement.
In the event Fee Owner exercises its right under the terms of
the immediately preceding paragraph of this letter agreement to enable it to
obtain a new license agreement, Lessee shall not be released from its
obligations under the applicable
<PAGE>
Hotel Agreements accruing prior to the date Fee Owner obtains a new license and
enters into a new management agreement with Promus.
IN CONNECTION WITH LESSEE'S EXECUTION AND DELIVERY OF THE
LICENSE AGREEMENT, APPLE SUITES, INC. HAS EXECUTED AND DELIVERED FOR THE BENEFIT
OF PROMUS THAT CERTAIN GUARANTY OF EVEN DATE HEREWITH WITH RESPECT TO THE
LICENSE AGREEMENT (THE "GUARANTY"). PROMUS ACKNOWLEDGES THAT, IN THE EVENT OF
ACTUAL CONFLICT, THE TERMS AND PROVISIONS OF THIS LETTER AGREEMENT SHALL CONTROL
OVER THE TERMS AND PROVISIONS OF THE GUARANTY. WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, AND IN ORDER TO PROVIDE APPLE SUITES, INC. WITH THE FULL
BENEFITS INTENDED BY THE PROVISIONS OF THE IMMEDIATELY PRECEDING SENTENCE,
PROMUS SHALL NOTIFY APPLE SUITES, INC. BY CERTIFIED MAIL NOT LESS THAN TEN (10)
DAYS PRIOR TO PROMUS'S EXECUTION AND DELIVERY OF ANY AMENDMENT OR MODIFICATION
OF THE LICENSE AGREEMENT OR OF ITS ACCEPTANCE OF ANY VOLUNTARY SURRENDER OR
TERMINATION BY LESSEE OF THE LICENSE AGREEMENT, OTHER THAN AMENDMENTS OR
MODIFICATIONS OR SURRENDER OR TERMINATION WHICH HAS BEEN REQUESTED BY FEE
OWNER OR APPLE SUITES, INC. OR TO WHICH [FEE OWNER] IS A PARTY. NOTHING IN THE
FOREGOING SENTENCE SHALL BE DEEMED OR CONSTRUED TO LIMIT OR RESTRICT PROMUS'S
RIGHTS TO TERMINATE OR EXERCISE ANY OTHER REMEDY UNDER THE LICENSE AGREEMENT IN
THE EVENT OF A DEFAULT BY LESSEE THEREUNDER, SUBJECT TO THE OTHER TERMS AND
PROVISIONS OF THIS LETTER AGREEMENT.
With reference to Licensee's representation in the last
sentence of Section 1(a) of the License Agreement, Promus acknowledges that the
Percentage Lease is for a base term of less than twenty (20) years and that only
upon exercising all extension options available to Licensee, including certain
options requiring negotiation of fair market rental, will the term of the
Percentage Lease extend to the full twenty (20) years of the term of the License
Agreement. Fee Owner and Lessee acknowledge that the failure for any reason to
exercise the extension options will result in the application of the liquidated
damages provisions of Paragraph 13.f of the License Agreement if, upon the
termination of the Percentage Lease, Fee Owner or a Successor Lessee does not
obtain a new license agreement for the Hotel for a term equal to the balance of
the original term of the License Agreement, as contemplated herein.
Promus hereby confirms for the benefit of Fee Owner and Lessee
that the License Agreement shall be read with the following clarifications:
(i) with respect to the provisions of Paragraph 1.d. of the
License Agreement relating to the requirement to use particular
Supplies or that particular Supplies be purchased from Promus or a
source designated by Promus, such requirements shall only be imposed on
the licensee under the License Agreement to the extent Promus is
imposing such requirements on substantially all of its licensees of the
System, but that with respect to other Supplies if Lessee determines
that it can purchase Supplies of a quality at least equal to that which
Promus is requiring at a price lower than the price then being charged
by Promus or its designated supplier, Lessee may purchase such Supplies
from its vendor;
<PAGE>
(ii) with respect to the provisions of Paragraph 6.a.(19) of
the License Agreement, such provisions are not intended to preclude
Lessee or any member of an affiliated group from owning licensed hotels
of other, even competing, brands, but from owning a hotel brand,
tradename, system or chain;
(iii) with respect to the provisions of Paragraph 11 of the
License Agreement relating to change in ownership or a transfer of the
hotel, the provisions are intended to apply only to Lessee's beneficial
or equity interests or its interest in the hotel;
(iv) with respect to the language of the second sentence of
Paragraph 13.f. of the License Agreement reading "If this Agreement is
terminated other than by the expiration of the term described in
Paragraph 13.a.,", this language is not intended to modify other
provisions of the License Agreement relating to whether or not
liquidated damages are payable under other circumstances and
accordingly shall be read as if preceded by the phrase "Subject to the
other provisions of this Agreement". In addition, liquidated damages
shall not be payable if the License Agreement is terminated as a result
of Promus's default under the License Agreement; and
(v) with respect to the provisions of the last paragraph of
Paragraph 13, said provisions shall be deemed deleted.
Promus acknowledges that, in the event of actual conflict
between this letter agreement and the License Agreement, the terms and
provisions of this letter agreement shall control over the terms and provisions
of the License Agreement. Without limiting the generality of the foregoing, (i)
no transfer of any interest in Fee Owner, or of fee ownership of the Hotel to an
affiliate of Fee Owner, shall constitute a prohibited change of ownership under
the License Agreement, subject, however, to the penultimate paragraph of this
letter agreement, (ii) no transfer of the leasehold interest of Lessee in the
Hotel to a Successor Lessee shall constitute a prohibited change of ownership
under the License Agreement, and (iii) in no event shall the initial Licensee be
liable for liquidated damages as the result of termination of the Percentage
Lease or default under the License Agreement if a Successor Lessee is supplied
by Fee Owner or Fee Owner enters into a new License Agreement following a Tax
Event Notice, and all prior curable defaults under the License Agreement are
cured by Fee Owner, as contemplated herein.
Fee Owner and Lessee agree with Promus as follows with respect
to the relationship of Promus and Lessee under the Management Agreement:
(a) Pursuant to the terms of the Percentage Lease, Fee Owner
has agreed to pay, among other things, (i) land, building and personal
property taxes and assessments applicable to the Hotel, (ii) premiums
and charges for property casualty insurance coverages specified in
Exhibit "D" to the Management Agreement, (iii) expenditures for capital
replacements, (iv) expenditures for maintenance and repair of
underground utilities and structural elements of the
<PAGE>
Hotel and (v) the payments of principal, interest and other sums
payable under the Acquisition Loan (collectively, "Fee Owner Costs").
To the extent the Management Agreement obligates or authorizes Promus
to pay any Fee Owner Costs, Promus shall pay such Fee Owner Costs on
behalf of Lessee to the extent of funds in the Hotel's bank account(s)
(collectively, the "Hotel Accounts"), including, without limitation,
the Bank Account(s) and the Reserve Fund (as such terms are defined in
the Management Agreement) subject to any limitations contained in the
Management Agreement and Fee Owner and Lessee shall make such
adjustments and payments to each other as may be necessary from time to
time to take into account any such payments. Promus shall have no duty,
obligation or liability to Fee Owner (x) to make any determination as
to whether any expense required to be paid by Promus under the
Management Agreement is a Fee Owner Cost or a cost of Lessee, or (y) to
make any determination as to whether funds in the Hotel Accounts belong
to Fee Owner or Lessee, or (z) to require that Fee Owner Costs be paid
from funds which can be identified as belonging to Fee Owner, or other
costs and expenses required to be paid by Lessee be paid from funds
which can be identified as belonging to Lessee; it being the intent of
this provision that (i) Fee Owner and Lessee shall look only to each
other and not to Promus with respect to moneys that may be owed one to
the other as consequence of Promus's performance of the Management
Agreement and (ii) Promus need only look to Lessee to pay operating
costs, including, without limitation, those designated herein as Fee
Owner Costs.
(b) Promus shall be permitted (and is hereby authorized) to
set off against any amounts owed to Promus by Lessee under the
Management Agreement and the License Agreement any funds held by Promus
pursuant to the Management Agreement, including amounts in the Hotel
Accounts, whether or not amounts are due to Fee Owner by Lessee under
the Percentage Lease.
(c) Fee Owner has approved the form of the Management
Agreement and License Agreement and agrees that Fee Owner's consent or
approval is not required with respect to the performance of any of its
rights, duties or obligations under the Management Agreement or the
License Agreement.
(d) Fee Owner hereby approves the deposit of funds into the
Reserve Account and the expenditure of funds from the Reserve Account
by Promus in accordance with the terms of the Management Agreement.
(e) To the extent required by applicable laws, Fee Owner shall
obtain and maintain (or cooperate in obtaining and maintaining) any
licenses, permits or approvals of any governmental authority necessary
to operate and manage the Hotel in accordance with the Management
Agreement.
(f) Fee Owner acknowledges and agrees that, unless it enters
into a license agreement pursuant to a Tax Event Notice, it has no
right to use the Homewood Suites(R) "System" except as expressly set
forth in the License
<PAGE>
Agreement nor any right to use the name "Homewood Suites" or the
Homewood Suites(R) "System" as a result of Lessee entering into the
Hotel Agreements.
(g) Fee Owner acknowledges and agrees that any amounts owed to
Promus under the License Agreement and the Management Agreement are
superior to any amounts owed by Lessee to Fee Owner under the
Percentage Lease, other than amounts owed in respect of the
Subordinated Management Fee, as defined in the Management Agreement, to
the extent Lessee applies amounts received in respect of Owner's Basic
Return, as defined in the Management Agreement, in respect of amounts
owed by Lessee to Fee Owner under the Percentage Lease.
(h) Fee Owner agrees not to amend or modify the Percentage
Lease in any manner that would (i) reduce the term of the Percentage
Lease, (ii) increase the amount of rent payable by Lessee thereunder
(except as contemplated by the provisions of the Percentage Lease), or
(iii) have a material adverse effect on any of the rights, duties and
privileges of Promus under the Management Agreement. Nothing in this
paragraph (h) shall be deemed or construed to limit or restrict Fee
Owner's rights to terminate or exercise any other remedy under the
Percentage Lease in the event of a default by Lessee thereunder.
(i) Fee Owner acknowledges and agrees that Promus has no duty
or obligation to comply with any of the terms of the Percentage Lease
and that Fee Owner will look solely to Lessee with respect to such
matters.
(j) Fee Owner acknowledges and agrees that (i) no sale,
transfer or conveyance of Fee Owner's fee estate in the Hotel shall
terminate the Management Agreement, (ii) except as provided below,
neither the termination of the Percentage Lease nor the assignment of
Lessee's interest therein shall terminate the Management Agreement, and
(iii) no merger of the leasehold and fee simple estates of the Hotel
shall terminate the Management Agreement; it being the intent of Fee
Owner and Promus that the Management Agreement shall continue in effect
for the term of the Management Agreement so long as the Hotel is
operating as a Homewood Suites(R) hotel pursuant to a license agreement
and Manager is not in default of its obligations under the Management
Agreement (subject, however, to any express rights of termination
contained in the Management Agreement).
(k) Fee Owner acknowledges and agrees that Manager shall have
a right to file a separate claim in any condemnation case in accordance
with Article VIII of the Management Agreement.
(l) Fee Owner agrees that so long as the License Agreement is
in effect the casualty insurance proceeds will be applied in the manner
provided in the License Agreement.
<PAGE>
(m) In the event that Fee Owner terminates the Percentage
Lease and as a consequence thereof Promus terminates the License
Agreement and does not enter into a new license agreement with any
successor operator of the Hotel, Promus and Fee Owner, subject to the
payment of all amounts owed under the Management Agreement and all
amounts owed under the Acquisition Loan, shall have the right to
terminate the Management Agreement covering the Hotel. Otherwise, the
successor operator shall assume in writing the remaining term of such
Management Agreement.
Fee Owner and Lessee further agree with Promus with respect to
the Acquisition Loan that the Percentage Lease shall be subject and subordinate
to the lien of the Acquisition Mortgage Documents and to all of the terms,
conditions and provisions thereof, to all advances made or to be made
thereunder, and to any renewals, extensions, modifications or replacements
thereof, including any increases therein or supplements thereto. The foregoing
provisions shall be self-operative. However, Fee Owner and Lessee agree to
execute and deliver to Promus such other instrument as Promus shall request in
order to effectuate said provisions.
It is acknowledged and agreed that (i) Promus shall be
entitled to rely upon any written notice or request by Fee Owner made pursuant
to the provisions hereof without requirement of investigating the accuracy or
authenticity of such written notice or any facts or allegations contained
therein, and (ii) Fee Owner shall be entitled to rely upon any written notice or
request by Promus made pursuant to the provisions hereof without requirement of
investigating the accuracy or authenticity of such written notice or any facts
or allegations contained therein.
You agree to notify Promus by certified mail at 755 Crossover
Lane, Memphis, Tennessee 38117-4900, Attention: General Counsel (or such other
address as Promus may specify in a written notice to you) of any action
regarding the Hotel to: (a) terminate the Percentage Lease; (b) petition for
appointment of a Receiver or Trustee for Lessee to take any action under Federal
Bankruptcy law or similar state laws; or (c) take possession of the Hotel,
through a Successor Lessee or otherwise, without termination of the Percentage
Lease.
The rights, powers and interests of Promus hereunder may be
transferred and assigned by Promus, without the prior written consent of Fee
Owner, Lessee and, if applicable, any Successor Lessee, to any person to whom
the License Agreement and Management Agreement may be assigned. The rights and
obligations of Fee Owner, Lessee and, if applicable, Successor Lessee hereunder
are not transferable without the written consent of Promus.
Subject to the foregoing limitations, this letter agreement
shall extend to, and shall bind, the respective successors and assigns of
Promus, Fee Owner, Lessee and, if applicable, any Successor Lessee, provided,
however, that in the case of Fee Owner, this letter agreement shall not extend
to any transferee of Fee Owner's fee interest in the Hotel nor to Fee Owner if
Apple Suites, Inc. is not a publicly held REIT.
<PAGE>
Please indicate your agreement with the terms of this letter
agreement by signing and returning four executed copies to Promus. This letter
may be executed by original signature or by signature received by telecopy in
any number of counterparts, each of which shall be original and all of which
together shall constitute and be construed as one and the same instrument.
Very truly yours,
PROMUS HOTELS, INC.
By /s/ Dan L. Hale
------------------------------------
Name: Dan L. Hale
Title: Executive Vice President and
Chief Financial Officer
cc: Franchise Administration
Accepted and Agreed:
APPLE SUITES, INC.
By /s/ Glade M. Knight
------------------------------
Name: Glade M. Knight
Title: President
Acknowledged and Agreed:
APPLE SUITES MANAGEMENT, INC.
By /s/ Glade M. Knight
------------------------------
Name: Glade M. Knight
Title: President
EXHIBIT 10.16
<PAGE>
Exhibit 10.16 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.15. The following
list sets forth the material details in which the document described as Exhibit
10.16 differs from the document filed as Exhibit 10.15:
1. The Comfort Letter pertains to the hotel located at 4451 Beltline
Drive, Addison, Texas.
2. The Comfort Letter is addressed to Apple Suites REIT Limited
Partnership and Apple Suites Services Limited Partnership.
EXHIBIT 10.17
<PAGE>
Exhibit 10.17 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.15. The following
list sets forth the material details in which the document described as Exhibit
10.17 differs from the document filed as Exhibit 10.15:
1. The Comfort Letter pertains to the hotel located at 4300 Wingren
Drive, Irving, Texas.
2. The Comfort Letter is addressed to Apple Suites REIT Limited
Partnership and Apple Suites Services Limited Partnership.
EXHIBIT 10.18
<PAGE>
Exhibit 10.18 is not filed herewith since it is substantially identical
in all material respects with the document filed as Exhibit 10.15. The following
list sets forth the material details in which the document described as Exhibit
10.18 differs from the document filed as Exhibit 10.15:
1. The Comfort Letter pertains to the hotel located at 4705 Old
Sheppard Place, Plano, Texas.
2. The Comfort Letter is addressed to Apple Suites REIT Limited
Partnership and Apple Suites Services Limited Partnership.
EXHIBIT 10.19
<PAGE>
(HOTEL FRANCHISE FEES)
PROMISSORY NOTE
$215,550.00 RICHMOND, VIRGINIA
SEPTEMBER 17, 1999
FOR VALUE RECEIVED, Apple Suites Management, Inc., a Virginia corporation, and
Apple Suites Services Limited Partnership, a Virginia limited partnership
(collectively, the "Makers"), hereby make an UNCONDITIONAL PROMISE TO PAY TO THE
ORDER OF Apple Suites, Inc., a Virginia corporation (the "Holder"), in lawful
money of the United States of America, the principal sum of Two Hundred Fifteen
Thousand Five Hundred Fifty and 00/100 Dollars ($215,550.00), together with
interest thereon, in accordance with the following terms:
1. INTEREST.
Interest shall accrue on the unpaid principal balance at the annual
rate of nine percent (9%) (the "Note Rate"). The computation of interest at the
Note Rate shall be based on a 360-day year and a uniform period of 30 days per
month. If there is an Event of Default (as defined below), the annual rate of
interest shall increase to twelve percent (12%), and shall be compounded monthly
(the "Default Rate"). The computation of interest at the Default Rate shall be
based on the actual number of days elapsed.
2. PAYMENTS.
(a) The debt represented by this Note shall be paid in one hundred
twenty-one (121) consecutive monthly installments. The amount of the first
installment shall be $754.43, consisting entirely of interest. The amount of
each subsequent installment shall be $2,730.50, consisting of principal and
interest on an amortized basis.
(b) Each installment shall be due and payable on the first day of each
month, beginning with October 1, 1999. The due date for each installment shall
be deemed a "Payment Date." The entire balance of principal and interest shall
be due and payable in full on October 1, 2009.
(c) The Makers are entitled to prepay the principal balance under this
Note, in whole or in part, on one or more occasion(s), without premium or
penalty.
(d) The Holder shall have the right to allocate all payments under this
Note in accordance with the following priority: (1) first, to accrued but unpaid
interest; and (2) second, to unpaid principal.
3. PAYMENT ADDRESS AND METHOD.
The Holder shall have the right, which may be exercised on one or more
occasion(s) in the sole discretion of the Holder, to require the Makers to use
any address for the delivery of
<PAGE>
payment and any reasonable method of payment, including but not limited to
cashier's check or wire transfer. For present purposes, the Holder hereby
requires the Makers to use a single check for each installment payment, and to
use the mailing address shown below for the delivery of all payments:
Apple Suites, Inc.
Attn: Stanley J. Olander, Jr., Secretary
306 East Main Street
Richmond, VA 23219
4. SECURITY AND COLLATERAL.
The Holder and the Makers acknowledge and agree that no security
interest has been granted in any property or collateral in connection with this
Note.
5. PURPOSE.
The Makers have leased certain extended-stay hotel properties. The
Makers have received funds from the Holder for the satisfaction of various
franchise fees for such hotel properties. This Note serves as evidence of the
indebtedness of the Makers to the Holder, and provides for the repayment of such
indebtedness to the Holder. The indebtedness with respect to each hotel property
is shown on Schedule A, which is attached hereto and incorporated herein by this
reference.
6. EVENTS OF DEFAULT.
(a) Each of the following events shall constitute an "Event of Default"
under this Note:
(1) the failure by the Makers to pay to the Holder, within a
grace period of five (5) calendar days after any Payment Date, the full amount
due on such Payment Date;
(2) the acceleration of any payment obligation of the Makers,
or either one of them, under any other promissory note, debt instrument or other
financial instrument or agreement that now exists or may exist in the future;
(3) the commencement of any proceeding to appoint any
receiver, trustee, custodian, liquidator, or similar official for the Makers, or
for either one of them, or the final appointment of any of the foregoing;
(4) the attachment, levy, seizure or garnishment, whether in
whole or in part, of any wages, funds, financial accounts or other property of
the Makers, or either one of them;
<PAGE>
(5) the entry of any judgment against the Makers, or against
either one of them, that exceeds, when combined with other unpaid judgments of
the Makers, ten percent (10%) of the then unpaid principal balance under this
Note;
(6) the general inability of either Maker to pay its debts as
they become due;
(7) the filing or commencement, by the creditors of either or
both of the Makers, of any Insolvency Action (as defined below) that is not
dismissed within thirty (30) calendar days after the original date of filing or
commencement;
(8) the approval or voluntary filing of any Insolvency Action,
or the approval or consummation of any plan to make a general assignment for the
benefit of creditors, by the Makers, or by either one of them;
(9) the approval of any plan, or the execution of any
contract, that causes or is intended to cause any of the following with respect
to either of the Makers: (A) its dissolution; (B) the liquidation of its assets;
(C) the termination of its corporate existence, whether by merger or otherwise;
or (D) the sale or transfer of all, or substantially all, of its assets;
(10) any event that causes or will cause the Makers, or either
one of them, to cease its business or operations for a period of more than
thirty (30) consecutive calendar days; or
(11) any event that terminates or will terminate the business,
operations or legal existence of either or both of the Makers.
(b) For purposes of this Note, the term "Insolvency Action" shall mean
any case or proceeding, or petition relating thereto, that arises under any
state or Federal laws relating to bankruptcy or insolvency, whether now existing
or subsequently enacted, and that seeks reorganization, liquidation or other
relief with respect to the debts, assets or businesses of the Makers, or either
one of them.
7. REMEDIES.
(a) If an Event of Default occurs, all unpaid principal and accrued
interest under this Note shall become immediately due and payable in full,
without any action whatsoever by the Holder.
(b) The Makers shall pay all costs, including but not limited to
reasonable legal fees and expenses, whether arising in connection with an
Insolvency Action or otherwise, that may be incurred by the Holder to enforce
this Note or to collect the amounts due under this Note ("Enforcement Costs").
The Holder, in its sole discretion, shall have the right to treat Enforcement
Costs as additional interest under this Note.
<PAGE>
(c) The Makers shall have joint and several liability for all amounts
due under this Note. The Holder shall have the right to enforce this Note
against either or both of the Makers in such percentages as the Holder, in its
sole discretion, may determine.
8. TRANSFER AND ASSIGNMENT.
(a) The Holder shall have the right to transfer this Note and to assign
any rights or remedies under this Note. Such right may be exercised in whole or
in part, on one or more occasion(s), in the sole discretion of the Holder. The
obligations of the Makers under this Note shall not be altered or affected in
any way by any such transfer or assignment by the Holder.
(b) The Makers shall be absolutely prohibited from assigning any of
their obligations under this Note without the prior written consent of the
Holder. The Holder shall be entitled to withhold such consent in its sole
discretion for any reason or no reason. Any attempted assignment in violation of
such prohibition shall be ineffective and void.
(c) The Holder and the Makers acknowledge and agree that this Note (1)
is evidence of commercial debt financing; and (2) is not an investment contract,
is not designed to raise capital, is not part of any plan of distribution and is
not related to any offering of securities.
9. WAIVERS.
(a) The Holder shall not be deemed to have waived any of its rights or
remedies under this Note unless the Holder delivers a written notice to each of
the Makers that states the nature and scope of such waiver. Without limiting the
foregoing, no waiver of the Holder's rights or remedies shall be deemed to exist
solely because the Holder, on one or more occasion(s), may have: (1) waived
certain rights or remedies; (2) elected certain rights or remedies in lieu of
others; (3) delayed in exercising any rights or remedies; (4) extended any
Payment Dates under this Note; or (5) refrained from requiring the Makers to act
in strict compliance with this Note.
(b) Each of the Makers, to the maximum extent permitted by law, hereby
grants a complete, irrevocable and unconditional waiver of each of the
following: (1) the right to require presentment, demand, dishonor, protest or
any notices of any kind or nature from the Holder in connection with this Note;
(2) the right to assert any statute of limitations as a defense to the
enforcement of this Note; (3) any claim that seeks to restrain, enjoin,
prohibit, delay or interfere with any transfer of this Note by the Holder, or
any assignment of the Holder's rights or remedies under this Note; (4) any claim
that a transfer or assignment by the Holder with respect to this Note has
altered or affected the obligations of the Makers in any way; and (5) any claim
that the Holder has waived its rights or remedies under this Note in a manner
other than the manner described in subsection (a) immediately above.
<PAGE>
10. GENERAL.
(a) Time is of the essence with respect to this Note and each Payment
Date. Except as expressly set forth in this Note, or in a written waiver that
may be granted by the Holder, there are no grace periods and no extensions of
time for payment with respect to this Note, and no grace periods or extensions
shall be implied.
(b) This Note shall be interpreted and enforced in accordance with the
laws of the Commonwealth of Virginia, without regard to any choice of law
provisions or principles thereof to the contrary.
(c) All provisions in this Note are severable and each valid and
enforceable provision shall remain in full force and effect, regardless of any
official or formal determination that declares certain provisions of this Note
to be invalid or unenforceable.
(d) Captions and headings are used in this Note for convenience only
and shall not affect the interpretation of this Note. Terms such as "hereof,"
"hereby," "hereto," "herein" and "hereunder" shall be deemed to refer to this
Note as a whole, rather than to any particular provision of this Note.
(e) All terms and conditions of this Note shall be binding upon, and
enforceable against, the Holder and the Makers, and all of their respective
assignees and successors in title or interest.
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
By: /s/ Glade M. Knight
-----------------------------
Glade M. Knight, President
APPLE SUITES SERVICES LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Apple Suites Services General, In
a Virginia corporation
Its: General Partner
By: /s/ Glade M. Knight
-------------------------
Glade M. Knight, President
<PAGE>
SCHEDULE A
Franchise Fees
Name of Hotel Property Location Amount
---------------------- -------- ------
Dallas-Addison 4451 Beltline Road $ 54,000
Addison, Texas 75244
Dallas-Irving/Las Colinas 4300 Wingren Drive $ 61,200
Irving, Texas 75039
North Dallas- Plano 4705 Old Sheppard Place $ 45,000
Plano, Texas 75093
Richmond-West End 4100 Innslake Drive $ 55,350
Glen Allen, Virginia 23060
TOTAL $215,550
EXHIBIT 10.20
<PAGE>
(HOTEL SUPPLIES)
PROMISSORY NOTE
$47,800.00 RICHMOND, VIRGINIA
SEPTEMBER 17, 1999
FOR VALUE RECEIVED, Apple Suites Management, Inc., a Virginia corporation, and
Apple Suites Services Limited Partnership, a Virginia limited partnership
(collectively, the "Makers"), hereby make an UNCONDITIONAL PROMISE TO PAY TO THE
ORDER OF Apple Suites, Inc., a Virginia corporation (the "Holder"), in lawful
money of the United States of America, the principal sum of Forty Seven Thousand
Eight Hundred and 00/100 Dollars ($47,800.00) together with interest thereon, in
accordance with the following terms:
1. INTEREST.
Interest shall accrue on the unpaid principal balance at the annual
rate of nine percent (9%) (the "Note Rate"). The computation of interest at the
Note Rate shall be based on a 360-day year and a uniform period of 30 days per
month. If there is an Event of Default (as defined below), the annual rate of
interest shall increase to twelve percent (12%), and shall be compounded monthly
(the "Default Rate"). The computation of interest at the Default Rate shall be
based on the actual number of days elapsed.
2. PAYMENTS.
(a) The debt represented by this Note shall be paid in sixty-one (61)
consecutive monthly installments. The amount of the first installment shall be
$167.30, consisting entirely of interest. The amount of each subsequent
installment shall be $992.25, consisting of principal and interest on an
amortized basis.
(b) Each installment shall be due and payable on the first day of each
month, beginning with October 1, 1999. The due date for each installment shall
be deemed a "Payment Date." The entire balance of principal and interest shall
be due and payable in full on October 1, 2004.
(c) The Makers are entitled to prepay the principal balance under this
Note, in whole or in part, on one or more occasion(s), without premium or
penalty.
(d) The Holder shall have the right to allocate all payments under this
Note in accordance with the following priority: (1) first, to accrued but unpaid
interest; and (2) second, to unpaid principal.
3. PAYMENT ADDRESS AND METHOD.
The Holder shall have the right, which may be exercised on one or more
occasion(s) in the sole discretion of the Holder, to require the Makers to use
any address for the delivery of
<PAGE>
payment and any reasonable method of payment, including but not limited to
cashier's check or wire transfer. For present purposes, the Holder hereby
requires the Makers to use a single check for each installment payment, and to
use the mailing address shown below for the delivery of all payments:
Apple Suites, Inc.
Attn: Stanley J. Olander, Jr., Secretary
306 East Main Street
Richmond, VA 23219
4. SECURITY AND COLLATERAL.
The Holder and the Makers acknowledge and agree that no security
interest has been granted in any property or collateral in connection with this
Note.
5. PURPOSE.
The Makers have leased certain extended-stay hotel properties. The
Makers have received funds from the Holder for the purchase of various supplies
for such hotel properties, including without limitation, sheets, towels and
similar supplies to be used in connection with the operation of such hotel
properties (the "Supplies"). This Note serves as evidence of the indebtedness of
the Makers to the Holder, and provides for the repayment of such indebtedness to
the Holder. The purchase price of the Supplies and the corresponding
indebtedness with respect to each hotel property is shown on Schedule A, which
is attached hereto and incorporated herein by this reference.
6. EVENTS OF DEFAULT.
(a) Each of the following events shall constitute an "Event of Default"
under this Note:
(1) the failure by the Makers to pay to the Holder, within a
grace period of five (5) calendar days after any Payment Date, the full amount
due on such Payment Date;
(2) the acceleration of any payment obligation of the Makers,
or either one of them, under any other promissory note, debt instrument or other
financial instrument or agreement that now exists or may exist in the future;
(3) the commencement of any proceeding to appoint any
receiver, trustee, custodian, liquidator, or similar official for the Makers, or
for either one of them, or the final appointment of any of the foregoing;
(4) the attachment, levy, seizure or garnishment, whether in
whole or in part, of any wages, funds, financial accounts or other property of
the Makers, or either one of them;
<PAGE>
(5) the entry of any judgment against the Makers, or against
either one of them, that exceeds, when combined with other unpaid judgments of
the Makers, ten percent (10%) of the then unpaid principal balance under this
Note;
(6) the general inability of either Maker to pay its debts as
they become due;
(7) the filing or commencement, by the creditors of either or
both of the Makers, of any Insolvency Action (as defined below) that is not
dismissed within thirty (30) calendar days after the original date of filing or
commencement;
(8) the approval or voluntary filing of any Insolvency Action,
or the approval or consummation of any plan to make a general assignment for the
benefit of creditors, by the Makers, or by either one of them;
(9) the approval of any plan, or the execution of any
contract, that causes or is intended to cause any of the following with respect
to either of the Makers: (A) its dissolution; (B) the liquidation of its assets;
(C) the termination of its corporate existence, whether by merger or otherwise;
or (D) the sale or transfer of all, or substantially all, of its assets;
(10) any event that causes or will cause the Makers, or either
one of them, to cease its business or operations for a period of more than
thirty (30) consecutive calendar days; or
(11) any event that terminates or will terminate the business,
operations or legal existence of either or both of the Makers.
(b) For purposes of this Note, the term "Insolvency Action" shall mean
any case or proceeding, or petition relating thereto, that arises under any
state or Federal laws relating to bankruptcy or insolvency, whether now existing
or subsequently enacted, and that seeks reorganization, liquidation or other
relief with respect to the debts, assets or businesses of the Makers, or either
one of them.
7. REMEDIES.
(a) If an Event of Default occurs, all unpaid principal and accrued
interest under this Note shall become immediately due and payable in full,
without any action whatsoever by the Holder.
(b) The Makers shall pay all costs, including but not limited to
reasonable legal fees and expenses, whether arising in connection with an
Insolvency Action or otherwise, that may be incurred by the Holder to enforce
this Note or to collect the amounts due under this Note ("Enforcement Costs").
The Holder, in its sole discretion, shall have the right to treat Enforcement
Costs as additional interest under this Note.
<PAGE>
(c) The Makers shall have joint and several liability for all amounts
due under this Note. The Holder shall have the right to enforce this Note
against either or both of the Makers in such percentages as the Holder, in its
sole discretion, may determine.
8. TRANSFER AND ASSIGNMENT.
(a) The Holder shall have the right to transfer this Note and to assign
any rights or remedies under this Note. Such right may be exercised in whole or
in part, on one or more occasion(s), in the sole discretion of the Holder. The
obligations of the Makers under this Note shall not be altered or affected in
any way by any such transfer or assignment by the Holder.
(b) The Makers shall be absolutely prohibited from assigning any of
their obligations under this Note without the prior written consent of the
Holder. The Holder shall be entitled to withhold such consent in its sole
discretion for any reason or no reason. Any attempted assignment in violation of
such prohibition shall be ineffective and void.
(c) The Holder and the Makers acknowledge and agree that this Note (1)
is evidence of commercial debt financing; and (2) is not an investment contract,
is not designed to raise capital, is not part of any plan of distribution and is
not related to any offering of securities.
9. WAIVERS.
(a) The Holder shall not be deemed to have waived any of its rights or
remedies under this Note unless the Holder delivers a written notice to each of
the Makers that states the nature and scope of such waiver. Without limiting the
foregoing, no waiver of the Holder's rights or remedies shall be deemed to exist
solely because the Holder, on one or more occasion(s), may have: (1) waived
certain rights or remedies; (2) elected certain rights or remedies in lieu of
others; (3) delayed in exercising any rights or remedies; (4) extended any
Payment Dates under this Note; or (5) refrained from requiring the Makers to act
in strict compliance with this Note.
(b) Each of the Makers, to the maximum extent permitted by law, hereby
grants a complete, irrevocable and unconditional waiver of each of the
following: (1) the right to require presentment, demand, dishonor, protest or
any notices of any kind or nature from the Holder in connection with this Note;
(2) the right to assert any statute of limitations as a defense to the
enforcement of this Note; (3) any claim that seeks to restrain, enjoin,
prohibit, delay or interfere with any transfer of this Note by the Holder, or
any assignment of the Holder's rights or remedies under this Note; (4) any claim
that a transfer or assignment by the Holder with respect to this Note has
altered or affected the obligations of the Makers in any way; and (5) any claim
that the Holder has waived its rights or remedies under this Note in a manner
other than the manner described in subsection (a) immediately above.
<PAGE>
10. GENERAL.
(a) Time is of the essence with respect to this Note and each Payment
Date. Except as expressly set forth in this Note, or in a written waiver that
may be granted by the Holder, there are no grace periods and no extensions of
time for payment with respect to this Note, and no grace periods or extensions
shall be implied.
(b) This Note shall be interpreted and enforced in accordance with the
laws of the Commonwealth of Virginia, without regard to any choice of law
provisions or principles thereof to the contrary.
(c) All provisions in this Note are severable and each valid and
enforceable provision shall remain in full force and effect, regardless of any
official or formal determination that declares certain provisions of this Note
to be invalid or unenforceable.
(d) Captions and headings are used in this Note for convenience only
and shall not affect the interpretation of this Note. Terms such as "hereof,"
"hereby," "hereto," "herein" and "hereunder" shall be deemed to refer to this
Note as a whole, rather than to any particular provision of this Note.
(e) All terms and conditions of this Note shall be binding upon, and
enforceable against, the Holder and the Makers, and all of their respective
assignees and successors in title or interest.
APPLE SUITES MANAGEMENT, INC.,
a Virginia corporation
By: /s/ Glade M. Knight
--------------------
Glade M. Knight, President
APPLE SUITES SERVICES LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Apple Suites Services General, Inc.,
a Virginia corporation
Its: General Partner
By: /s/ Glade M. Knight
---------------------
Glade M. Knight, President
<PAGE>
SCHEDULE A
Hotel Supplies
Name of Hotel Property Location Amount
---------------------- ---------- --------
Dallas-Addison 4451 Beltline Road $ 12,000
Addison, Texas 75244
Dallas-Irving/Las Colinas 4300 Wingren Drive $ 13,600
Irving, Texas 75039
North Dallas- Plano 4705 Old Sheppard Place $ 9,900
Plano, Texas 75093
Richmond-West End 4100 Innslake Drive $ 12,300
Glen Allen, Virginia 23060
TOTAL $ 47,800
EXHIBIT 10.21
<PAGE>
APPLE SUITES GENERAL, INC.
ARTICLES OF INCORPORATION
ARTICLE I
NAME
1. Name. The name of the Corporation is Apple Suites General, Inc.
ARTICLE II
PURPOSE
2. Purpose. The Corporation is organized to engage in any lawful
business not required by the Virginia Stock Corporation Act to be stated in the
Articles of Incorporation.
ARTICLE III
AUTHORIZED SHARES
3.1. Number and Designation. The number of shares the Corporation is
authorized to issue is set forth below, together with the designation thereof
and the par value per share:
Number of Shares Class Designation Par Value Per Share
---------------- ----------------- -------------------
5,000 Common no par value
3.2 Preemptive Rights. No holder of outstanding shares shall have any
preemptive right with respect to: (a) any shares of any class of the
Corporation, whether now or hereafter authorized; (b) any warrants, rights or
options to purchase any such shares; or (c) any obligations convertible into any
such shares or into warrants, rights or options to purchase any such shares.
3.3 Voting and Distributions. The holders of the Common Shares shall
have unlimited voting rights and shall be entitled to receive the net assets of
the Corporation upon the liquidation of the Corporation, its dissolution or the
winding up of its affairs.
<PAGE>
ARTICLE IV
INITIAL REGISTERED OFFICE AND AGENT
4.1 Initial Registered Office. The initial registered office of the
Corporation is located in the City of Richmond, Virginia, at the following
address:
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
4.2 Initial Registered Agent. The initial registered agent of the
Corporation is Martin B. Richards, Esquire, whose business office is identical
with the initial registered office and who is a resident of Virginia and a
member of the Virginia State Bar.
ARTICLE V
LIMIT ON LIABILITY AND INDEMNIFICATION
5.1 Limit on Liability. To the maximum extent that the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits elimination of, or limitations upon, the liability of a director or
officer of a corporation, the directors and officers of the Corporation shall
have, as applicable, no liability or limited liability to the Corporation or its
shareholders.
5.2 Indemnification of Directors and Officers. The Corporation shall
indemnify any individual who is, was or is threatened to be made a party to a
civil, criminal, administrative, investigative or other proceeding (including a
proceeding by or in the right of the Corporation or by or on behalf of its
shareholders) because such individual is or was a director or officer of the
disreCorporation or of any legal entity controlled by the Corporation, or is or
was a fiduciary of any employee benefit plan established at the direction of the
Corporation, against all liabilities and reasonable expenses incurred by such
individual with respect to such proceeding, so long as the directors of the
Corporation (excluding such individual) determine in good faith that the alleged
conduct giving rise to a claim for such indemnification was in the best
interests of the Corporation and was not the result of willful misconduct, bad
faith, reckless disregard of duties,
<PAGE>
or knowing violation of criminal law. Indemnification shall not be provided
until a determination has been made by the Corporation that the individual
seeking indemnification is eligible for indemnification and has met the standard
of conduct set forth above. Such determination shall be made in the manner
provided by Virginia law for determining that indemnification of a director is
permissible, unless a majority of the directors of the Corporation has changed
after the date of the alleged conduct giving rise to the claim for
indemnification, in which case the determination, at the option of the
individual claiming indemnification, shall be made by special legal counsel
agreed upon by the Board of Directors and such individual. Unless a
determination has been made that indemnification is not permissible, the
Corporation shall make advances and reimbursements for expenses incurred by a
director or officer in a proceeding describe above upon receipt of a written
undertaking from such director or officer to repay the same if it is ultimately
determined that such director or officer is not entitled to indemnification. The
Corporation is authorized to contract in advance to provide the indemnification
described in this Section 5.2.
5.3 Miscellaneous. The rights of each person or entity entitled to
indemnification under this Article shall inure the benefit of the heirs,
executors, administrators, successors or assigns thereof. Indemnification
pursuant to this Article shall not be exclusive of any other right of
indemnification to which any person or entity may be entitled, including
indemnification pursuant to a valid contract, indemnification by legal entities
other than the Corporation and indemnification under policies of insurance
purchased and maintained by the Corporation or others. However, no person or
entity shall be entitled to indemnification from the Corporation to the extent
such person or entity is indemnified by another person or entity, including,
without limitation, an insurer.
5.4 Amendments. No amendment, modification or repeal of this Article
shall diminish the rights provided hereunder to any person arising from conduct
or events occurring before the adoption of such amendment, modification or
repeal.
Dated: August 24, 1999 By: /s/ Martin B. Richards
------------------------
Martin B. Richards, Incorporator
EXHIBIT 10.22
<PAGE>
APPLE SUITES GENERAL, INC.
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 PLACE AND TIME OF MEETINGS. Meetings of shareholders shall be held at such
place, either within or without the Commonwealth of Virginia, and at such time
as may be provided in the notice of the meeting and approved by the President or
the Board of Directors.
(A) ANNUAL MEETING. The annual meeting of shareholders shall be held on
the first Monday in April of each year or on such date as may be designated by
resolution of the Board of Directors from time to time for the purpose of
electing directors and conducting such other business as may properly come
before the meeting.
(B) SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President or the board of Directors and shall be called by the
Secretary upon demand of shareholders as required by law. Only business within
the purpose or purposes described in the notice for a special meeting of
shareholders may be conducted at the meeting.
(C) RECORD DATES. The record date for determining shareholders entitled
to demand a special meeting is the date the first shareholder signs the demand
that the meeting be held.
Except as is provided in the preceding paragraph, the Board of
directors may fix, in advance, a record date to make a determination of
shareholders for any purpose, such date to be not more than seventy (70) days
before the meeting or action requiring a determination of shareholders. If no
such record date is set, then the record date shall be the close of business on
the date before the date on which the first notice is given.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made, such determination shall be
effective for any adjournment of the meeting unless the Board of directors fixes
a new record date, which it shall do if the meeting is adjourned to a date more
than one hundred twenty (120) days after the date fixed for the original
meeting.
1.2 NOTICE OF MEETINGS. Written notice stating the place, day and hour of each
meeting of shareholders and, in case of a special meeting, the purpose or
purposes for which the meeting is called shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting (except when a
different time is required in these Bylaws or by law) either personally or by
mail, telephone, telegraph, teletype or other form of wire or wireless
communication, or by
<PAGE>
private courier to each shareholder of record entitled to vote at such meeting.
If mailed, such notice shall be deemed to be effective when deposited in first
class United States mail with postage thereon prepaid and addressed tot he
shareholder at his address as it appears on the share transfer books of the
Corporation. If given in any other manner, such notice shall be deemed to be
effective (i) when given personally or by telephone, (ii) when sent by facsimile
or other form of wire or wireless communication or (iii) when given to a private
courier to be delivered.
If a meeting is adjourned to a different date, time or place, notice
need not be given if the new date, time or place is announced at the meeting
before adjournment. However, if a new record date for an adjourned meeting is
fixed, notice of the adjourned meeting shall be given to shareholders as of the
new record date unless a court provides otherwise.
1.3 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A shareholder my waive any notice
required by law, the Articles of Incorporation or these Bylaws or after the date
and time of the meeting that is the subject of such notice. The waiver shall be
in writing, be signed by the shareholder entitled to the notice and be delivered
to the Secretary for inclusion in the minutes or filing with the corporate
records.
A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting unless the shareholder, at the
beginning of the meeting, objects to holding the meeting or transacting business
at the meeting and (ii) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice unless the shareholder objects to considering the matter when it
is presented.
1.4 QUORUM AND VOTING REQUIREMENTS. Unless otherwise required by law, a majority
of the votes entitled to be cast on a matter constitutes a quorum for action on
that matter. Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or shall be set for that
adjourned meeting. If a quorum exists, action on a matter, other than the
election of directors, is approved if the votes cast favoring the action exceed
the votes cast opposing the action unless a greater number of affirmative votes
is required by law. Directors shall be elected by a plurality of the votes cast
by the shares entitled to vote in the election at a meeting at which a quorum is
present. Less than a quorum may adjourn a meeting.
1.5 ACTION WITHOUT MEETING. Action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting and without action by
the Board of Directors if the action is taken by all the shareholders entitled
to vote on the action. The action shall be
<PAGE>
evidenced by one or more written consents describing the action taken, signed by
all the shareholders entitled to vote on the action and delivered to the
Secretary for inclusion in the minutes or filing with the corporate records.
Action taken by unanimous consent shall be effective according to its terms when
all consents are in the possession of the Corporation unless the consent
specifies a different effective date, in which event the action taken shall be
effective as of the date specified therein provided that the consent states the
date of execution by each shareholder. A shareholder may withdraw a consent only
by delivering a written notice of withdrawal to the Corporation prior to the
time that all consents are in the possession of the Corporation.
If not otherwise fixed pursuant to the provisions of Section 1.4, the
record date for determining shareholders entitled to take action without a
meeting is the date the first shareholder signs the consent described in the
preceding paragraph.
ARTICLE II
DIRECTORS
2.1 GENERAL POWERS. The Corporation shall have a Board of Directors. All
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 NUMBER, TERM AND ELECTION. The number of directors of the Corporation shall
be no less than one (1) and no more than five (5). This number may be changed
from time to time by amendment to these Bylaws to increase or decreased by
thirty (30) percent or less the number of directors last elected by the
shareholders, but only the shareholders may increase or decrease the number by
more than thirty (30) percent. A decrease in number shall not shorten the term
of any incumbent director. Each director shall hold office until his death,
resignation, retirement or removal or until his successor is elected.
Except as provided in Section 2.3 of this Article, the directors (other
than initial directors) shall be elected by the holders of the common shares at
the annual meeting of shareholders and those persons who receive the greatest
number of votes shall be deemed elected even though they do not receive a
majority of the votes cast. No individual shall be named or elected as a
director without his prior consent.
2.3 REMOVAL; VACANCIES. The shareholders may remove one or more directors with
or
<PAGE>
without cause, if the number of votes cast for such removal constitutes a
majority of the votes entitled to be cast at an election of directors. A
director may be removed by the shareholders only at a meeting called for the
purpose of removing him and the meeting notice must state that the purpose, or
one of the purposes of the meeting, is removal of the director. A vacancy on the
Board of Directors, including a vacancy resulting from the removal of a director
or an increase in the number of directors, may be filled by (i) the
shareholders, (ii) the Board of Directors or (iii) the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors and may, in the case of a resignation that will become effective at a
specified later date, be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs.
2.4 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors,
which shall be considered a regular meeting, shall be held immediately following
each annual meeting of shareholders for the purpose of electing officers and
carrying on such other business as may properly come before the meeting. The
Board of Directors may also adopt a schedule of additional meetings which shall
be considered regular meetings. Regular meetings shall be held at such times and
at such places, within or without the Commonwealth of Virginia, as the President
or the Board of Directors shall designate from time to time. If no place is
designated, regular meetings shall be held at the principal office of the
Corporation.
2.5 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called
by the President or a majority of the directors of the Corporation and shall be
held at such times and at such places, within or without the Commonwealth of
Virginia, as the person or persons calling the meetings shall designate. If no
such place is designated in the notice of a meeting, it shall be held at the
principal office of the Corporation.
2.6 NOTICE OF MEETINGS. No notice need be given of regular meetings of the Board
of Directors. Notices of special meetings of the Board of directors shall be
given to each director in person or delivered to his residence or business
address (or such other place as he may have directed in writing) not less than
twenty-four (24) hours before the meeting by mail, messenger, facsimile, or
other means of written communication or by telephoning such notice to him. Any
such notice shall set forth the time and place of the meeting and state the
purpose for which it is called.
2.7 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A director may waive any notice
required by law, the Articles of Incorporation or these Bylaws before or after
the date and time stated in
<PAGE>
the notice and such waiver shall be equivalent to the giving of such notice.
Except as provided in the next paragraph of this section, the waiver shall be in
writing, signed by the director entitled to the notice and filed with the
minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director, at the beginning of
the meeting promptly upon his arrival, objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
2.8 QUORUM; VOTING. A majority of the number of directors fixed in these Bylaws
shall constitute a quorum for the transaction of business at a meeting of the
Board of Directors. If a quorum is present when a vote is taken, the affirmative
vote of a majority of the directors present is the act of the Board of
Directors. A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken is deemed to
have assented to the action taken unless (i) he objects, at the beginning of the
meeting or promptly upon his arrival, to holding it or transacting specified
business at the meeting or (ii) he votes against or abstains from the action
taken.
2.9 TELEPHONIC MEETINGS. The Board of Directors may permit any or all directors
to participate in a regular or special meeting by or conduct the meeting through
the use of any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
2.10 ACTION WITHOUT MEETING. Action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if the action
is taken by all members of the Board. The action shall e evidenced by one or
more written consents stating the action taken, signed by each director either
before or after the action is taken and included in the minutes or filed with
the corporate records. Action taken under this section shall be effective when
the last director signs the consent unless the consent specified a different
effective date, in which event the action taken is effective as of the date
specified therein, provided the consent states the date of execution by each
director.
2.11 COMPENSATION. The Board of Directors may fix the compensation of directors
and may provide for the payment of all expenses incurred by them in attending
meetings of the Board of Directors.
<PAGE>
ARTICLE III
OFFICERS
3.1 OFFICERS. The officers of the Corporation shall be a President, a Secretary,
and a Treasurer, and, in the discretion of the Board of Directors, one or more
Vice Presidents and such other officers as may be deemed necessary or advisable
to carry on the business of the Corporation. Any two or more offices may be held
by the same person.
3.2 ELECTION; TERM. Officers shall be elected at the annual meeting of the Board
of Directors and may be elected at such other time or times as the Board of
Directors shall determine. They shall hold office, unless removed, until the
next annual meeting of the Board of Directors or until their successors are
elected. Any officer may resign at any time upon written notice to the Board of
Directors and such resignation shall be effective when notice is delivered
unless the notice specifies a later effective date.
3.3 REMOVAL OF OFFICERS. The Board of Directors may remove any officer at any
time, with or without cause.
3.4 DUTIES OF OFFICERS. The President shall be the Chief Executive Officer of
the Corporation. He and the other officers shall have such powers and duties as
generally pertain to their respective offices as well as such powers and duties
as may be delegated to them from time to time by the Board of Directors. The
Chief Executive Officer, if he is present, shall be chairman of all meetings of
the shareholders, the Board of Directors and any committee of which he is a
member.
ARTICLE IV
SHARE CERTIFICATES
4.1 FORM. Shares of the Corporation shall, when fully paid, be evidenced by
certificates containing such information as is required by law and approved by
the Board of Directors. Certificates shall be signed by the President and
Secretary and may (but need not) be sealed with the seal of the Corporation. The
seal of the Corporation and any or all signatures on a share certificate may be
facsimile. If any officer who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer before such
certificate is issued it may be issued by the Corporation with the same effect
as if he were such officer on the date of issue.
<PAGE>
4.2 TRANSFER. The Board of Directors may make rules and regulations concerning
the issue, registration and transfer of certificates representing the shares of
the Corporation. Transfers of shares and of the certificates representing such
shares shall be made upon the books of the Corporation by surrender of the
certificates representing such shares accompanied by written assignments given
by the owners or their attorneys-in fact.
4.3 RESTRICTIONS ON TRANSFER. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted, a restriction is not
enforceable against a person without knowledge of the restriction.
4.4 LOST OR DESTROYED SHARE CERTIFICATES. The Corporation may issue a new share
certificate in the place of any certificate theretofore issued which is alleged
to have been lost or destroyed and may require the owner of such certificate, or
his legal representative, to give the Corporation a bond, with or without
surety, or such other agreement, undertaking or security as the Board of
Directors shall determine is appropriate, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of the issuance of any such new certificate.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 FISCAL YEAR. The fiscal year of the Corporation shall be determined in the
discretion of the Board of Directors, but in the absence of any such
determination it shall be the calendar year.
5.2 AMENDMENTS. These Bylaws may be amended or repealed, and new Bylaws may be
made at any regular or special meeting of the Board of Directors. Bylaws made by
the Board of Directors may be repealed or changed and new Bylaws may be made by
the shareholders, and the shareholders may prescribe that any Bylaw made by them
shall not be altered, amended or repealed by the Board of Directors.
EXHIBIT 10.23
<PAGE>
APPLE SUITES LP, INC.
ARTICLES OF INCORPORATION
ARTICLE I
NAME
1. Name. The name of the Corporation is Apple Suites LP, Inc.
ARTICLE II
PURPOSE
2. Purpose. The Corporation is organized to engage in any lawful
business not required by the Virginia Stock Corporation Act to be stated in the
Articles of Incorporation.
ARTICLE III
AUTHORIZED SHARES
3.1. Number and Designation. The number of shares the Corporation is
authorized to issue is set forth below, together with the designation thereof
and the par value per share:
Number of Shares Class Designation Par Value Per Share
---------------- ----------------- --------------------
5,000 Common no par value
3.2 Preemptive Rights. No holder of outstanding shares shall have any
preemptive right with respect to: (a) any shares of any class of the
Corporation, whether now or hereafter authorized; (b) any warrants, rights or
options to purchase any such shares; or (c) any obligations convertible into any
such shares or into warrants, rights or options to purchase any such shares.
3.3 Voting and Distributions. The holders of the Common Shares shall
have unlimited voting rights and shall be entitled to receive the net assets of
the Corporation upon the liquidation of the Corporation, its dissolution or the
winding up of its affairs.
ARTICLE IV
INITIAL REGISTERED OFFICE AND AGENT
4.1 Initial Registered Office. The initial registered office of the
Corporation is located in the City of Richmond, Virginia, at the following
address:
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
4.2 Initial Registered Agent. The initial registered agent of the
Corporation is Martin B. Richards, Esquire, whose business office is identical
with the initial registered office and who is a resident of Virginia and a
member of the Virginia State Bar.
ARTICLE V
LIMIT ON LIABILITY AND INDEMNIFICATION
5.1 Limit on Liability. To the maximum extent that the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits elimination of, or limitations upon, the liability of a director or
officer of a corporation, the directors and officers of the Corporation shall
have, as applicable, no liability or limited liability to the Corporation or its
shareholders.
5.2 Indemnification of Directors and Officers. The Corporation shall
indemnify any individual who is, was or is threatened to be made a party to a
civil, criminal, administrative, investigative or other proceeding (including a
proceeding by or in the right of the Corporation or by or on behalf of its
shareholders) because such individual is or was a director or officer of the
Corporation or of any legal entity controlled by the Corporation, or is or was a
fiduciary of any employee benefit plan established at the direction of the
Corporation, against all liabilities and reasonable expenses incurred by such
individual with respect to such proceeding, so long as the directors of the
Corporation (excluding such individual) determine in good faith that the alleged
conduct giving rise to a claim for such indemnification was in the best
interests of the Corporation and was not the result of willful misconduct, bad
faith, reckless disregard of duties,
<PAGE>
or knowing violation of criminal law. Indemnification shall not be provided
until a determination has been made by the Corporation that the individual
seeking indemnification is eligible for indemnification and has met the standard
of conduct set forth above. Such determination shall be made in the manner
provided by Virginia law for determining that indemnification of a director is
permissible, unless a majority of the directors of the Corporation has changed
after the date of the alleged conduct giving rise to the claim for
indemnification, in which case the determination, at the option of the
individual claiming indemnification, shall be made by special legal counsel
agreed upon by the Board of Directors and such individual. Unless a
determination has been made that indemnification is not permissible, the
Corporation shall make advances and reimbursements for expenses incurred by a
director or officer in a proceeding describe above upon receipt of a written
undertaking from such director or officer to repay the same if it is ultimately
determined that such director or officer is not entitled to indemnification. The
Corporation is authorized to contract in advance to provide the indemnification
described in this Section 5.2.
5.3 Miscellaneous. The rights of each person or entity entitled to
indemnification under this Article shall inure the benefit of the heirs,
executors, administrators, successors or assigns thereof. Indemnification
pursuant to this Article shall not be exclusive of any other right of
indemnification to which any person or entity may be entitled, including
indemnification pursuant to a valid contract, indemnification by legal entities
other than the Corporation and indemnification under policies of insurance
purchased and maintained by the Corporation or others. However, no person or
entity shall be entitled to indemnification from the Corporation to the extent
such person or entity is indemnified by another person or entity, including,
without limitation, an insurer.
5.4 Amendments. No amendment, modification or repeal of this Article
shall diminish the rights provided hereunder to any person arising from conduct
or events occurring before the adoption of such amendment, modification or
repeal.
Dated: August 24, 1999 By: /s/ Martin B. Richards
------------------------------
Martin B. Richards, Incorporator
EXHIBIT 10.24
<PAGE>
APPLE SUITES LP, INC.
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 PLACE AND TIME OF MEETINGS. Meetings of shareholders shall be held at such
place, either within or without the Commonwealth of Virginia, and at such time
as may be provided in the notice of the meeting and approved by the President or
the Board of Directors.
(A) ANNUAL MEETING. The annual meeting of shareholders shall be held on
the first Monday in April of each year or on such date as may be designated by
resolution of the Board of Directors from time to time for the purpose of
electing directors and conducting such other business as may properly come
before the meeting.
(B) SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President or the board of Directors and shall be called by the
Secretary upon demand of shareholders as required by law. Only business within
the purpose or purposes described in the notice for a special meeting of
shareholders may be conducted at the meeting.
(C) RECORD DATES. The record date for determining shareholders entitled
to demand a special meeting is the date the first shareholder signs the demand
that the meeting be held.
Except as is provided in the preceding paragraph, the Board of
directors may fix, in advance, a record date to make a determination of
shareholders for any purpose, such date to be not more than seventy (70) days
before the meeting or action requiring a determination of shareholders. If no
such record date is set, then the record date shall be the close of business on
the date before the date on which the first notice is given.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made, such determination shall be
effective for any adjournment of the meeting unless the Board of directors fixes
a new record date, which it shall do if the meeting is adjourned to a date more
than one hundred twenty (120) days after the date fixed for the original
meeting.
1.2 NOTICE OF MEETINGS. Written notice stating the place, day and hour of each
meeting of shareholders and, in case of a special meeting, the purpose or
purposes for which the meeting is called shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting (except when a
different time is required in these Bylaws or by law) either personally or by
mail, telephone, telegraph, teletype or other form of wire or wireless
communication, or by
<PAGE>
private courier to each shareholder of record entitled to vote at such meeting.
If mailed, such notice shall be deemed to be effective when deposited in first
class United States mail with postage thereon prepaid and addressed to the
shareholder at his address as it appears on the share transfer books of the
Corporation. If given in any other manner, such notice shall be deemed to be
effective (i) when given personally or by telephone, (ii) when sent by facsimile
or other form of wire or wireless communication or (iii) when given to a private
courier to be delivered.
If a meeting is adjourned to a different date, time or place, notice
need not be given if the new date, time or place is announced at the meeting
before adjournment. However, if a new record date for an adjourned meeting is
fixed, notice of the adjourned meeting shall be given to shareholders as of the
new record date unless a court provides otherwise.
1.3 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A shareholder my waive any notice
required by law, the Articles of Incorporation or these Bylaws or after the date
and time of the meeting that is the subject of such notice. The waiver shall be
in writing, be signed by the shareholder entitled to the notice and be delivered
to the Secretary for inclusion in the minutes or filing with the corporate
records.
A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting unless the shareholder, at the
beginning of the meeting, objects to holding the meeting or transacting business
at the meeting and (ii) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice unless the shareholder objects to considering the matter when it
is presented.
1.4 QUORUM AND VOTING REQUIREMENTS. Unless otherwise required by law, a majority
of the votes entitled to be cast on a matter constitutes a quorum for action on
that matter. Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or shall be set for that
adjourned meeting. If a quorum exists, action on a matter, other than the
election of directors, is approved if the votes cast favoring the action exceed
the votes cast opposing the action unless a greater number of affirmative votes
is required by law. Directors shall be elected by a plurality of the votes cast
by the shares entitled to vote in the election at a meeting at which a quorum is
present. Less than a quorum may adjourn a meeting.
1.5 ACTION WITHOUT MEETING. Action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting and without action by
the Board of Directors if the action is taken by all the shareholders entitled
to vote on the action. The action shall be
<PAGE>
evidenced by one or more written consents describing the action taken, signed by
all the shareholders entitled to vote on the action and delivered to the
Secretary for inclusion in the minutes or filing with the corporate records.
Action taken by unanimous consent shall be effective according to its terms when
all consents are in the possession of the Corporation unless the consent
specifies a different effective date, in which event the action taken shall be
effective as of the date specified therein provided that the consent states the
date of execution by each shareholder. A shareholder may withdraw a consent only
by delivering a written notice of withdrawal to the Corporation prior to the
time that all consents are in the possession of the Corporation.
If not otherwise fixed pursuant to the provisions of Section 1.4, the
record date for determining shareholders entitled to take action without a
meeting is the date the first shareholder signs the consent described in the
preceding paragraph.
ARTICLE II
DIRECTORS
2.1 GENERAL POWERS. The Corporation shall have a Board of Directors. All
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 NUMBER, TERM AND ELECTION. The number of directors of the Corporation shall
be no less than one (1) and no more than five (5). This number may be changed
from time to time by amendment to these Bylaws to increase or decreased by
thirty (30) percent or less the number of directors last elected by the
shareholders, but only the shareholders may increase or decrease the number by
more than thirty (30) percent. A decrease in number shall not shorten the term
of any incumbent director. Each director shall hold office until his death,
resignation, retirement or removal or until his successor is elected.
Except as provided in Section 2.3 of this Article, the directors (other
than initial directors) shall be elected by the holders of the common shares at
the annual meeting of shareholders and those persons who receive the greatest
number of votes shall be deemed elected even though they do not receive a
majority of the votes cast. No individual shall be named or elected as a
director without his prior consent.
2.3 REMOVAL; VACANCIES. The shareholders may remove one or more directors with
or
<PAGE>
without cause, if the number of votes cast for such removal constitutes a
majority of the votes entitled to be cast at an election of directors. A
director may be removed by the shareholders only at a meeting called for the
purpose of removing him and the meeting notice must state that the purpose, or
one of the purposes of the meeting, is removal of the director. A vacancy on the
Board of Directors, including a vacancy resulting from the removal of a director
or an increase in the number of directors, may be filled by (i) the
shareholders, (ii) the Board of Directors or (iii) the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors and may, in the case of a resignation that will become effective at a
specified later date, be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs.
2.4 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors,
which shall be considered a regular meeting, shall be held immediately following
each annual meeting of shareholders for the purpose of electing officers and
carrying on such other business as may properly come before the meeting. The
Board of Directors may also adopt a schedule of additional meetings which shall
be considered regular meetings. Regular meetings shall be held at such times and
at such places, within or without the Commonwealth of Virginia, as the President
or the Board of Directors shall designate from time to time. If no place is
designated, regular meetings shall be held at the principal office of the
Corporation.
2.5 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called
by the President or a majority of the directors of the Corporation and shall be
held at such times and at such places, within or without the Commonwealth of
Virginia, as the person or persons calling the meetings shall designate. If no
such place is designated in the notice of a meeting, it shall be held at the
principal office of the Corporation.
2.6 NOTICE OF MEETINGS. No notice need be given of regular meetings of the Board
of Directors. Notices of special meetings of the Board of directors shall be
given to each director in person or delivered to his residence or business
address (or such other place as he may have directed in writing) not less than
twenty-four (24) hours before the meeting by mail, messenger, facsimile, or
other means of written communication or by telephoning such notice to him. Any
such notice shall set forth the time and place of the meeting and state the
purpose for which it is called.
2.7 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A director may waive any notice
required by law, the Articles of Incorporation or these Bylaws before or after
the date and time stated in
<PAGE>
the notice and such waiver shall be equivalent to the giving of such notice.
Except as provided in the next paragraph of this section, the waiver shall be in
writing, signed by the director entitled to the notice and filed with the
minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director, at the beginning of
the meeting promptly upon his arrival, objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
2.8 QUORUM; VOTING. A majority of the number of directors fixed in these Bylaws
shall constitute a quorum for the transaction of business at a meeting of the
Board of Directors. If a quorum is present when a vote is taken, the affirmative
vote of a majority of the directors present is the act of the Board of
Directors. A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken is deemed to
have assented to the action taken unless (i) he objects, at the beginning of the
meeting or promptly upon his arrival, to holding it or transacting specified
business at the meeting or (ii) he votes against or abstains from the action
taken.
2.9 TELEPHONIC MEETINGS. The Board of Directors may permit any or all directors
to participate in a regular or special meeting by or conduct the meeting through
the use of any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
2.10 ACTION WITHOUT MEETING. Action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if the action
is taken by all members of the Board. The action shall e evidenced by one or
more written consents stating the action taken, signed by each director either
before or after the action is taken and included in the minutes or filed with
the corporate records. Action taken under this section shall be effective when
the last director signs the consent unless the consent specified a different
effective date, in which event the action taken is effective as of the date
specified therein, provided the consent states the date of execution by each
director.
2.11 COMPENSATION. The Board of Directors may fix the compensation of directors
and may provide for the payment of all expenses incurred by them in attending
meetings of the Board of Directors.
<PAGE>
ARTICLE III
OFFICERS
3.1 OFFICERS. The officers of the Corporation shall be a President, a Secretary,
and a Treasurer, and, in the discretion of the Board of Directors, one or more
Vice Presidents and such other officers as may be deemed necessary or advisable
to carry on the business of the Corporation. Any two or more offices may be held
by the same person.
3.2 ELECTION; TERM. Officers shall be elected at the annual meeting of the Board
of Directors and may be elected at such other time or times as the Board of
Directors shall determine. They shall hold office, unless removed, until the
next annual meeting of the Board of Directors or until their successors are
elected. Any officer may resign at any time upon written notice to the Board of
Directors and such resignation shall be effective when notice is delivered
unless the notice specifies a later effective date.
3.3 REMOVAL OF OFFICERS. The Board of Directors may remove any officer at any
time, with or without cause.
3.4 DUTIES OF OFFICERS. The President shall be the Chief Executive Officer of
the Corporation. He and the other officers shall have such powers and duties as
generally pertain to their respective offices as well as such powers and duties
as may be delegated to them from time to time by the Board of Directors. The
Chief Executive Officer, if he is present, shall be chairman of all meetings of
the shareholders, the Board of Directors and any committee of which he is a
member.
ARTICLE IV
SHARE CERTIFICATES
4.1 FORM. Shares of the Corporation shall, when fully paid, be evidenced by
certificates containing such information as is required by law and approved by
the Board of Directors. Certificates shall be signed by the President and
Secretary and may (but need not) be sealed with the seal of the Corporation. The
seal of the Corporation and any or all signatures on a share certificate may be
facsimile. If any officer who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer before such
certificate is issued it may be issued by the Corporation with the same effect
as if he were such officer on the date of issue.
<PAGE>
4.2 TRANSFER. The Board of Directors may make rules and regulations concerning
the issue, registration and transfer of certificates representing the shares of
the Corporation. Transfers of shares and of the certificates representing such
shares shall be made upon the books of the Corporation by surrender of the
certificates representing such shares accompanied by written assignments given
by the owners or their attorneys-in fact.
4.3 RESTRICTIONS ON TRANSFER. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted, a restriction is not
enforceable against a person without knowledge of the restriction.
4.4 LOST OR DESTROYED SHARE CERTIFICATES. The Corporation may issue a new share
certificate in the place of any certificate theretofore issued which is alleged
to have been lost or destroyed and may require the owner of such certificate, or
his legal representative, to give the Corporation a bond, with or without
surety, or such other agreement, undertaking or security as the Board of
Directors shall determine is appropriate, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of the issuance of any such new certificate.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 FISCAL YEAR. The fiscal year of the Corporation shall be determined in the
discretion of the Board of Directors, but in the absence of any such
determination it shall be the calendar year.
5.2 AMENDMENTS. These Bylaws may be amended or repealed, and new Bylaws may be
made at any regular or special meeting of the Board of Directors. Bylaws made by
the Board of Directors may be repealed or changed and new Bylaws may be made by
the shareholders, and the shareholders may prescribe that any Bylaw made by them
shall not be altered, amended or repealed by the Board of Directors.
EXHIBIT 10.25
<PAGE>
CERTIFICATE OF LIMITED PARTNERSHIP
OF
APPLE SUITES REIT LIMITED PARTNERSHIP
This Certificate of Limited Partnership is being filed pursuant to
Section 50-73.11 of the Virginia Revised Uniform Limited Partnership Act (the
"Act") by the general partner of Apple Suites REIT Limited Partnership (the
"Limited Partnership").
1. Name. The name of the Limited Partnership is as follows:
Apple Suites REIT Limited Partnership
2. Addresses.
(a) Records. The following address is the post office address of the
office at which the records required to be maintained by Section 50-73.8 of the
Act are kept:
306 East Main Street
Richmond, Virginia 23219
Such address is located in the City of Richmond, Virginia.
(b) Registered Agent and Office. The registered agent of the Limited
Partnership is Martin B. Richards, Esquire, who is a resident of Virginia and a
member of the Virginia State Bar. The post office address of the registered
agent is c/o McGuire, Woods, Battle & Boothe LLP, One James Center, 901 East
Cary Street, Richmond, Virginia 23219. Such address is located in the City of
Richmond, Virginia.
3. General Partner. The name of the sole general partner of the Limited
Partnership is Apple Suites General, Inc., a Virginia corporation. The post
office address of the general partner is as follows:
306 East Main Street
Richmond, Virginia 23219
4. Latest Date of Dissolution. The latest date upon which the Limited
Partnership is to be dissolved and its affairs wound up is December 31, 2100, or
on such earlier date as may be required by law or by the Limited Partnership
Agreement that governs the Limited Partnership.
<PAGE>
IN WITNESS WHEREOF, the general partner of the Limited Partnership has
executed this Certificate of Limited Partnership on the date of filing, as set
forth below:
Date of Filing: August 30, 1999
General Partner: APPLE SUITES GENERAL, INC.
By: /s/ Stanley J. Olander, Jr.
-----------------------------
Stanley J. Olander, Jr.
Secretary
EXHIBIT 10.26
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
OF
APPLE SUITES REIT LIMITED PARTNERSHIP
This LIMITED PARTNERSHIP AGREEMENT (the "Partnership Agreement") is
made as of August 30, 1999, by and between Apple Suites General, Inc., a
Virginia corporation, the general partner ("General Partner"), and Apple Suites
LP, Inc., a Virginia corporation, the limited partner ("Limited Partner").
INTRODUCTION
A. The General Partner and the Limited Partner (collectively, the
"Partners") have agreed to form a limited partnership (the "Partnership")
pursuant to the provisions of the Virginia Revised Uniform Limited Partnership
Act (the "Act"). The existence of the Partnership shall commence upon the filing
of a certificate of limited partnership with the State Corporation Commission of
Virginia (the "Commission").
B. The rights, duties and obligations of the Partners shall be governed
by the Act except as otherwise provided in this Partnership Agreement. The term
"Person," as used herein, means an individual or an entity.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 NAME. The name of the Partnership is Apple Suites REIT Limited
Partnership. The Partnership may trade or transact business under such other
names as may be selected by the General Partner.
1.2 PURPOSE. The purpose of the Partnership is to acquire, hold,
operate and in all respects act as owner of the hotel property or properties
more specifically described on Exhibit A hereto, and to engage in any and all
activities that are related or incidental thereto, or that are agreed to by the
Partners from time to time. Notwithstanding the foregoing, the Partnership's
activities shall be limited and conducted as necessary to ensure that Apple
Suites, Inc., a Virginia corporation and shareholder of each of the Partners
("Apple Suites REIT"), will qualify at all times as a real estate investment
trust ("REIT") under sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code").
1.3 FILINGS.
(a) The Partnership has filed a certificate of limited
partnership with the Commission pursuant to Section 50-73.11 of the Code of
Virginia (the "Certificate").
(b) The Certificate designates 306 East Main Street, Richmond,
Virginia 23219 as the office where records of the Partnership are kept (the
"Principal Office"). The Certificate designates Martin B. Richards, Esquire, as
the registered agent at the following
<PAGE>
registered office: c/o McGuire, Woods, Battle & Boothe LLP, One James Center,
901 East Cary Street, Richmond, Virginia 23219
ARTICLE II
MANAGEMENT
2.1 THE GENERAL PARTNER. The General Partner shall have the sole and
exclusive right, duty and power to manage the business of the Partnership,
including, without limitation, the right and power to:
(a) acquire, hold, sell, maintain, encumber, improve, develop
or lease the Partnership's property, whether real or personal, and any interest
therein on such terms and conditions as the General Partner deems advisable.
(b) borrow money on behalf of the Partnership, secure any such
borrowings with assets of the Partnership, and repay the same at any time or
from time to time;
(c) establish investment accounts for the Partnership and
deposit and withdraw funds in or from such accounts;
(d) assign, compromise or release any claim of, or debt due
to, the Partnership;
(e) institute and defend actions at law or in equity on behalf
of the Partnership and consent to arbitrate any disputes or controversies of the
Partnership;
(f) engage and retain accountants, lawyers and other
professionals to perform services for the Partnership, and purchase such goods
and other services as may be required to conduct the business of the
Partnership; and
(g) enter into such contracts and perform such other acts as
may be necessary to further the business of the Partnership.
2.2 LIMITATIONS ON POWER AND AUTHORITY. Notwithstanding anything to the
contrary in this Partnership Agreement, the General Partner's rights, authority
and power are subject to and limited by certain provisions of the Bylaws of the
Apple Suites REIT (including, without limitation, Article XIII thereof), and
actions described in such Bylaws may only be undertaken in compliance with such
provisions (including, without limitation, those provisions of Article XIII
relating to consents that are required to be obtained).
<PAGE>
ARTICLE III
LIMITED PARTNERS
3.1 PARTICIPATION IN MANAGEMENT. The Limited Partner shall not
participate in the management or control of the business of the Partnership, and
shall have no power to sign for or bind the Partnership.
ARTICLE IV
CAPITAL; PROFITS AND LOSSES; DISTRIBUTIONS
4.1 CAPITAL CONTRIBUTIONS. Each of the Partners has contributed to the
capital of the Partnership the property set forth on Exhibit B hereto. The
Partners shall not be required to make any additional capital contributions
except as required by law, but the Partners may make such additional
contributions of cash or property as they may mutually agree. No Partner shall
have any right to require the return of all or any part of its capital, or to
receive interest with respect thereto.
4.2 CAPITAL ACCOUNTS. A separate capital account ("Capital Account")
shall be maintained for each Partner. The value of each Capital Account shall be
the sum of the cash contributions to the account, the agreed upon value of
contributions of property to the account and the share of Partnership profits
allocated to the account, less all distributions made from the account and the
share of Partnership losses allocated to the account.
4.3 PROFITS AND LOSSES. The net profits and net losses of the
Partnership for any period (except for the profits and losses upon dissolution)
shall be credited or charged to the Capital Accounts of the Partners in the
percentages set forth on Exhibit B under the heading "Partners Percentages," as
the same may be amended from time to time (the "Partners Percentages").
4.4 DISTRIBUTIONS. Any cash which, in the opinion of the General
Partner, is not reasonably required for the operation of the business of the
Partnership or for Partnership reserves (other than amounts distributed upon
dissolution) shall be distributed to the Partners in accordance with the
Partners Percentages not less frequently than each calendar quarter. Other
distributions of assets may be made form time to time in the same manner.
4.5 REIT DISTRIBUTIONS. Notwithstanding anything to the contrary in
this Agreement, the General Partner shall cause the Partnership to distribute
amounts sufficient to enable the Apple Suites REIT to pay dividends to
shareholders so that the Apple Suites REIT will (a) meet the distribution
requirements for qualification as a REIT as set forth in Section 857(a)(i) of
the Code; and (b) avoid any Federal income or excise tax liability imposed by
the Code.
4.6 LOANS. A loan by a Partner to the Partnership shall not be
considered a capital contribution and shall be repaid as debt of the
Partnership.
<PAGE>
ARTICLE V
INDEMNIFICATION
5.1 REQUIREMENT. The Partnership shall indemnify each Partner, and each
director and officer of a Partner (an "Indemnified Person"), against any and all
liabilities and expenses (including but not limited to reasonable legal fees and
costs) arising directly or indirectly from any action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, and
whether formal or informal, that is brought or threatened against an Indemnified
Person solely because such Indemnified Person served as a Partner or as a
director or officer of a Partner, or served at the request of the Partnership as
a fiduciary for an employee benefit plan or other plan related to the business
of the Partnership. Notwithstanding the foregoing, the Partnership shall not be
required to indemnify a Partner, or a director or officer of a Partner, against
any liabilities or expenses arising from any breach of this Partnership
Agreement, willful misconduct or knowing violation of law.
5.2 RELATED ACTIONS. The Partnership shall promptly make advances or
reimbursements for reasonable expenses (including but not limited to reasonable
legal fees and costs) incurred by a Partner, or a director or officer of a
Partner, claiming indemnification under this Article unless it has been
determined that such Partner, director or officer is not entitled to
indemnification. Advances or reimbursements made prior to such determination
shall be conditioned upon the Partnership's receipt of a written undertaking by
the Partner, director or officer claiming indemnification to repay the amount of
such advances or reimbursements if it is ultimately determined that such
Partner, director or officer is not entitled to indemnification.
ARTICLE VI
EVENTS OF DISSOLUTION
6.1 EVENTS OF DISSOLUTION. The Partnership shall only be dissolved:
(a) upon the election of the General Partner;
(b) at such time as there is no General Partner serving
unless, within ninety (90) days, the Limited Partner consents to continue the
business of the Partnership and appoints one or more General Partners;
(c) upon automatic cancellation of the certificate of limited
partnership for failure to pay annual registration fees, unless steps are taken
promptly to obtain reinstatement; or
(d) by judicial decree.
ARTICLE VII
DISSOLUTION, WINDING UP AND TERMINATION
7.1 GENERAL. Upon dissolution without continuation, the business of the
Partnership shall be wound up by the General Partner or, if there is no General
Partner, by a representative
<PAGE>
designated by the Limited Partner (either of which or whom is hereinafter
referred to as the "Liquidating Representative"). The Liquidating Representative
shall proceed with reasonable promptness to liquidate the business and assets of
the Partnership and may determine whether, and to which Partners, properties
should be distributed in kind. Partnership assets shall be distributed in the
following order:
(a) to creditors of the Partnership, including Partners who
are creditors, in the order of priority provided by law;
(b) to the creation of such reserves for contingencies as the
Liquidating Representative may deem necessary or advisable;
(c) to the Limited Partner to the extent of its contribution
to capital;
(d) to the General Partner to the extent of its contribution
to capital;
(e) to the Partners, General and Limited, according to their
Capital Account balances, after all adjustments.
ARTICLE VIII
MISCELLANEOUS
8.1 BOOKS OF ACCOUNT AND RECORDS. The Partnership shall keep complete
books of account at the Principal Office and such books shall be open to
examination by the Partners, the Apple Suites REIT and the authorized
representatives of each of them during normal business hours. The books shall be
kept on a cash or accrual basis, as determined by the General Partner.
8.2 TAX COMPLIANCE. Notwithstanding anything to the contrary contained
in this Partnership Agreement, all actions taken in the conduct of the business
of the Partnership, or on its dissolution, shall comply with the provisions of
Section 704 of the Code and the Regulations thereunder. The General Partner
shall be the "Tax Matters Partner" required by the Code.
8.3 POWER OF ATTORNEY. The Limited Partner hereby appoints the General
Partner as its attorney-in-fact, or agent, to execute, acknowledge, deliver and
file in its name any document required by law to be filed by the Partnership or
the Limited Partner with any governmental body or agency. Any such appointment
is a special power, coupled with an interest, and shall remain in effect as long
as the Partner granting it has any interest in the Partnership or remains
responsible for any obligations under this Partnership Agreement.
8.4 COUNTERPARTS. This Partnership Agreement may be executed in
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
8.5 AMENDMENTS. This Partnership Agreement may be amended only with the
written consent of the General Partner and the Limited Partner.
<PAGE>
8.6 THIRD PARTIES; SUCCESSORS AND ASSIGNS. The agreements contained
herein are for the benefit of the parties hereto and their permitted successors
and assigns and are not for the benefit of any third parties, such as, without
limitation, creditors of the Partnership.
8.7 HEADINGS. The section headings in this Partnership Agreement are
included for convenience only and shall not affect the interpretation of this
Partnership Agreement.
8.8 INTERPRETATION. This Partnership Agreement is executed and
delivered in the Commonwealth of Virginia and shall be construed and enforced in
accordance with its laws, without regard to any choice of law rules to the
contrary.
WITNESS the following signatures:
General Partner: APPLE SUITES GENERAL, INC.
By: /s/ Stanley J. Olander, Jr.
---------------------------
Stanley J. Olander, Jr.
Secretary
Limited Partner: APPLE SUITES LP, INC.
By: /s/ Stanley J. Olander, Jr.
----------------------------
Stanley J. Olander, Jr.
Secretary
<PAGE>
EXHIBIT A
(Description of Property)
The real and personal property currently known as the Homewood
Suites(R) Dallas - Addison, which is located on a 3.5 acre site at the following
address: 4451 Beltline Road, Addison, Texas 75244.
The real and personal property currently known as the Homewood
Suites(R) Dallas - Irving/Las Colinas, which is located on a 3.4 acre site in
the La Colinas Urban Center at the following address: 4300 Wingren, Irving,
Texas 75039.
The real and personal property currently known as the Homewood
Suites(R) Dallas - Plano, which is located on a 2.667 acre site in the Preston
Park Business Center at the following address: 4705 Old Sheppard Place, Plano,
Texas 75093.
<PAGE>
EXHIBIT B
(Capital Contributions)
<TABLE>
<CAPTION>
Name and Capital Partners
Business Address Contributions Percentages
---------------- ------------- -------------
<S> <C> <C> <C>
GENERAL PARTNER: Apple Suites General, Inc. $1.00 1%
306 East Main Street
Richmond, Virginia 23219
LIMITED PARTNER: Apple Suites LP, Inc. $99.00 99%
306 East Main Street
Richmond, Virginia 23219
</TABLE>
EXHIBIT 24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
L.P. MARTIN & COMPANY
A PROFESSIONAL CORPORATION
MEMBERS CERTIFIED PUBLIC ACCOUNTANTS MEMBERS
VIRGINIA SOCIETY OF 4132 INNSLAKE DRIVE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS GLEN ALLEN, VIRGINIA 23060 CERTIFIED PUBLIC ACCOUNTANTS
LEE P. MARTIN, JR., C.P.A. PHONE: (804) 346-2626 ROBERT C. JOHNSON, C.P.A.
WILLIAM L. GRAHAM, C.P.A. FAX: (804) 346-9311 LEE P. MARTIN, C.P.A. (1948-76)
BERNARD G. KINZIE, C.P.A.
W. BARCLAY BRADSHAW, C.P.A.
</TABLE>
Consent of Independent Auditors
The Board of Directors
Apple Suites, Inc.
Richmond, Virginia
We consent to the use of our report dated August 23, 1999 with respect
to the combined balance sheets of the Homewood Suites Acquisition Hotels as of
December 31, 1998 and 1997 and the related combined statements of income,
shareholders' equity and cash flows for the years then ended, for inclusion in a
form 8-K filing with the Securities and Exchange Commission by Apple Suites,
Inc.
Richmond, Virginia /s/ L. P. Martin & Co., P.C.
September 29, 1999
