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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES AND EXCHANGE ACT of 1934
Date of Report (Date of Earliest Event Reported) July 3, 1997
INNKEEPERS USA TRUST
(Exact name of registrant as specified in its charter)
Maryland 0-24568 65-0503831
(State or other jurisdiction (Commission File No.) I.R.S. Employer
of incorporation) (Identification No.)
306 Royal Poinciana Way
Palm Beach, Florida 33480
(Address of principal executive offices)
(561) 835-1800
(Registrant's telephone number, including area code)
N/A
(former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 3, 1997, Partnership subsidiaries ("the Acquiring Partnerships") of
Innkeepers USA Limited Partnership, a Virginia limited partnership
(collectively with its subsidiary partnerships, the "Partnership"), of which
Innkeepers Financial Corporation, a wholly owned subsidiary of Innkeepers USA
Trust (the "Registrant" or the "Company"), serves as sole general partner,
consummated the acquisitions of nine (9) hotels from affiliates (the
"Summerfield Contributing Partnerships") of Summerfield Hotel Corporation
("Summerfield"). The hotels consist of six Summerfield Suites(R) hotels, one
Sunrise Suites(R) hotel and two Sierra Suites(SM) hotels containing an
aggregate of 1,057 suites with a total of 1,355 bedrooms in California (3), New
Jersey (2), Texas (2), Arizona (1), and Georgia (1) the ("Summerfield
Acquisition Hotels"). The Partnership acquired the Summerfield Acquisition
Hotels for contribution consideration aggregating approximately $118.6 million,
which was paid (i) through the issuance of 1,937,947 common units of limited
partnership interest ("Units") in the Partnership (the "Summerfield Units"), in
exchange for substantially all of the equity interests of the Summerfield
affiliates in the hotels (approximately $29.1 million), and (ii) approximately
$89.5 million in cash. In addition, the Partnership may issue to the
Summerfield Contributing Partnerships additional contribution consideration in
the form of up to a maximum of approximately 133,333 additional Units if
the Acquiring Partnerships' return on investment from such hotels exceed
specified amounts for the twelve-month period ended June 30, 1998.
The Company funded the cash portion of the purchase price for the Summerfield
Acquisition Hotels from the proceeds of a loan with a term of one year
(excluding extension options) from an affiliate of Lehman Brothers (the
"Acquisition Loan"). The Acquisition Loan bears an adjustable interest rate of
30-day LIBOR plus 175 basis points per annum and is secured by first mortgages
on each of the Summerfield Acquisition Hotels.
Summerfield Suites hotels are upscale, all-suite, extended-stay hotels designed
to appeal to business travelers who stay at a hotel for five or more
consecutive room nights primarily as a result of relocations, consulting work,
corporate training and project assignments. Sierra Suites hotels are
mid-priced extended stay hotels designed to appeal to business travelers.
Summerfield Suites hotels are designed to target corporate business travelers
through the availability of meeting rooms and a level of finish in guest rooms
and public areas which is similar to full service hotels. The prototype
Summerfield Suites hotel features high quality construction and contains
approximately 51 two-bedroom, two-bath suites and approximately 77
one-bedroom, one-bath suites. The Company believes that the design of the
Summerfield Suites hotel addresses the needs of extended-stay guests by
providing separate living and sleeping areas, full kitchens, enhanced work
areas, a complimentary breakfast and an evening social hour. Each bedroom in a
Summerfield Suites hotel has a separate bathroom and is equipped with separate
phone lines and cable and on-request television, and, with respect to
two-bedroom suites, billing is available for each bedroom separately. The
first Summerfield Suites hotel opened in 1989. According to Summerfield,
currently there are 26 Summerfield Suites hotels located in 12 states with an
additional five hotels under construction and eight hotels in pre-construction
planning. The first Sierra Suites hotel was opened in July 1996.
The Summerfield Acquisition Hotels are leased by the Partnership to an
affiliate of Summerfield (the "Summerfield Lessee"), pursuant to percentage
leases (the "Summerfield Leases") which provide for rent equal to the greater
of (i) fixed base rent ("Base Rent"), or (ii) percentage rent based on room
revenues of the hotel ("Percentage Rent"). An affiliate of Summerfield (the
"Summerfield Manager") will enter into separate franchise agreements and
management agreements (the "Summerfield Management Agreements") with the
Summerfield Lessee with respect to the Summerfield Acquisition Hotels. The
Summerfield Acquisition Hotels will continue to be operated as hotel
properties. The Summerfield Lessee is a newly formed affiliate of Summerfield.
Rolf E. Ruhfus, who was appointed to the Board of Trustees of the Company in
connection with the acquisitions, is Chairman of Summerfield and a principal
equity owner of the Summerfield Lessee (and the Summerfield Manager). The
Summerfield Lessee has agreed with the Company not to engage in any business
other than leasing hotels owned by the Company.
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Certain Terms of Summerfield Percentage Leases
Term. The initial term of the Summerfield Leases is 15 years. The Summerfield
Leases provide for up to two consecutive seven and one-half year renewal term
options, which the Summerfield Lessee can exercise by providing notice to the
Company at least two years before the end of the then-current term or renewal
term. The terms of the Summerfield Leases during any renewal terms are
expected to be substantially the same as the terms applicable during the
initial term of the Summerfield Leases, other than the rent provisions. The
rent provisions of each Summerfield Lease for a renewal term will be reset as
the parties may agree at the time of the renewal or, if the parties cannot
agree, by an independent third party.
Rent. The Summerfield Leasee has agreed that for the remainder of 1997 and for
1998, the Base Rent payable for the six Summerfield Suites and the Sunrise
Suites hotel shall be an amount equal to the Percentage Rent that would be
payable under the formulas set forth in the applicable Summerfield Leases if
such respective hotels achieved the room revenues budgeted for such periods.
In 1999 and subsequent years, Base Rent for these hotels shall be reduced from
the levels applicable in 1997 and 1998, but the Percentage Rent formula will
remain the same (subject to certain adjustments based on increases in the CPI).
In addition, during the remainder of 1997 and 1998, the Base Rent payable for
five of the Summerfield Acquisition Hotels, excluding the Summerfield Suites -
West Hollywood, California, the Sunrise Suites - Tinton Falls, New Jersey and
the two Sierra Suites hotels, shall be the aggregate of the Base Rent amounts
set forth in the Summerfield Leases for such five hotels for the period on a
consolidated basis, to the effect that any rent paid in excess of Base Rent for
any of these five hotels shall be credited to the aggregate Base Rent payable
for any or all of the other hotels in the group. See "Information Concerning
the Hotels" below.
FF&E Set-Asides. Under the Summerfield Leases, the Acquiring Partnerships'
obligations to pay hotel-level expenses are limited to real estate and
personal property taxes and to making available for the repair and replacement
of furniture, fixtures and equipment and for other capital expenditures an
amount equal to 4% of room revenues annually (the "Set- Aside"). The
Summerfield Lessee generally is responsible for all other costs and expenses,
including capital expenditures, in excess of the Set-Aside. The
Summerfield Lessee is obligated to maintain the Summerfield Acquisition Hotels
in good order and repair and comply with the franchise licenses ("Franchise
Licenses") applicable to such hotels (other than the Sunrise Suites, which is
not subject to a franchise license). The Acquiring Partnerships are required
to make the Set-Asides available to the Summerfield Lessee when and as deemed
necessary by the Summerfield Lessee, but the Summerfield Lessee may spend
Set-Aside amounts only on items appearing on a capital budget, which is
required to be prepared each year and approved by the Acquiring Partnerships.
The Summerfield Lessee is required to make capital expenditures in excess of
the Set-Aside to the extent required to maintain the Franchise Licenses and as
required by law.
Assignment and Subleasing. The Summerfield Lessee and the Summerfield Manager
have each agreed that they will not merge or transfer all of their assets (a
"Transfer") without the Partnership's prior written consent, which consent will
not be withheld if the transfer includes all of the Summerfield Leases,
Summerfield Management Agreements, or Franchise Licenses, as the case may be,
and the transferee (i) is an established hotel management company having a good
reputation in the industry, (ii) is operating or franchising at least 50 hotels
with not less than 7,500 rooms, (iii) in the case of the Summerfield Lessee or
Summerfield Manager, hires substantially all of the hotel-level personnel,
regional managers and corporate sales staff of the Summerfield Lessee or the
Summerfield Manager, as the case may be, and (iv) has a net worth of not less
than $25 million.
Events of Default. The failure of the Summerfield Lessee to pay any of the
Base Rent, Percentage Rent or any additional charges when due under any
Summerfield Lease will constitute an event of default under each other
Summerfield Lease. In addition, a default by the Summerfield Lessee under the
lease master agreement between the Acquiring Partnerships, the Partnership and
the Summerfield Lessee (as described below, the "Lease Master Agreement") will
constitute an event of default under each Summerfield Lease. Each Summerfield
Lease also contains non-monetary default provisions, which if invoked under any
Percentage Lease will not constitute an event of default under any other
Summerfield Leases.
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Termination of Percentage Leases. Subject to cure rights by the Summerfield
Lessee, the Acquisition Partnerships may be entitled to terminate the
Summerfield Lease for a Summerfield Acquisition Hotel if the Summerfield Lessee
fails to achieve certain operating results (revenues, gross operating
percentage or RevPAR) in a year as compared to the budget for the then-current
year (and, in some cases, one or more past years) or operating results for the
past year. If the Acquisition Partnerships terminate a Summerfield Lease for
failure to achieve such operating results, the Summerfield Lessee will be not
be liable for any rent or other damages after the date of such termination. An
Acquisition Partnership also may terminate a Summerfield Lease upon the
Acquisition Partnership's sale of the relevant Summerfield Acquisition Hotel if
the Acquisition Partnership either (i) offers to lease to the Summerfield
Lessee, and the Summerfield Lessee agrees to lease, one or more substitute
hotels pursuant to a lease which provides the Summerfield Lessee with a
leasehold interest having a fair-market value at least equal to the fair market
value of the remaining term of the Summerfield Lease being terminated or (ii)
pays the Summerfield Lessee a termination fee based on the net present value of
the Summerfield Lessee's leasehold interest in the Summerfield Lease being
terminated.
Right of First Offer for Summerfield Lessee. Before selling any Summerfield
Acquisition Hotel leased to the Summerfield Lessee, the Acquisition Partnership
must first notify the Summerfield Lessee, and, if desired by the Summerfield
Lessee, for a period of 40 days attempt to negotiate the terms of a sale of the
hotel to the Summerfield Lessee prior to offering the Summerfield Acqusition
Hotel for sale to any other party. Notwithstanding the foregoing, the
Summerfield Lessee has no rights of first offer if the contemplated sale
includes 10 or more hotels leased by the Summerfield Lessee or if the
Summerfield Lessee is in default under the Summerfield Leases.
Summerfield Franchise Licenses. The Summerfield Manager is the franchisor of
Summerfield Suites and Sierra Suites brands (The "Summerfield Control Brands").
The Summerfield Lessee is the licensee under the Franchise Licenses on the
Acquisition Hotels (other than the Sunrise Suites hotel in Tinton Falls, New
Jersey, which is not part of a chain or subject to a Summerfield Franchise
License). Upon the occurrence of certain events of default by the Summerfield
Lessee under a Franchise License, the Summerfield Manager has agreed to
transfer the Franchise License for the hotel to a designee of the Partnership
reasonably acceptable to the Summerfield Manager, without fee or cost.
Summerfield Management Agreements. The Summerfield Leases provide that any
management agreement entered into by the Summerfield Lessee with respect to the
management of a Summerfield Acquisition Hotel (i) is subject to the reasonable
approval of the Partnership and (ii) must provide that (a) any fees payable
thereunder are subordinated to rent payments under the Summerfield Leases and
(b) the management agreement terminates upon any termination of the related
Summerfield Lease, without fee or cost to the Partnership. The Summerfield
Management Agreements contain such provisions.
Redemption and Registration Rights
After the expiration of the "lock-up" periods described herein, the holders of
each Summerfield Unit may elect to cause the Partnership to redeem each
Summerfield Unit. In such event, the Partnership (or the Registrant) may elect
to redeem such Summerfield Unit for one Common Share or, at the election of the
Registrant, cash in an amount equal to the value of one Common Share, based on
then-recent trading prices for the Common Shares. 75% of the Summerfield Units
held directly or indirectly by Rolf E. Ruhfus and B. Anthony Isaac, President
of Summerfield and a principal equity owner of the Summerfield Lessee (and
Summerfield Manager), or their affiliates generally may not be redeemed before
June 20, 1999. The other Summerfield Units generally may not be redeemed
before June 20, 1998. The Registrant has agreed to file on or before June 20,
1998 one or more shelf registration statements covering the Common Shares
issuable upon redemption of the Summerfield Units (the "Summerfield Redemption
Shares") which become redeemable on June 20, 1998, and to file on or before
June 20, 1999 one or more shelf registration statements covering the
Summerfield Redemption Shares which become redeemable on June 20, 1999. The
Company has also granted the holders of the Summerfield Units the right,
beginning June 20, 1998, to cause the Company to effect two registration
statements with respect to underwritten offerings of the Summerfield Redemption
Shares, subject to certain customary limitations (primarily blackout periods
when the Company is seeking to undertake a public
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offering of its securities). In addition, the holders of the Summerfield Units
will have the right, beginning June 20, 1998, to include the Summerfield
redemption Shares in certain registration statements filed by the Company with
respect to underwritten public offerings of Common Shares, subject to customary
approvals and rights of the Company's underwriters.
Agreement on Franchise Matters
The Partnership has entered into an agreement with the Summerfield Manager, the
owner of the Summerfield Controlled Brands providing, among other things, that
(i) the Summerfield Lessee and the Summerfield Manager cannot amend, modify or
terminate the Summerfield Management Agreements without the consent of the
Partnership; (ii) if and for so long as the Partnership or its affiliates owns
at least 10% of the hotels operating under the Summerfield Controlled Brands,
the Partnership will be entitled to have one designee as a member of the
Summerfield marketing association board and franchisee association boards;
(iii) if the Partnership or its affiliates own at least 75% of the hotels
operating under the Summerfield Controlled Brands, the Summerfield Manager will
not make any material changes to the Summerfield Controlled Brands without the
Partnership's consent; (iv) the Summerfield Manager will enforce requirements
on the Summerfield Lessee to complete certain agreed upon regularly scheduled
improvements to the Summerfield Acquisition Hotels; (v) the Summerfield Manager
will not develop, own, lease, operate, manage, franchise or have any interest
in any Summerfield Suites hotel or Sierra Suites hotel within a five mile
radius of any Summerfield Suites hotel or Sierra Suites hotel, respectively,
owned by the Partnership or its affiliates; (vi) during the term of the
Franchise Licenses, the Partnership shall have a right of first offer to
acquire from the Summerfield Manager any hotel acquired or developed by the
Summerfield Manager or its affiliates within a five mile radius of any
Summerfield Suites or Sierra Suites hotel owned by the Partnership or its
affiliates; and (vii) the Partnership shall have the right, but not the
obligation, to cure defaults by the Summerfield Lessee under any Franchise
Licenses.
The Lease Master Agreement
The Lease Master Agreement provides, among other things, that during the terms
of the Summerfield Leases (i) the Summerfield Lessee shall maintain a minimum
net worth of at least approximately $2.5 million in 1997 and, for any year
thereafter, 17.5% of the aggregate annual rent budgeted to be paid under the
Summerfield Leases by the Summerfield Lessee for such year (but not to exceed
$5 million); (ii) the Summerfield Lessee shall maintain a ratio of debt to net
worth of less than 50%; (iii) the Summerfield Lessee shall pledge 84,667 Units
as collateral for the Summerfield Lessee's performance under the Summerfield
Leases (subject to release after expiration of a three year period if the
Summerfield Lessee has not defaulted in the payment of rent under the
Summerfield Percentage Leases); (iv) the Summerfield Lessee will not develop,
build, own, lease, operate, manage, franchise or have any interest in a
Summerfield Suites hotel or Sierra Suites hotel that is located within a five
mile radius of any Summerfield Suites hotel or Sierra Suites hotel,
respectively, owned by the Partnership; (v) for so long as (A) there are 25 or
fewer Sierra Suites hotels open and operating or (B) an Acquisition Partnership
has not received an annual return of 12% on its investment in its Sierra Suites
hotels, if the Summerfield Manager sells the Sierra Suites brand to a third
party and such party proposes to change the trade name "Sierra Suites" or if a
Transfer (defined in "Certain Terms of Summerfield Percentage Leases -
Assignment and Subleasing" above) occurs, the Partnership may terminate the
Summerfield Leases for the Sierra Suites hotels then-owned by the Acquisition
Partnerships without fee or penalty; (vi) if the Partnership elects to
terminate the Summerfield Leases as described in (v) above, the Summerfield
Lessee will have the right to purchase all but not less than all the Sierra
Suites hotels from the Company for a price per hotel equal to the greater of
(A) an amount equal to the budgeted operating income for the hotel (before rent
payments under the Summerfield Leases and after an assumed 3% management fee)
for the twelve month period following the purchase and sale, divided by 0.12,
or (B) the Acquisition Partnerships' cumulative investment in the hotel, plus a
12% annual return on such investment; and (vii) the Summerfield Lessee will not
engage in any business other than leasing hotels owned by the Partnership.
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Rights With respect to Future Hotel Development by Summerfield
The Company and Summerfield entered into an agreement in principle pursuant to
which the Company has a right of first refusal to acquire or own any all-suite
hotel development project (a "Development Hotel") undertaken by Summerfield
through June 2002, other than certain hotels currently in development and an
additional two development projects per year selected by Summerfield, with
respect to which the Company has no rights. The right of first refusal will
terminate earlier upon the occurrence of certain events, including the
Company's failure to accept 10 consecutive development projects offered by
Summerfield or the sale of all or substantially all of the Summerfield Lessee's
assets or ownership interests. The Company's cost for a Development Hotel
shall be no greater than Summerfield's development budget for the Development
Hotel plus a specified development fee. The Company will lease any Development
Hotel that it acquires to the Summerfield Lessee, pursuant to a percentage
lease substantially similar to the Summerfield Leases and providing for an
additional payment to the Summerfield Lessee equal to a specified percentage of
any increase in value of the Development Hotel over the Company's cost,
measured at the second (for Sierra Suites hotels) or third (for Summerfield
Suites hotels) anniversary of the opening of the Development Hotel. If a
Development Hotel is acquired from Summerfield upon completion of construction,
the Company shall close on the acquisition generally upon issuance of a
certificate of occupancy and the satisfaction of customary closing conditions.
If the Company commits to a Development Hotel project, the Company expects to
provide credit enhancement or a refinancing or repayment commitment to
Summerfield's construction lender, or to provide construction funding directly.
Until definitive agreements are executed, the Company has no obligation with
respect to any Development Hotel, and there are no assurances that the Company
will acquire or own any Development Hotel.
Summerfield Suites - West Hollywood, California
This property formerly was an apartment/hotel. In obtaining land use approvals
for the hotel, the former owners agreed, among other things, that nine apartment
residents in the hotel would be permitted to continue residing in the building
under their existing, rent-controlled apartment leases. The owners also agreed
to conduct business in a manner consistent with the surrounding property uses
(primarily residential); specifically, among other things, refuse pick-up and
deliveries are prohibited during certain night-time hours, free on-site parking
must be provided to hotel employees, functions must be limited to 25 people and
at night must be held indoors, limits are placed on the manner and timing of
(a) unloading guests in front of the hotel, (b) service of food and alcohol and
(c) use of outdoor patio and roof-top deck, and reasonable measures must be
taken to assure that noise and odors from the kitchen do not disturb neighbors.
The municipality also imposed a fee for occupancy taxes that were then-past due
and for the loss of apartment rental units at the building. The approximately
$60,000 annual fee is payable through 2009. Under the Summerfield Lease
applicable to the hotel, the Summerfield Lessee is responsible for making the
payment to the municipality. If the fee is not paid, the municipality may have
the right to revert the building from its currently authorized use mix, which
includes nine apartment units and the balance permitted for hotel use, to a
50/71 apartment/hotel mix, with the reverted apartment units possibly subject
to any then-applicable rent control provisions. Any such reversion would have
a material adverse affect on the revenues at the hotel, the lease payment
payable by the Summerfield Lessee and, therefore, the Registrant's cash
available for distributions.
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The following contains certain information concerning each of the Summerfield
Acquisition Hotels:
INFORMATION CONCERNING THE HOTELS
<TABLE>
<CAPTION>
PERCENTAGE RENT CALCULATION (1)
-------------------------------
GUEST YEAR BASE BREAK FIRST SECOND
HOTEL/LOCATION ROOMS OPENED RENT (2) POINT (3) TIER TIER
- -------------- ----- ------ -------- --------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Upscale Extended-Stay
Summerfield Suites
Belmont, CA (4)(5) 132(12) 1995 $ 2,546,000 $2,121,000 30.00% 68.00%
Summerfield Suites
El Segundo, CA (4)(6) 122(12) 1995 1,725,000 2,229,000 30.00% 68.00%
Summerfield Suites
West Hollywood, CA (7) 109 1993 1,811,000 2,382,000 30.00% 68.00%
Summerfield Suites
Mount Laurel, NJ (4)(8) 116(12) 1996 1,540,000 2,518,000 30.00% 68.00%
Summerfield Suites
Addison, TX (4)(9) 132(12) 1996 1,848,000 2,512,000 30.00% 68.00%
Summerfield Suites
Irving (Las Colinas), TX (4)(10) 148(12) 1996 2,422,000 2,514,000 30.00% 68.00%
Sunrise Suites
Eatontown (Tinton Falls),
NJ(11) 96 1993 738,000 2,333,000 30.00% 68.00%
Mid-Priced Extended-Stay
Sierra Suites
Phoenix (Camelback), AZ 113 1997 576,080 897,000 30.00% 70.00%
Sierra Suites
Atlanta (Cumberland), GA 89 1996 401,760 759,000 30.00% 70.00%
----- -----------
1,057 13,607,840
===== ===========
</TABLE>
(1) Percentage Rent is an amount equal to the first tier percentage of all
room revenues up to the Break Point plus an amount equal to the second
tier percentage of all room revenues in excess of the Break Point.
(2) Represents annualized Base Rent for the remainder of 1997. Increased
by the last year's CPI increase each year beginning in 2000, except
that Base Rent for the two Sierra Suites hotels shall be increased
by the last year's CPI increase each year beginning in 1998.
(3) Increased by the last year's CPI increase each year beginning in 1998.
(4) The Rent payable for these five hotels shall be aggregated, as
described hereafter. If the Rent payable at any, but less than all,
of such hotels exceeds the aggregate amount of Base Rent payable for
such hotels, such excess shall be credited to the aggregate amount of
Base Rent payable for any or all of the other hotels in the group.
(5) Base Rent for this Hotel is $2,706,000 for 1998 and $1,734,400 for
1999 and thereafter, subject to annual CPI adjustment as noted in (2)
above.
(6) Base Rent for this Hotel is $1,894,000 for 1998 and $1,203,360 for
1999 and thereafter, subject to annual CPI adjustment as noted in (2)
above.
(7) Base Rent for this Hotel is $1,933,000 for 1998 and $1,228,640 for
1999 and thereafter, subject to annual CPI adjustment as noted in (2)
above.
(8) Base Rent for this Hotel is $1,649,000 for 1998 and $1,043,840 for
1999 and thereafter, subject to annual CPI adjustment as noted in (2)
above.
(9) Base Rent for this Hotel is $1,974,000 for 1998 and $1,205,840 for
1999 and thereafter, subject to annual CPI adjustment as noted in (2)
above.
(10) Base Rent for this Hotel is $2,579,000 for 1998 and $1,609,360 for
1999 and thereafter, subject to annual CPI adjustment as noted in (2)
above.
(11) Base Rent for this Hotel is $800,000 for 1998 and $482,880 for 1999
and thereafter, subject to annual CPI adjustments as noted in (2)
above.
(12) The guest room amount shown represents the total number of one-bedroom
and two-bedroom suites at the hotel. These hotels contain a total of
298 two-bedroom suites.
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ITEM 5. OTHER EVENTS
On July 11, 1997, the Registrant filed with the Commission under Rule 424(b)
under the Securities Act of 1933, as amended, a preliminary prospectus
supplement dated July 11, 1997 relating to a public offering of its Common
Shares. The preliminary prospectus supplement contains certain additional
information about the Summerfield Acquisition Hotels.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of the Businesses Acquired
Audited financial statements for the Summerfield Acquisition Hotels,
as described in the Index to Financial Statements, are included
herein.
(b) Pro Forma Financial Information
Unaudited pro forma information, as described in the Index to
Financial Statements, is included herein for the Registrant, the JF
Lessee and the Summerfield Lessee.
(c) Exhibits
<TABLE>
<S> <C>
10.1 Form of Contribution Agreement between an Acquisition Partnership and a Summerfield Contributing
Partnership.
10.2 Form of Percentage Lease for Summerfield Acquisition Hotels.
10.3 Agreement on Franchise Related Matters between the Acquisition Partnerships, the Partnership and the
Summerfield Manager, dated as of June 20, 1997.
10.4 Lease Master Agreement between the Acquisition Partnerships, the Partnership and the Summerfield
Lessee, dated as of June 20, 1997.
10.5 Voting Agreement among Jeffrey H. Fisher, the Company, the Partnership, the Summerfield Contributing
Partnerships, and the beneficial holders of the Summerfield Units, dated as of June 20, 1997.
10.6 Redemption and Registration Rights Agreement between the Registrant, the Partnership, the Summerfield
Contributing Partnerships and the beneficial holders of the Summerfield Units, dated as of June 20,
1997.
23.1 Consent of Coopers & Lybrand L.L.P.
</TABLE>
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INDEX TO FINANCIAL STATEMENTS
INNKEEPERS USA TRUST
PRO FORMA
Pro Forma Consolidated Statements of Income for the year ended December 31,
1996 (unaudited) and the three months ended March 31, 1997 (unaudited)
Notes to Pro Forma Consolidated Statements of Income
Pro Forma Consolidated Balance Sheet as of March 31, 1997 (unaudited)
Notes to Pro Forma Consolidated Balance Sheet
JF HOTEL
PRO FORMA
Pro Forma Combined Statements of Income for the year ended December 31, 1996
(unaudited) and for the three months ended March 31, 1997 (unaudited)
Notes to Pro Forma Combined Statements of Income
SUMMERFIELD LESSEE
PRO FORMA
Pro Forma Statements of Income for the fiscal year ended January 3, 1997
(unaudited) and for the three 4-week periods ended March 28, 1997 (unaudited)
Notes to Pro Forma Statements of Income
SUMMERFIELD ACQUISITION HOTELS
HISTORICAL
Report of Independent Accountants
Combined Balance Sheets as of January 3, 1997 and March 28, 1997 (unaudited)
Combined Statements of Operations for the fiscal year ended January 3, 1997
and for the three 4-week periods ended March 22, 1996 and March 28, 1997
(unaudited)
Combined Statements of Changes in Partners' equity for the fiscal year ended
January 3, 1997 and for the three 4-week periods ended March 22, 1996 and March
28, 1997 (unaudited)
Combined Statements of Cash Flows for the fiscal year ended January 3, 1997
and for the three 4-week periods ended March 22, 1996 and March 28, 1997
(unaudited)
Notes to Combined Financial Statements
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INNKEEPERS USA TRUST
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
for the year ended December 31, 1996, and the three months
ended March 31, 1997
(Unaudited, amounts in thousands except per share data)
The following unaudited pro forma consolidated statements of income of
Innkeepers USA Trust (the "Company") are presented as if the purchase of each
Hotel acquired in 1996 and 1997 and the consummation of the offering of
11,500,000 common shares in October 1996 (the "1996 Offering") and the
contemplated offering of 8,500,000 common shares under the Company's shelf
registration statement (the "Offering") and the application of the net proceeds
of the 1996 Offering and the Offering had occurred at the beginning of the
periods presented and all of the Hotels had been leased to the Lessee pursuant
to the Percentage Leases throughout the periods presented. Such pro forma
information is based in part upon the historical consolidated statements of
income of the Company, and the pro forma and historical statements of income of
the JF Lessee and the Summerfield Lessee and should be read in conjunction with
the financial statements contained herein, included in the Company's Annual
Report on Form 10-K, or the Company's quarterly report on Form 10-Q. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made.
The following unaudited pro forma consolidated statements of income 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.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRE-1997 ACQUISITIONS (A)
-------------------------------- SIERRA
PRO FORMA PRO OTHER 1997 SUITES SUMMERFIELD
HISTORICAL ADJUSTMENTS FORMA ACQUISITIONS (A) HOTELS (A) HOTELS (A) TOTAL
---------- ----------- ----- ---------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Percentage lease revenue (B) $ 27,466 $ 16,505 $ 43,971 $ 7,096 $ 978 $ 12,630 $ 64,675
Other revenue 911 5 916 916
-------- -------- -------- ------- ----- -------- --------
Total revenue 28,377 16,510 44,887 7,096 978 12,630 65,591
-------- -------- -------- ------- ----- -------- --------
Depreciation (C) 7,421 4,315 11,736 2,368 529 4,643 19,276
Amortization of franchise
costs (C) 89 31 120 13 133
Ground rent (D) 376 48 424 424
Interest expense (E) 5,839 2,026 7,865 7,865
Amortization of loan
origination fees (F) 867 110 977 23 220 1,220
Taxes and insurance (G) 2,803 1,424 4,227 1,171 246 1,268 6,912
General and administrative (H) 1,186 314 1,500 50 250 1,800
Amortization of unearned
trustees' compensation 47 47 47
-------- -------- -------- ------- ----- -------- --------
Total expenses 18,628 8,268 26,896 3,552 848 6,381 37,677
-------- -------- -------- ------- ----- -------- --------
Income before minority interest 9,749 $ 8,242 17,991 3,544 130 6,249 27,914
========
Minority interest, common (I) (531) (703) (46) (11) (519) (1,946)
Minority interest, preferred (I) (729) (4,470) (4,470)
-------- -------- ------- ----- -------- --------
Net income $ 8,489 $ 12,818 $ 3,498 $ 119 $ 5,730 $ 21,498
======== ======== ======= ===== ======== ========
Net income per common
share (J) $ 0.65 $ 0.69
======== ========
Weighted average number of
common shares and common
share equivalents outstanding 13,829 34,121
======== ========
</TABLE>
See Notes to pro forma consolidated statements of income.
<PAGE> 11
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
PRE-1997 ACQUISITIONS (A)
---------------------------------- SIERRA
PRO FORMA PRO OTHER 1997 SUITES SUMMERFIELD
HISTORICAL ADJUSTMENTS FORMA ACQUISITIONS (A) HOTELS (A) HOTELS (A) TOTAL
---------- ----------- ------- ---------------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Percentage lease revenue (B) $ 12,380 $ (833) $ 11,547 $ 1,581 $ 244 $ 3,158 $ 16,530
Other revenue 345 345 345
-------- -------- -------- ------- ----- -------- --------
Total revenue 12,725 (833) 11,892 1,581 244 3,158 16,875
-------- -------- -------- ------- ----- -------- --------
Depreciation (C) 3,217 3,217 592 132 1,161 5,102
Amortization of franchise
costs (C) 17 17 3 20
Ground rent (D) 88 88 88
Interest expense (E) 1,997 (31) 1,966 1,966
Amortization of loan
origination fees (F) 256 256 12 110 378
Taxes and insurance (G) 1,129 (120) 1,009 299 62 317 1,687
General and administrative (H) 430 430 13 63 506
Amortization of unearned
trustees' compensation 10 10 10
-------- -------- -------- ------- ----- -------- --------
Total expenses 7,144 (151) 6,993 894 219 1,651 9,757
-------- -------- -------- ------- ----- -------- --------
Income before minority interest 5,581 $ (682) 4,899 687 25 1,507 7,118
========
Minority interest, common (I) (234) (197) (9) (2) (125) (498)
Minority interest, preferred (I) (1,117) (1,117) (1,117)
-------- -------- ------- ----- -------- --------
Net income $ 4,230 $ 3,585 $ 678 $ 23 $ 1,382 $ 5,503
======== ======== ======= ===== ======== ========
Net income per common
share (J) $ 0.19 $ 0.18
======== ========
Weighted average number of
common shares and common
share equivalents outstanding 23,584 34,141
======== ========
</TABLE>
See notes to pro forma consolidated statements of income.
<PAGE> 12
INNKEEPERS USA TRUST
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(A) Represents the results of operations for the Hotels on a pro forma basis as
if the Hotels were owned by the Company at the beginning of the periods
presented and leased to the Lessees under the Percentage Leases throughout the
periods presented.
The Pre-1997 Acquisitions information relates to the 32 Hotels owned by the
Company at December 31, 1996. The Other 1997 Acquisitions information relates
to the three Residence Inn hotels acquired in the first quarter of 1997 and the
three Hampton Inn hotels acquired on June 26, 1997. The Pre-1997 Acquistion
hotels and the Other 1997 Acquisition hotels are collectively referred to as
the "Current Hotels." The Sierra Suites Hotels information relates to the two
Sierra Suites hotels acquired as of June 20, 1997. The Summerfield Suites
Hotels information relates to the six Summerfield Suites hotels and the Sunrise
Suites hotel acquired as of June 20, 1997.
(B) Represents Rent due from the Lessees to the Company calculated by applying
the Rent provisions of the Percentage Leases to the historical room revenue of
the Hotels as if the beginning of the period presented was the beginning of the
lease year. The pro forma lease payments for the Summerfield Acquisition
Hotels and certain other Hotels, which had no substantive operations for the
periods presented, represent Base Rent as set forth in the applicable
Percentage Leases.
(C) Represents depreciation on the Hotel properties and renovations thereto and
amortization of capitalized franchise fees. Depreciation is computed based
upon estimated useful lives of 40 years for buildings and improvements and 5
years for furniture, fixtures and equipment. These estimated useful lives are
based on management's knowledge of the Hotels and the hotel industry in
general. Amortization of franchise fees is computed using the straight line
method over the lives of the franchise agreements.
(D) The pro forma adjustment represents ground rent at the Comfort Inn -
Woburn, Massachusetts hotel.
(E) Represents interest expense on long-term debt as follows:
<TABLE>
INTEREST EXPENSE
-----------------------
PRO FORMA YEAR THREE MONTHS
OUTSTANDING INTEREST DECEMBER 31, MARCH 31,
BALANCE RATE 1996 1997
----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Pre-1997 Acquisitions:
Mortgage Note $ 3,558 5.00% $ 178 $ 44
Mortgage Note 14,936 10.35 1,546 386
Mortgage Note 10,000 5.60 560 140
Line of Credit 43,472 7.20 3,130 783
First Term Loan 30,000 8.17 2,451 613
--------- ------- -------
$ 101,966 $ 7,865 $ 1,966
========= ======= =======
</TABLE>
All of the Company's indebtedness bears a fixed rate of interest except the
Line of Credit. A change of 1/8% on the Line of Credit would increase interest
expense by $54,000 for the year ended December 31, 1996.
<PAGE> 13
(F) Represents amortization of loan origination fees over the life of the
related indebtedness and assumes that such fees were paid at the beginning of
the periods presented.
(G) Represents real estate and personal property taxes and property insurance
to be paid by the Company. Such amounts were derived from historical amounts
paid with respect to the Hotels. Property insurance for the Summerfield
Acquisition Hotels is paid by the Summerfield Lessee.
(H) Represents estimated expense for salaries, legal, audit and other expenses.
These expenses are to be paid by the Company.
(I) Calculated as 8.3% of income before minority interest less preferred
minority interest, which represents the pro forma Partnership Common Units
outstanding (3,174,134) after the Offering and the acquisition of the
Summerfield Acquisition Hotels divided by the total Common Shares and
Partnership Units outstanding (38,060,280) after the Offering and the
acquisition of the Summerfield Acquisition Hotels. Pro forma preferred
minority interest represents the annual distributions of $1.10 per Preferred
Unit outstanding (4,063,329 outstanding). For the historical periods,
represents the actual dividends on the Preferred United from the date of
issuance.
(J) Net income per Common Share is computed by dividing income before minority
interest less the distributions on the Preferred Units by the weighted average
number of Common Shares and Common Share equivalents outstanding for the
periods presented.
<PAGE> 14
INNKEEPERS USA TRUST
PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1997
The following unaudited pro forma consolidated balance sheet is presented as if
the purchase of the three Hampton Inn hotels acquired on June 26, 1997 and the
Summerfield Acquisition Hotels acquired as of June 20, 1997 and the closing of
the Offering and the application of the net proceeds of the Offering had
occurred on March 31, 1997. Such pro forma information is based in part upon
the historical consolidated balance sheets of the Company. Such information
should be read in conjunction with the financial statements contained herein,
in the Company's Annual Report on Form 10-K or in the Company's quarterly
report on Form 10-Q. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.
The following unaudited pro forma consolidated balance sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of March 31, 1997, nor does it purport to
represent the future financial position of the Company.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- -------------- ---------
ASSETS (UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Investment in hotel properties, at cost $ 366,140 $ 140,177 (A) $ 506,317
Accumulated depreciation (20,777) (20,777)
--------- --------- ---------
Net investment in hotel properties 345,363 140,177 485,540
Cash and cash equivalents 14,353 14,353
Due from Lessee 6,768 6,768
Deferred expenses, net 3,952 494 (B) 4,446
Other assets 289 289
--------- --------- ---------
Total assets $ 370,725 $ 140,671 $ 511,396
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 105,834 $ (3,868) (C) $ 101,966
Accounts payable and other accrued expenses 1,016 1,016
Distributions payable 7,007 7,007
Minority interest in Partnership 49,247 27,020 (D) 76,267
--------- --------- ---------
Total liabilities 163,104 23,152 186,256
--------- --------- ---------
Shareholders' Equity:
Preferred shares
Common shares 223 85 (E) 308
Additional paid-in capital 215,049 117,434 (F) 332,483
Unearned trustees' compensation (128) (128)
Distributions in excess of net earnings (7,523) (7,523)
--------- --------- ---------
Total shareholders' equity 207,621 117,519 325,140
--------- --------- ---------
Total liabilities and shareholders' equity $ 370,725 $ 140,671 $ 511,396
========= ========= =========
</TABLE>
See Notes to pro forma consolidated balance sheet.
<PAGE> 15
INNKEEPERS USA TRUST
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Represents the purchase prices ($137,677,000) of the three Hampton Inn
hotels and the Summerfield Acquisition Hotels, closing costs ($1,000,000) and
renovations at certain hotels ($1,500,000). The total cost of these hotels
($140,677,000) is estimated to be allocated as follows: Land - $15,419,000;
Buildings - $107,936,000; and Furniture and Equipment - $16,822,000.
(B) Represents the capitalization of franchise fees ($129,000) for the three
Hampton Inn hotels and costs associated with the Acquisition Loan ($365,000).
(C) Represents the payment on the Line of Credit from the proceeds of the
Offering ($3,868,000).
(D) Represents the value assigned to the Common Partnership Units issued to the
sellers of the Summerfield Acquisition Hotels ($29,069,000) as adjusted to
reflect dilution to the minority interest as a result of the Offering
($2,049,000).
(E) Reflects the par value of Common Shares expected to be sold in the
Offering.
(F) Net increase reflects the gross proceeds from the Offering ($122,719,000)
less the estimated underwriting and other expenses of the Offering
($7,249,000), less the par value of the common shares issued ($85,000), plus
the allocation of equity from minority interest ($2,049,000).
<PAGE> 16
JF LESSEE
PRO FORMA COMBINED STATEMENTS OF INCOME
for the year ended December 31, 1996 and the three months
ended March 31, 1997
(Unaudited, amounts in thousands)
The following unaudited pro forma combined statements of income of JF Hotel,
Inc. and its sister corporations, which have identical ownership and are under
common control with JF Hotel, Inc. (the "JF Lessee") are presented as if the
Current Hotels had been leased from the Partnership pursuant to the Percentage
Leases from the beginning of the periods presented. Such pro forma information
is based in part upon the historical combined statements of income of the JF
Lessee and the Hotels and should be read in conjunction with the financial
statements contained herein, in the Company's Annual Report on Form 10-K or in
the Company's quarterly report on Form 10-Q. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.
The following unaudited pro forma combined statements of income for the periods
presented are not necessarily indicative of what 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 future periods.
<PAGE> 17
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CURRENT HOTELS
--------------------------------------------------------
PRIOR TO PRO FORMA
HISTORICAL ACQUISITION (A) ADJUSTMENTS PRO FORMA
---------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
Gross operating revenue:
Room revenue $ 58,501 $ 44,176 $ 7 $ 102,684
Food and beverage 687 8 695
Telephone 2,231 1,689 3,920
Interest 134 (134) (B)
Other 1,304 894 (5) 2,193
-------- -------- ----- ---------
Total gross operating revenue 62,723 46,901 (132) 109,492
-------- -------- ----- ---------
Departmental Expenses:
Rooms 12,404 8,657 (10) 21,051
Food and beverage 583 583
Telephone 850 444 1,294
Other 470 430 900
-------- -------- ----- ---------
Total departmental expenses 14,307 9,531 (10) 23,828
-------- -------- ----- ---------
Gross profit 48,416 37,370 (122) 85,664
-------- -------- ----- ---------
Unallocated Operating Expenses:
General and administrative 3,943 4,487 8,430
Leases 383 (383) (C)
Franchise fees 4,492 1,392 2,048 (D) 7,932
Advertising and promotions 2,305 1,966 (942) (E) 3,329
Marketing 142 142
Utilities 3,235 1,875 5,110
Repairs and maintenance 3,073 2,115 5,188
Base management fees 540 2,688 (1,934) (D) 1,294
Incentive management fees 499 (D) 499
-------- -------- ----- ---------
Unallocated operating expenses 17,588 15,048 (712) 31,924
-------- -------- ----- ---------
Other Expenses:
Real estate taxes and insurance 4,028 (4,028) (F)
Insurance 379 17 190 (G) 586
Depreciation and amortization 109 (109) (F)
Interest 333 (333) (F)
-------- -------- ----- ---------
Total other expenses 379 4,487 (4,280) 586
-------- -------- ----- ---------
Net operating profit 30,449 17,835 4,870 53,154
Lessee overhead (2,273) (2,273)
Percentage lease payments (27,466) (23,601) (H) (51,067)
-------- -------- ------- ---------
Net income (loss) $ 710 $ 17,835 $(18,731) $ (186)
======== ======== ======== =========
</TABLE>
See Notes to pro forma combined statements of income.
<PAGE> 18
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
CURRENT HOTELS
----------------------------------------------------------------
PRIOR TO PRO FORMA
HISTORICAL ACQUISITION (A) ADJUSTMENTS (B) PRO FORMA
---------- --------------- --------------- ----------
<S> <C> <C> <C>
Gross operating revenue:
Room revenue $ 25,533 $ 1,875 $ 27,408
Food and beverage 169 169
Telephone 964 59 1,023
Interest
Other 534 43 577
-------- ------- -------- --------
Total gross operating revenue 27,200 1,977 29,177
-------- ------- -------- --------
Departmental Expenses:
Rooms 4,867 362 5,229
Food and beverage 142 142
Telephone 344 18 362
Other 232 22 254
-------- ------- -------- --------
Total departmental expenses 5,585 402 5,987
-------- ------- -------- --------
Gross profit 21,615 1,575 23,190
-------- ------- -------- --------
Unallocated Operating Expenses:
General and administrative 1,947 196 2,143
Franchise fees 1,993 107 $ 43 (D) 2,143
Advertising and promotions 884 53 (14) (E) 923
Utilities 1,328 93 1,421
Repairs and maintenance 1,220 101 1,321
Base management fees 539 101 (21) (D) 619
Incentive management fees
-------- ------- -------- --------
Unallocated operating expenses 7,911 651 8 8,570
-------- ------- -------- --------
Other Expenses:
Real estate taxes and insurance 170 (170) (F)
Insurance 205 22 (G) 227
-------- ------- -------- --------
Total other expenses 205 170 (148) 227
-------- ------- -------- --------
Net operating profit 13,499 754 140 14,393
Lessee overhead (623) (623)
Percentage lease payments (12,380) (748) (H) (13,128)
-------- ------- -------- --------
Net income $ 496 $ 754 $ (608) $ 642
======== ======= ======== ========
</TABLE>
See Notes to pro forma combined statements of income.
<PAGE> 19
JF LESSEE
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME
(A) Represents the results of operations of the Current Hotels prior to
acquisition by the Company.
(B) Represents the elimination of interest income earned by the prior owners
of the Hotels.
(C) Represents the elimination of expenses related to operating leases which
were terminated when the Company purchased the hotels.
(D) Represents the adjustment of franchise and management fees to reflect the
terms of the Marriott Management Agreements, the elimination of certain
management fees related to agreements which were terminated upon acquisition by
the Company and the reclassification of certain expenses from Advertising and
Promotions to Franchise Fees.
(E) Represents the reclassification of certain expenses to Franchise Fees.
(F) Represents the elimination of expenses that will be paid by the Company or
will not be incurred as a result of the Company's ownership of the Hotels.
(G) Represent the estimated insurance cost for periods prior to acquisition.
(H) Represents Percentage Lease payments 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 presented was the
beginning of the lease year. For certain Hotels that had no substantive
operations for the periods presented, the Percentage Lease payment is assumed
to be equal to the Base Rent provided for in the Percentage Lease agreement.
<PAGE> 20
SUMMERFIELD LESSEE
PRO FORMA STATEMENTS OF INCOME
for the fiscal year ended January 3, 1997 and the three 4-week periods
ended March 28, 1997
(Unaudited)
The following unaudited pro forma statements of income of Summerfield Lessee
are presented as if the Summerfield Acquisition Hotels had been leased from the
Partnership pursuant to the Percentage Leases from the beginning of the period
presented. Such pro forma information is based in part upon the historical
statements of income of the Summerfield Acquisition Hotels and should be read
in conjunction with the financial statements contained herein. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
The following unaudited pro forma statements of income for the periods
presented are not necessarily indicative of what actual results of operations
of the Summerfield 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 future periods.
<PAGE> 21
FISCAL YEAR ENDED JANUARY 3, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL (A) ADJUSTMENTS PRO FORMA
-------------- ----------- -----------
<S> <C> <C> <C>
Gross operating revenue:
Room $ 20,241,500 $20,241,500
Telephone 829,403 829,403
Other 1,299,526 1,299,526
------------ ----------- -----------
Gross operating revenue 22,370,429 22,370,429
------------ ----------- -----------
Operating expenses:
Room 4,712,594 4,712,594
General and administrative 2,288,883 2,288,883
Advertising and promotions 1,273,701 1,273,701
Utilities 780,210 780,210
Repairs and maintenance 899,378 899,378
Management fees 1,825,985 (931,168) (B) 894,817
Franchise fees 813,242 (B) 813,242
------------ ----------- -----------
Total operating expenses 11,780,751 (117,926) 11,662,825
------------ ----------- -----------
Other expenses:
Real estate and personal property taxes and
property insurance 767,135 $ (559,111) (C) 208,024
Depreciation and amortization 4,964,980 (4,964,980) (D)
Interest expense 3,282,298 (3,282,298) (D)
Loss on disposition of property and equipment 116,383 (116,383) (D)
Other expenses 854,456 854,456
------------ ----------- -----------
Total other expenses 9,985,252 (8,922,772) 1,062,480
------------ ----------- -----------
Percentage Lease payments (13,608,000) (E) (13,608,000)
------------ ----------- -----------
Net income (loss) $ 604,426 $(4,567,302) $(3,962,876)
============ =========== ===========
</TABLE>
See notes to pro forma statements of income.
<PAGE> 22
THREE 4-WEEK PERIODS ENDED MARCH 28, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL (A) ADJUSTMENTS PRO FORMA
-------------- ----------- ------------
<S> <C> <C> <C>
Gross operating revenue:
Room $ 6,911,036 $ 6,911,036
Telephone 222,000 222,000
Other 375,516 375,516
----------- ---------- -----------
Gross operating revenue 7,508,552 7,508,552
----------- ---------- -----------
Operating expenses:
Room 1,381,913 1,381,913
General and administrative 693,846 693,846
Advertising and promotions 375,639 375,639
Utilities 230,330 230,330
Repairs and maintenance 255,993 255,993
Management fees 588,859 (288,517)(B) 300,342
Franchise fees 283,602(B) 283,602
----------- ---------- -----------
Total operating expenses 3,526,580 (4,915) 3,521,665
----------- ---------- -----------
Other expenses:
Real estate and personal property taxes and
property insurance 290,875 (208,758)(C) 82,117
Depreciation and amortization 1,157,418 (1,157,418)(D)
Interest expense 1,044,765 (1,044,765)(D)
Other expenses 236,711 236,711
----------- ---------- -----------
Total other expenses 2,729,769 (2,410,941) 318,828
----------- ---------- -----------
Percentage Lease payments (3,402,000)(E) (3,402,000)
----------- ---------- -----------
Net income $ 1,252,203 $ (986,144) $ 266,059
=========== ========== ===========
</TABLE>
See notes to pro forma statements of income.
<PAGE> 23
SUMMERFIELD LESSEE
NOTES TO PRO FORMA STATEMENTS OF INCOME
(A) Represents the historical results of operations of the Summerfield
Acquisition Hotels.
(B) Represents adjustment of management fees and franchise fees to reflect the
terms of the management and franchise agreements entered into with an affiliate
subsequent to the purchase of the Summerfield Acquisition Hotels by the
Company.
(C) Represents the elimination of real estate taxes that will be paid by the
Company.
(D) Represents the elimination of expenses that will not be incurred as a
result of the Company's ownership of the Summerfield Acquisition Hotels.
(E) For the Summerfield Acquisitions Hotels, the Percentage Lease payment is
assumed to be equal to the Base Rent provided for in the Percentage Lease
agreement.
<PAGE> 24
SUMMERFIELD ACQUISITION HOTELS
COMBINED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JANUARY 3, 1997
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Innkeepers USA Trust
We have audited the accompanying combined balance sheet for certain hotel
properties (the "Summerfield Acquisition Hotels") described in Note 1 to the
financial statements as of January 3, 1997 and the related combined statements
of operations, partners' equity and cash flows for the fiscal year then ended.
These financial statements are the responsibility of the management of the
Summerfield Acquisition Hotels. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Summerfield Acquisition
Hotels as of January 3, 1997 and the results of their operations and their cash
flows for the fiscal year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
West Palm Beach, Florida
July 3, 1997
<PAGE> 26
SUMMERFIELD ACQUISITION HOTELS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 3, MARCH 28,
ASSETS 1997 1997
(UNAUDITED)
<S> <C> <C>
Investment in hotel properties:
Land $ 9,143,102 $ 9,143,102
Buildings 49,876,053 51,175,271
Furniture, fixtures and equipment 18,643,700 19,202,792
------------ ------------
77,662,855 79,521,165
Accumulated depreciation (6,840,282) (7,880,035)
------------ ------------
Net investment in hotel properties 70,822,573 71,641,130
Cash and cash equivalents 4,372,131 6,057,392
Replacement reserve fund 501,823 1,033,067
Accounts receivable 910,126 1,345,031
Inventory 14,554 15,935
Due from partners 170,571 210,208
Deferred costs, net 1,193,672 1,158,834
Prepaids and other 693,319 457,360
Investment in Summerfield Safety Company 305,077 325,275
------------ ------------
$ 78,983,846 $ 82,244,232
============ ============
LIABILITIES AND PARTNERS' EQUITY
Notes payable $ 59,108,586 $ 61,619,737
Notes payable to affiliates 558,538 266,111
Accounts payable 1,066,947 346,013
Accrued expenses 2,285,544 2,529,420
Obligation under capital lease 240,648 227,678
Other liabilities 12,783 291,192
------------ ------------
Total liabilities 63,273,046 65,280,151
Partners' equity 15,710,800 16,964,081
------------ ------------
Total liabilities and partners' equity $ 78,983,846 $ 82,244,232
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 27
SUMMERFIELD ACQUISITION HOTELS
COMBINED STATEMENTS OF OPERATIONS
for the fiscal year ended January 3, 1997 and the three 4-week periods ended
March 22, 1996 and March 28, 1997
<TABLE>
<CAPTION>
JANUARY 3, MARCH 22, MARCH 28,
1997 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Gross operating revenue:
Room $ 20,241,500 $ 2,763,404 $ 6,911,036
Telephone 829,403 144,191 222,000
Other 1,299,526 165,794 375,516
------------ ----------- -----------
Gross operating revenue 22,370,429 3,073,389 7,508,552
------------ ----------- -----------
Operating expenses:
Room 4,712,594 681,682 1,381,913
General and administrative 2,288,883 393,572 693,846
Advertising and promotions 1,273,701 220,080 375,639
Utilities 780,210 132,572 230,330
Repairs and maintenance 899,378 146,407 255,993
Management fees 1,825,985 235,436 588,859
------------ ----------- -----------
Total operating expenses 11,780,751 1,809,749 3,526,580
------------ ----------- -----------
Other expenses:
Real estate and personal property taxes and
property insurance 767,135 120,633 290,875
Depreciation and amortization 4,964,980 680,840 1,157,418
Interest expense 3,282,298 445,101 1,044,765
Loss on disposition of furniture, fixtures and equipment 116,383 18,591
Other expenses 854,456 123,337 235,633
------------ ----------- -----------
Total other expenses 9,985,252 1,388,502 2,728,691
------------ ----------- -----------
Net income (loss) $ 604,426 $ (124,862) $ 1,253,281
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 28
SUMMERFIELD ACQUISITION HOTELS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
for the fiscal year ended January 3, 1997 and the three 4-week period
ended March 28, 1997
<TABLE>
<CAPTION>
<S> <C>
Balance at December 29, 1995 $17,200,541
Capital contributions 4,295,410
Distributions (6,389,577)
Net income 604,426
-----------
Balance at January 3, 1997 15,710,800
Net income (unaudited) 1,253,281
-----------
Balance at March 28, 1997(unaudited) $16,964,081
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 29
SUMMERFIELD ACQUISITION HOTELS
COMBINED STATEMENTS OF CASH FLOWS
for the fiscal year ended January 3, 1997 and the three 4-week periods ended
March 22, 1996 and March 28, 1997
<TABLE>
<CAPTION>
JANUARY 3, MARCH 22, MARCH 28,
1997 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 604,426 $ (124,862) $ 1,253,281
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,964,980 680,840 1,157,418
Loss on sale of equipment 116,383 18,591
Changes in operating assets and liabilities:
Accounts receivable (562,720) (215,455) (434,905)
Inventory (9,489) (2,804) (1,381)
Prepaid expenses and other assets (467,463) 17,484 235,959
Accounts payable (133,542) 832,904 (720,934)
Accrued expenses (829,142) (305,659) 243,876
Other liabilities 9,906 181,900 278,409
----------- ---------- -----------
Net cash provided by operating activities 3,693,339 1,082,939 2,011,723
----------- ---------- -----------
Cash flows from investing activities:
Net deposits into replacement reserves (291,835) (10,434) (531,244)
Advances to affiliates (170,571) (39,637)
Payments for start-up costs (751,070) (311,149) (82,827)
Advances from (repayments to) affiliates 233,270 45,671 (292,427)
Investments in hotel properties (24,651,435) (8,634,509) (1,858,310)
Investment in Summerfield Safety Company (196,827) (40,220) (20,198)
----------- ---------- -----------
Net cash used in investing activities (25,828,468) (8,950,641) (2,824,643)
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 26,079,221 8,173,737 2,865,020
Payments on long-term notes payable (1,797,249) (19,149) (353,869)
Repayment of capital lease obligations (48,115) (11,033) (12,970)
Payment of loan fees and closing costs (228,444) (15,001)
Contributions from partners 4,295,410
Distributions to partners (6,389,577) (49,999)
----------- ---------- -----------
Net cash provided by financing activities 21,911,246 8,078,555 2,498,181
----------- ---------- -----------
Net decrease in cash and cash equivalents (223,883) 210,853 1,685,261
Cash and cash equivalents at beginning of period 4,596,014 4,596,014 4,372,131
----------- ---------- -----------
Cash and cash equivalents at end of period $ 4,372,131 $4,806,867 $ 6,057,392
=========== ========== ===========
Cash paid during the period for interest, net $ 3,828,207
Capital lease obligations incurred $ 104,149 $ 104,149
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 30
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
The Summerfield Acquisition Hotels (the "Company") consists of the
following hotels (the "Hotels"):
<TABLE>
<CAPTION>
NUMBER OF DATE
OWNING PARTNERSHIP HOTEL BRAND HOTEL LOCATION OF ROOMS OPENED
<S> <C> <C> <C> <C>
West Hollywood Summerfield Associates, L.P. Summerfield Suites West Hollywood, California 109 June 1993
Addison Summerfield Associates, L.P. Summerfield Suites Addison, Texas 132 February 1996
Belmont Summerfield Associates, L.P. Summerfield Suites Redwood, California 132 November 1995
El Segundo Summerfield Associates, L.P. Summerfield Suites El Segundo, California 122 March 1995
Las Colinas Summerfield Associates, L.P Summerfield Suites Las Colinas, Texas 148 February 1996
Mount Laurel Summerfield Associates, L.P. Summerfield Suites Mount Laurel, New Jersey 116 August 1996
Atlanta Cumberland Sierra Associates, L.P. Sierra Suites Atlanta, Georgia 89 July 1996
Phoenix Camelback Sierra Associates, L.P. Sierra Suites Phoenix, Arizona 113 January 1997
Tinton Falls Hotel Associates, L.P. Sunrise Suites Tinton Falls, New Jersey 96 October 1993
</TABLE>
The hotels are designed for extended stay guests and provide limited
services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The accompanying financial statements include the accounts of the
aforementioned limited partnerships. The limited partnerships are under
common control and substantially all of the partnership assets were sold to
subsidiary partnerships of Innkeepers USA Limited Partnership as of
June 20, 1997.
INTERIM PERIODS
The accompanying unaudited interim combined financial statements as of
March 22, 1996 and March 28, 1997 have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. These financial
statements reflect, in the opinion of management, all adjustments necessary
for a fair presentation of the interim combined financial statements. All
such adjustments are of a normal and recurring nature.
<PAGE> 31
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INVESTMENT IN HOTEL PROPERTIES
Hotel properties are recorded at cost and are depreciated using both
straight-line and accelerated methods over the estimated useful lives of
the assets of 39 years for buildings and improvements and 5-15 years for
furniture, fixtures and equipment. Major renewals, betterments and
improvements are capitalized. For hotels developed by the Company,
property and equipment includes interest costs and property taxes incurred
during the construction period, as well as closing and certain other costs
directly related to the development and construction of the hotels. At
each reporting period, the Company reviews the carrying value of each hotel
property to determine if facts and circumstances exist which would suggest
that the investment in the hotel property may be impaired or that the
depreciation period should be modified.
The Company does not believe that there are any current facts or
circumstances indicating impairment of any of its investments in hotel
properties at January 3, 1997.
Expenditures for maintenance and repairs are charged against operations as
incurred. Upon disposition, both the asset and accumulated depreciation
accounts are relieved and the related gain or loss is credited or charged
to the income statement.
FISCAL YEAR
The Company's fiscal year-end is the Friday closest to December 31. The
Company's fiscal year ended January 3, 1997.
CASH AND CASH EQUIVALENTS
All highly liquid debt investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
REPLACEMENT RESERVE FUND
Replacement reserve funds, consisting of interest-bearing money market
accounts, are maintained by the Company for the primary purpose of funding
the replacement of, and additions to, furniture, fixtures, equipment, and
other capital assets. An amount ranging from 1% to 5% of the gross
revenues of the Hotels, as defined, is required to be deposited into the
replacement reserve fund on a monthly basis.
<PAGE> 32
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
DEFERRED COSTS
Deferred costs consist of organization costs, loan fees, closing, and other
costs. Organization costs are amortized using the straight-line method
over a five-year period. Loan fees, closing, and other costs incurred in
obtaining permanent mortgage financing are being amortized over the life of
the related indebtedness.
Substantially all operating costs incurred prior to the opening of the
hotels developed by the Company are deferred and amortized over a 12-month
period commencing with the opening of the hotel. Such costs include
salaries, training costs, pre-marketing expenses, and other direct costs.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the
portion of accounts receivable which is estimated to be uncollectible.
Such losses have been within management's expectations.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
PROVISION FOR INCOME TAXES
The Company (which is comprised of nine individual partnerships) is not a
tax paying entity for income tax purposes, and thus, no income tax expense
has been recorded in the financial statements. Income from the Company is
taxed to the partners in their individual returns.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE> 33
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT IN SUMMERFIELD SAFETY COMPANY
The Company is a general partner in Summerfield Safety Company (SSC). SSC
was formed as a means to provide a form of self-funded workers'
compensation program for its partners, all of which are direct or indirect
affiliates of Summerfield Hotel Corporation (SHC). SSC provides a
risk-sharing arrangement for its partners as it is responsible for paying
all workers' compensation claims and related expenses for its partners.
SSC maintains excess loss coverage for losses in excess of $250,000 per
occurrence and $850,000 in aggregate. The Company records its pro rata
share of the losses incurred by SSC at the end of each four-week accounting
period based upon its proportionate share of SSC's total capital at the
beginning of the measurement period. Such losses are in substance expenses
related to the management of the Company's workers' compensation risks and,
accordingly, are included in operating expenses in the accompanying
statement of operations. The Company makes capital contributions to SSC on
a formula basis which is based upon the payments that the Company would be
required to make if it were to be a participant in the local state workers'
compensation pool.
The principal assets of SSC at January 3, 1997 were cash and cash
equivalents.
4. NOTES PAYABLE
The Company has entered into various loan agreements with lending
institutions. These loan agreements generally have variable interest
rates. The intended rates in effect at January 3, 1997 are summarized in
the table below:
<TABLE>
<CAPTION>
INTEREST RATE RANGE LOAN BALANCES
<S> <C>
6% - 6.99% $ 22,072,257
7% - 7.99% 31,202,734
8% - 8.99% 2,735,367
9% - 9.99% 3,098,228
------------
$ 59,108,586
============
</TABLE>
<PAGE> 34
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
4. NOTES PAYABLE, CONTINUED
Certain of the loan agreements require principal and interest payments on a
monthly basis until maturity; others require monthly interest only
payments with the entire principal balance to be paid upon maturity.
Substantially all of the assets of the Company are pledged as collateral on
the notes payable, and portions of the notes payable are guaranteed by
certain partners (see Note 6). Principal maturities for the next five
years and thereafter, based on the mortgage payable balance and interest
rate at January 3, 1997, are as follows:
<TABLE>
<S> <C>
1997 $ 1,963,245
1998 6,106,327
1999 3,222,464
2000 3,444,096
2001 3,697,906
Thereafter 40,674,548
------------
$ 59,108,586
============
</TABLE>
For the Fiscal year ended January 3, 1997, the Company capitalized interest
of $433,237.
5. ACCRUED EXPENSES
In connection with the acquisition of one of the Hotels, the Partnership
assumed certain liabilities, payable to the City of West Hollywood.
Principal maturities for the next five years and thereafter related to such
liabilities at January 3, 1997, are as follows:
<TABLE>
<S> <C>
1997 $ 25,980
1998 27,663
1999 29,454
2000 31,363
2001 33,393
Thereafter 291,191
---------
$ 439,044
=========
</TABLE>
6. RELATED-PARTY TRANSACTIONS
The Company has material transactions with related parties. Such
transactions include (a) management, marketing, accounting, development,
and construction fees paid, or to be paid, to Summerfield Suites Management
Company, L.P. ("SSMC"), Summerfield Suites Construction Company, L.C.
("SSCC"), and Summerfield Suites Development Company, L.P. ("SSDC"); (b)
pass-through of insurance costs through its investment in Summerfield
Safety Company ("SSC") (Note 3); (c) guaranty fees to certain partners; and
(d) funds borrowed or advanced to certain affiliates.
<PAGE> 35
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
6. RELATED-PARTY TRANSACTIONS, CONTINUED
MANAGEMENT AGREEMENT
The Company has entered into management agreements with SSMC to manage and
operate the Hotels. As manager and operator, SSMC receives a base
management fee equal to 4% - 5% of gross revenues of the Hotels. In
addition, for certain of the Hotels, SSMC may receive incentive management
fees ("IMFs") equal to the lesser of 7.5% to 15% of the net operating
profit of the Hotel, as defined, or net operating profit after debt
service, amounts paid into the replacement fund, the Partners' preferred
returns, and lease or rental payments made on any equipment leases relating
to the Hotel. SSMC's right to receive such fees shall be cumulative;
however, the payment of such amounts is subject to deferral and is
dependent upon a net distributable cash calculation as defined in the
management agreement.
The IMFs are recorded as an expense no later than in the period prior to
which such amounts are expected to be paid as the payment of the IMFs is
contingent upon the Hotel attaining certain cash flow objectives or at the
time the Hotel is sold or refinanced. The payment of the IMFs is to be
made only after net available cash has been distributed to repay other
priority payments stipulated in the management agreement. At January 3,
1997, there were no unaccrued IMFs.
At January 3, 1997, there were $663,826 in accrued management fees, which
are included in accrued expenses in the accompanying balance sheet.
For certain of the Hotels, payments under the management agreement are
subordinate in nature to the Company's obligations under certain notes
payable.
ACCOUNTING FEES
Under the management agreements with SSMC, the Company is required to pay
SSMC certain accounting fees. The accounting fees are included in general
and administrative expenses in the accompanying statement of operations.
MARKETING FEES
The Company pays a fee equal to 2 1/2% of the gross room revenues of the
Hotels to the Summerfield Suites Marketing Association ("SSMA"), a system
marketing fund which is administered by SSMC. SSMA provides general
advertising and marketing services for all Summerfield Suites hotels.
<PAGE> 36
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
6. RELATED-PARTY TRANSACTIONS, CONTINUED
The following represents certain related-party expenses incurred during the
fiscal year ended January 3, 1997:
<TABLE>
<CAPTION>
JANUARY 3, RELATED
1997 PARTY
<S> <C> <C>
Management fees $ 901,330 SSMC
Incentive management fees 924,655 SSMC
Accounting fees 338,511 SSMC
Marketing fees 418,303 SSMA
Insurance 118,002 SSC
</TABLE>
DEVELOPMENT AGREEMENT
SSDC was responsible for managing the construction of the Hotels and
advising the owners of the Hotels. For the fiscal year ended January 3,
1997, SSDC earned development fees of $2,692,600.
CONSTRUCTION FEES
SSCC is responsible for engaging contractors and purchasing furniture,
fixtures, and equipment. Such costs are charged to the Partnership at cost
plus a 10% fee. For the fiscal year ended January 3, 1997, SSCC earned
fees of $233,394. All construction costs charged to the Company, including
the construction and development fees, have been capitalized in the
investment in hotel properties in the accompanying balance sheet.
GUARANTY FEEs
For certain of the notes payable, for which a Class A limited partner has
guaranteed a portion of the notes, the partner receives a guaranty fee
equal to 3% of the guaranteed portion of the note in excess of certain
amounts. For the fiscal year ended January 3, 1997, the Company incurred
guaranty fees of $325,228 which are included in depreciation and
amortization in the accompanying statement of operations.
DUE FROM PARTNER
During the fiscal year ended January 3, 1997, the Company paid required
foreign tax withholdings of $170,511 for the Partner that is a foreign
resident. Interest was earned by the Company at a rate of 5.0% and the
advance had no stated maturity. The advance was repaid in April 1997.
<PAGE> 37
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
6. RELATED-PARTY TRANSACTIONS, CONTINUED
NOTE RECEIVABLE FROM AFFILIATE
On December 27, 1996, the Company entered into a $900,000 promissory note
with Chicago Downtown Summerfield Associates, L.P. ("CDSA"). The
promissory note requires monthly interest payments with principal due on
December 31, 1997. Such promissory note replaced a similar $900,000 note
receivable that matured on December 27, 1996. The Company has established
a reserve for the entire principal balance of the promissory note. The
note bears interest at a fixed rate of approximately 7.23%, and for the
fiscal year ended January 3, 1997, the Company earned interest of $66,108
related to this note.
NOTES PAYABLE TO AFFILIATES
The Company has entered into promissory notes with SSMC and SSCC. Amounts
outstanding under these notes bear interest at rates between 8.25% and
9.25%. Certain of the notes require monthly principal and interest
payments. Scheduled principal maturities are as follows:
<TABLE>
<S> <C>
1997 $ 367,183
1998 104,631
1999 86,724
---------
Total $ 558,538
=========
</TABLE>
Interest expense related to these promissory notes was $29,598 for the
fiscal year ended January 3, 1997.
ADVANCES FROM AFFILIATES
During fiscal 1996, in connection with the construction of one of the
Hotels, SSDC made aggregate advances of $897,989 to purchase the land and
to commence construction of the Hotel prior to the Company obtaining
permanent financing. For the fiscal year ended January 3, 1997, the
Company incurred interest related to such advances of $30,221, all of which
was capitalized and included in investment in hotel properties in the
accompanying balance sheet.
During the fiscal year ended January 3, 1997, in connection with the
construction phase of one of the Hotels, SSMC made aggregate advances of
$337,500 which were repaid with construction draws on a note payable. For
the fiscal year ended January 3, 1997, the Company incurred interest of
$1,427, of which $295 was capitalized and included in investment in hotel
properties in the accompany balance sheet.
<PAGE> 38
SUMMERFIELD ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements to lease certain guest
transportation and entertainment equipment. Such leases have been recorded
as capital leases.
The future minimum lease payments required under these leases, together
with the present value of the net minimum lease payment, as of January 3,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1997 $ 75,445
1998 75,445
1999 78,336
2000 44,274
2001 5,075
Thereafter 16,492
--------
Total remaining lease payments 295,067
Less amount representing interest 54,420
--------
Present value of net minimum
lease payments $240,647
========
</TABLE>
8. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The carrying amount approximates fair value because of the short maturity
of those instruments.
NOTES PAYABLE
The fair value of the Company's notes payable approximates the carrying
amount and is estimated based on the current rates offered to the Company
for similar debt instruments having the same remaining maturities.
<PAGE> 39
SIGNATURE
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.
INNKEEPERS USA TRUST
July 18, 1997 /s/ Mark A. Murphy
- ------------- ------------------
Date Mark A. Murphy
Secretary
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<S> <C>
10.1 Form of Contribution Agreement between an Acquisition Partnership and a Summerfield Contributing
Partnership.
10.2 Form of Percentage Lease for Summerfield Acquisition Hotels.
10.3 Agreement on Franchise Related Matters between the Acquisition Partnerships, the Partnership and the
Summerfield Manager, dated as of June 20, 1997.
10.4 Lease Master Agreement between the Acquisition Partnerships, the Partnership and the Summerfield
Lessee, dated as of June 20, 1997.
10.5 Voting Agreement among Jeffrey H. Fisher, the Company, the Partnership, the Summerfield Contributing
Partnerships, and the beneficial holders of the Summerfield Units, dated as of June 20, 1997.
10.6 Redemption and Registration Rights Agreement between the Registrant, the Partnership, the Summerfield
Contributing Partnerships and the beneficial holders of the Summerfield Units, dated as of June 20,
1997.
23.1 Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
CONTRIBUTION AGREEMENT
dated as of June 2, 1997
among
A Kansas Limited partnership
as Contributor,
INNKEEPERS USA LIMITED PARTNERSHIP,
a Virginia limited partnership,
as Acquiror,
and
INNKEEPERS USA TRUST,
a Maryland real estate investment trust,
in connection with the
[SUMMERFIELD] SUITES HOTEL
-------------
--------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
1. DEFINITIONS; RULES OF CONSTRUCTION.............................................................................5
1.1. Definitions.........................................................................................5
1.2. Rules of Construction..............................................................................13
2. CONTRIBUTION AND ACQUISITION;PAYMENT OF CONTRIBUTION CONSIDERATION............................................13
2.1. Contribution and Acquisition.......................................................................14
2.2. Study Period.......................................................................................14
2.3. Payment of Contribution Consideration..............................................................16
2.4. Allocation of Contribution Consideration...........................................................17
2.5. Determination of Number of Common Partnership Units................................................18
2.6. Authorization and Reservation of Common Shares.....................................................18
2.7. Contingent Consideration...........................................................................18
3. CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.......................................................19
3.1. Organization and Power.............................................................................19
3.2. Authorization and Execution........................................................................19
3.3. Noncontravention...................................................................................20
3.4. No Special Taxes...................................................................................20
3.5. Compliance with Existing Laws......................................................................20
3.6. Operating Agreements...............................................................................21
3.7. Warranties and Guaranties..........................................................................21
3.8. Insurance..........................................................................................22
3.9. Condemnation Proceedings; Roadways.................................................................22
3.10. Litigation........................................................................................22
3.11. Labor Disputes and Agreements.....................................................................23
3.12. Financial Information.............................................................................23
3.13. Organizational Documents..........................................................................24
3.14. Operation of Property.............................................................................24
3.15. Personal Property.................................................................................24
3.16. Bankruptcy........................................................................................24
3.17. Title to Property.................................................................................24
3.18. Zoning............................................................................................25
3.19. Historical Districts..............................................................................25
3.20. Brokerage Commission..............................................................................25
3.21. Hazardous Substances..............................................................................25
3.22. Room Furnishings..................................................................................26
3.23. Franchisor........................................................................................26
3.24. Liquor License....................................................................................26
3.25. Independent Audit.................................................................................26
3.26. Sufficiency of Certain Items......................................................................27
3.27. Additional Representations and Warranties.........................................................27
3.28. Securities Matters................................................................................28
3.29. Taxes.............................................................................................28
3.30. No Misrepresentations.............................................................................29
3.31. Tax Opinion Representations.......................................................................29
3.32. Mortgage Documents................................................................................30
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.33. Updating of Representations and Warranties........................................................31
3.34. Bulk Sales Compliance.............................................................................31
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ACQUIROR AND REIT................................................32
4.1. Organization and Power.............................................................................32
4.2. Authorization and Execution........................................................................32
4.3. Noncontravention...................................................................................33
4.4. Compliance with Existing Laws......................................................................33
4.5. Litigation.........................................................................................34
4.6. Labor Disputes and Agreements......................................................................34
4.7. Financial Statements...............................................................................35
4.8. Title to Properties................................................................................35
4.9. Zoning.............................................................................................35
4.10. Insurance.........................................................................................35
4.11. Personal Property.................................................................................36
4.12. Bankruptcy........................................................................................36
4.13. Brokerage Commission..............................................................................36
4.14. Hazardous Substances..............................................................................36
4.15. Capitalization....................................................................................37
4.16. Organizational Documents..........................................................................37
4.17. Options, Warrants, and Other Rights...............................................................37
4.18. Taxes.............................................................................................38
4.19. No Misrepresentations.............................................................................38
4.20. Leases............................................................................................38
4.21. Common Shares and Redemption Shares...............................................................39
4.22. Tax Consequences to Contributor and its Partners..................................................39
4.23. Updating of Representations and Warranties........................................................39
5. CONDITIONS AND ADDITIONAL COVENANTS...........................................................................40
5.1. Acquiror's Obligations.............................................................................40
5.2. Contributor's Obligations..........................................................................42
6. CLOSING.......................................................................................................44
6.1. Closing............................................................................................44
6.2. Contributor's Deliveries...........................................................................44
6.3. Acquiror's Deliveries..............................................................................46
6.4. Closing Costs......................................................................................47
6.5. Income and Expense Allocations.....................................................................48
7. POST CLOSING COVENANTS........................................................................................49
7.1. Taxable Sale of Real Property......................................................................49
7.2. [Intentionally Omitted]............................................................................50
7.3. [Intentionally Omitted]............................................................................50
7.4. Tax Elections......................................................................................50
7.5. Re-election of Board Member........................................................................50
7.6. Timely Filing of SEC Filings.......................................................................50
7.7. Book Capital Accounts..............................................................................50
7.8. Release of Mortgage Note...........................................................................50
7.9. Common Partnership Units...........................................................................51
7.10. Contributor's Financing...........................................................................51
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
7.11. Liquor License....................................................................................52
8. CONDEMNATION; RISK OF LOSS....................................................................................53
8.1. Condemnation.......................................................................................53
8.2. Risk of Loss.......................................................................................53
9. LIABILITY OF ACQUIROR; INDEMNIFICATION; TERMINATION RIGHTS....................................................53
9.1. Liability of Acquiror..............................................................................53
9.2. Indemnification by Contributor.....................................................................53
9.3. General Indemnification by Acquiror................................................................54
9.4. Tax Indemnification by Acquiror....................................................................55
9.5. Termination by Acquiror............................................................................56
9.6. Termination by Contributor.........................................................................58
10. MISCELLANEOUS PROVISIONS.....................................................................................59
10.1. Completeness; Modification........................................................................59
10.2. Assignments; Taking Title.........................................................................59
10.3. Successors and Assigns............................................................................60
10.4. Days..............................................................................................60
10.5. Governing Law.....................................................................................60
10.6. Counterparts......................................................................................60
10.7. Severability......................................................................................61
10.8. Notices...........................................................................................61
10.9. Incorporation by Reference........................................................................62
10.10. Survival.........................................................................................62
10.11. Further Assurances...............................................................................63
10.12. Time of Essence..................................................................................63
10.13. Confidentiality..................................................................................63
</TABLE>
<PAGE> 5
LIST OF EXHIBITS AND SCHEDULES
Exhibit A - Land
Exhibit B - Operating Agreements
Exhibit C - Contributor's Organizational Documents
Exhibit D - Mortgage
[FOR TINTON FALLS - Exhibit D-1 - Other Mortgage Documents]
Exhibit E - Mortgage Note
Exhibit F - Permitted Exceptions
Exhibit G - Percentage Rent Provisions
Schedule 2.3(b) - Capital Leases
Schedule 3.2 - Contribution Consents
Schedule 3.6 - Operating Agreements Not Freely
Terminable.
<PAGE> 6
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 2nd day of June, 1997, among
_________________________________________, a Kansas limited partnership (the
"Contributor"), INNKEEPERS USA LIMITED PARTNERSHIP, a Virginia limited
partnership (the "Acquiror"), and INNKEEPERS USA TRUST, a Maryland Real Estate
Investment Trust ("REIT") (REIT and Acquiror, collectively, "Innkeepers"),
provides:
1. DEFINITIONS; RULES OF CONSTRUCTION
1.1. Definitions.
The following terms shall have the indicated meanings:
"Acquiror's Break-Up Fee" shall have the meaning set forth in
Section 9.5.
"Acquiror's Out-of-Pocket Costs" shall have the meaning set forth in
Section 9.5.
"Acquiror's Knowledge" shall mean the actual knowledge of Jeffrey H.
Fisher, Frederic Shaw, David Bulger, Mark Murphy and John Langley.
"Acquiror's Partnership Agreement" shall mean the Second Amended and
Restated Agreement of Limited Partnership of the Acquiror in the form of Item 1
to the Master Addendum.
"Acquiror Material Adverse Effect" shall have the meaning set forth
in Section 4.1.
"Act of Bankruptcy" shall mean if a party hereto or any general
partner thereof shall (a) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its Property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or
<PAGE> 7
adjustment of debts, (g) fail to controvert in a timely and appropriate manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect),
or (h) take any corporate or partnership action for the purpose of effecting any
of the foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1) the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2) the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3) other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Affiliate" shall mean, with respect to any person or entity, any
individual, corporation, general or limited partnership, stock company or
association, joint venture, association, company, trust, bank, trust company,
land trust, business trust, or other entity, or any government, agency or
political subdivision thereof (each such entity, a "person") that, directly or
indirectly, controls or is controlled by or is under common control with such
person or entity, any other person that owns, beneficially, directly or
indirectly, five percent or more of the outstanding capital stock, shares or
equity interests of such person or entity, or any officer, director, employee,
partner or trustee of such person or entity or any person controlling,
controlled by or under common control with such person or entity (excluding
trustees and persons serving in similar capacities who are not otherwise and
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") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, through the ownership of voting securities, partnership interests or
other equity interests.
2
<PAGE> 8
"Approved Investors" shall mean the Contributor and the partners of
the Contributor who meet the "Accredited Investor" qualifications set forth in
Rule 501(a) of Regulation D of the Securities Act, and who have provided the
Representation Letter in the Study Period.
"Assignment and Assumption Agreements" shall mean one or more
assignment and assumption agreements whereby the Contributor assigns all of the
Contributor's right, title and interest in and to the Intangible Personal
Property, to the extent assignable to the Acquiror (or its designee) or the
Lessee.
"Authorizations" shall mean all licenses, permits and approvals
required by any governmental or quasi-governmental agency, body or officer for
the ownership, operation and use of the Property or any part thereof.
"Bill of Sale [Inventory]" shall mean that certain bill of sale
conveying title to the Inventory to the Lessee.
"Bill of Sale [Personal Property]" shall mean that certain bill of
sale conveying title to the Tangible Personal Property and Intangible Personal
Property to the Acquiror.
"Capital Leases" shall have the meaning set forth in Section 2.3(b).
"Closing" shall mean the Closing of the contribution of the Property
pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing occurs.
"Closing Documents" shall mean the documents required to be
delivered on the Closing Date by Acquiror pursuant to Section 6.3 and the
Contributor pursuant to Section 6.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
References to particular sections or provisions of the Code shall include any
successor sections or provisions.
"Common Partnership Units" shall mean common units of limited
partnership interest in the Acquiror.
3
<PAGE> 9
"Contributor's Break-Up Fee" shall have the meaning set forth in
Section 9.6.
"Contribution Consideration" shall mean $_______________, payable in
the manner described in Article II.
"Contributor's Financial Information" shall mean the financial
information delivered by Contributor to Acquiror consisting of the Property
income statements and Property balance sheets for the years ended the Friday
closest to December 31, 1993-1996, and for each four-week period ending on a
Friday in 1997 to date.
"Contributor's Knowledge" shall mean the actual knowledge of Rolf E.
Ruhfus, B. Anthony Isaac, Roy R. Baker and, after inquiry of the Manager's
Regional Manager, General Manager and Director of Sales for the Hotel, Edmund J.
Socha.
"Contributor Material Adverse Effect" shall have the meaning
ascribed to that term in Section 3.1.
"Contributor's Organizational Documents" shall mean the current
partnership agreement of the Contributor, as set forth on EXHIBIT C, and the
certificate of limited partnership of the Contributor.
"Contributor's Out-of-Pocket Costs" shall have the meaning set forth
in Section 9.6.
"Deed" shall mean that certain deed conveying title to the Real
Property with limited warranty from the Contributor to the Acquiror, subject
only to Permitted Title Exceptions. The description of the Land in the Deed
shall be by courses and distances and, if there is a discrepancy between the
description of the Land attached hereto as EXHIBIT A and the description of the
Land as shown on the Survey, the description of the Land in the Deed shall be
identical to the description shown on the Survey.
"Escrow Agent" shall mean Tri-State Commercial Closings, Inc.
"Final Determination" shall have the meaning ascribed to that term
in Section 9.4(a).
4
<PAGE> 10
"First Closing" shall mean the first closing of the contribution of
a hotel to occur pursuant to this Agreement or any Other Contribution Agreement.
"FIRPTA Certificate" shall mean the affidavit of the Contributor
under Section 1445 of the Code certifying that the Contributor is not a foreign
corporation, foreign partnership, foreign trust, foreign estate or foreign
person (as those terms are defined in the Code and the regulations thereunder),
in form and substance satisfactory to the Acquiror.
"Franchise Agreement" shall mean that certain agreement and license
to operate the Property as a [Summerfield] Suites Hotel, to be executed by the
Franchisor and the Lessee effective on the Closing Date, which is substantially
in the form of Item 8 of the Master Addendum.
"Franchisor Comfort Letter" shall mean the letter agreement to be
executed by Franchisor and the Acquiror effective on the Closing Date, which is
in the form of Item 11 of the Master Addendum.
"Franchisor" shall mean Summerfield Suites Management Company, L.P.,
the issuer of the franchise to be owned by the Lessee.
"GAAP" shall mean generally accepted accounting principles
consistently applied as promulgated by the Financial Accounting Standards Board.
[Intentionally Omitted]
"Hazardous Substances" shall mean any substance or material whose
presence, nature, quantity or intensity of existence, use, manufacture,
disposal, transportation, spill, release or effect, either by itself or in
combination with other materials is either: (1) potentially injurious to the
public health, safety or welfare, the environment or the Property, (2)
regulated, monitored or defined as a hazardous or toxic substance or waste by
any governmental agency, or (3) a basis for liability of the owner of the
Property to any governmental agency or third party, and Hazardous Substances
shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude
oil, or any products, by-products or components thereof, and asbestos.
5
<PAGE> 11
"Hotel" shall mean the ___-suite hotel and related amenities located
on the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Indemnifiable Claim" shall have the meaning ascribed to that term
in Section 9.4(a).
"Indemnitees" shall have the meaning ascribed to that term in
Section 9.4(a).
"Innkeepers Financial Statements" shall mean the consolidated
financial statements of Innkeepers for the calendar years ended December 31,
1995 and 1996, and for the quarterly period ended March 31, 1997 and such other
financial statements delivered after the date hereof as provided in Section 4.7
hereof. "Innkeepers Hotel Properties" shall mean the hotels owned by the REIT or
any partnership in which the REIT or any wholly-owned subsidiary is the general
partner and which are leased to an Innkeepers Lessee.
"Innkeepers Lease" shall mean a lease between the Acquiror or an
affiliated partnership and an Innkeepers Lessee with respect to the operation of
Innkeepers Hotel Properties.
"Innkeepers Lessee" shall mean each of JF Hotel, Inc., JF Hotel II,
Inc., JF Hotel III, Inc., JF Hotel IV, Inc. and JF Hotel V, Inc., each of which
is a Virginia corporation.
"Innkeepers Property Owning Partnerships" shall mean any limited
partnership of which, as of the date hereof, either the Acquiror, the REIT or a
wholly-owned subsidiary of the REIT is the general partner.
"Insurance Policies" shall mean all policies of insurance relating
to the Property, or any portion thereof.
"Intangible Personal Property" shall mean all intangible personal
property owned or possessed by the Contributor and used in connection with the
ownership of the Property, including, without limitation, the right to use the
6
<PAGE> 12
trade name ["Summerfield Suites",] the Authorizations, general intangibles,
business records relating to the Property, plans and specifications, surveys and
title insurance policies pertaining to the Real Property and the Personal
Property, all licenses, permits and approvals with respect to the construction,
ownership, operation, leasing, occupancy or maintenance of the Property, any
unpaid award for taking by condemnation or any damage to the Land by reason of a
change of grade or location of or access to any street or highway, excluding (a)
any of the aforesaid rights the Acquiror elects not to acquire, (b) the
Contributor's replacement reserves, and (c) deposits, working capital,
marketable securities, escrows, prepaid items, the Contributor's cash on hand,
in bank accounts and invested with financial institutions.
"Interested Party" shall have the meaning ascribed to that term in
Section 9.4(c).
"Inventory" shall mean all "inventories" including all inventories
of merchandise and inventories of supplies (as such terms are used in the
Uniform System of Accounts for Hotels (9th Revised Edition, 1996) as published
by the Hotel Association of New York City, Inc., as the same may be revised) and
similar consumable supplies and any property of the type described in Section
1221(1) of the Codes.
"IRS" shall mean the Internal Revenue Service.
"JF Hotel Financial Statements" shall mean the combined financial
statements of the Innkeepers Lessees for the calendar years 1995 and 1996, and
for the quarterly period ended March 31, 1997 and such other financial
statements delivered after the date hereof as provided in Section 4.7 hereof.
"Land" shall mean that certain parcel of real estate lying and being
in _____________________, as more particularly described on EXHIBIT A attached
hereto, together with all easements, rights, privileges, remainders, reversions
and appurtenances thereunto belonging or in any way appertaining, and all of the
estate, right, title, interest, claim or demand whatsoever of the Contributor
therein, in the streets and ways adjacent thereto and in the beds thereof,
either at law or in equity, in possession or expectancy, now or hereafter
acquired.
7
<PAGE> 13
"Lease Master Agreement" shall mean the contract between the Lessee
and the Partnership in the form of Item 6 of the Master Addendum.
"Lessee's Assignment and Assumption Agreements" shall mean that
certain assignment and assumption agreement whereby the Contributor assigns to
the Lessee and the Lessee assumes the Operating Agreements.
"Lessee Bill of Sale [Personal Property]" shall mean that certain
bill of sale conveying to the Lessee title to certain Personal Property, as
contemplated by the Percentage Lease, and Authorizations related to the
operation and use of the Property.
"Lessee" shall mean Summerfield Suites Lease Company, L.P.
"Manager" shall mean Summerfield Suites Management Company, L.P.
"Management Agreement" shall mean the contract for the management of
the Property to be executed effective on the Closing Date between the Lessee and
the Manager, substantially in the form of Item 9 of the Master Addendum;
provided, that such contract will (i) contain such changes as are necessary to
reflect the fact that the Acquiror will not be privity with the Manager and (ii)
will comply with the requirements set forth in the Lease.
"Master Addendum" shall mean the Master Addendum, dated as of the
date hereof, executed by the Summerfield Affiliated Partnerships and the
Acquiror, which is incorporated herein by reference and made a part of this
Agreement, which addendum contains documents that have also been incorporated as
part of the Other Contribution Agreements.
[FOR TINTON FALLS ONLY - "Monthly Financing Spread" shall mean, with
respect to any calendar month (or any partial calendar month) during the Spread
Calculation Period, the product of (i) the outstanding principal amount of the
Mortgage Note as of the first day of the calendar month (or partial calendar
month) multiplied by (ii) the excess of (A) the effective interest rate (A.P.R.)
on the Mortgage Note expressed as a monthly rate (prorated to reflect any
partial calendar month)
8
<PAGE> 14
over (B) the interest rate Acquiror is able to obtain from the lender that is
financing its acquisition of the Property, also expressed as a monthly rate
(prorated to reflect any partial calendar month).]
"Mortgage" shall mean that certain Deed of Trust, dated
____________________, 19__, by the Contributor to [Bank], recorded on [Register
No./Book and Page] of the [Clerk] of [locality]. A complete and correct copy of
the Mortgage is attached hereto as EXHIBIT D.
"Mortgage Documents" shall mean collectively the Mortgage Note, the
Mortgage and [FOR TINTON FALLS - the other documents set forth in D-1.] all
other documents executed or delivered in connection therewith, including all
modifications thereto.
"Mortgage Note" shall mean that certain Promissory Note, dated
________________, 19__, in the original principal sum of $_____________ made by
the Contributor and payable to the order of [Bank]. A true and complete copy of
the Mortgage Note is attached hereto as EXHIBIT E. The outstanding principal
balance of the Mortgage Note, as of the date hereof, is approximately, and in
any event not greater than $______________.
"Mortgagee" shall mean the holder of the Mortgage Note.
"Operating Agreements" shall mean the management agreements, service
contracts, leases and other agreements, if any, in effect with respect to the
construction, ownership, operation, occupancy or maintenance of the Property,
excluding the Franchise Agreement. All of the Operating Agreements in force and
effect as of the date hereof are listed on EXHIBIT B attached hereto.
"Other Contribution Agreements" shall mean the ten (10) other
Contribution Agreements, each between Acquiror and a Summerfield Affiliated
Partnership, and dated the date hereof, for the contribution by each respective
"Contributor" (as defined in each respective Other Contribution Agreement) to
the Acquiror of a Summerfield Suites hotel, a Sierra Suites hotel or a Sunrise
Suites hotel.
9
<PAGE> 15
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Contribution Consideration and shall be acceptable in form and substance to
the Acquiror. The description of the Land in the Owner's Title Policy shall be
by courses and distances and shall be identical to the description shown on the
Survey.
"Pay-Off Letters" shall mean (a) pay-off letters for the Mortgage
executed on behalf of the Mortgagee, in a form sufficient for the Title Company
to insure title to the Property as of the Closing Date, without taking exception
for the Mortgages, and (b) pay-off letters for the Capital Lease executed by or
on behalf of the lessors thereunder, in a form reasonably satisfactory to the
Acquiror.
"Percentage Lease" shall mean the percentage lease agreement to be
entered into by the Acquiror and the Lessee at Closing with respect to the Hotel
and the hotels acquired pursuant to the Other Contribution Agreements, the form
of which is attached to the Master Addendum as Item 5; specific rent provisions
to be included in the Percentage Lease for the Property are attached as EXHIBIT
G.
"Permitted Title Exceptions" shall mean those exceptions to title to
the Real Property that are set forth on EXHIBIT F.
"Permitted Transferees" shall have the meaning set forth in Section
7.1.
"Personal Property" shall mean the Tangible Personal Property (other
than Tangible Personal Property leased pursuant to operating [as opposed to
capital] leases and set forth on SCHEDULE 3.6) and the Intangible Personal
Property.
"Property" shall mean collectively the Real Property, the Inventory,
the Tangible Personal Property (other than Tangible Personal Property leased
pursuant to operating [as opposed to capital] leases) and the Intangible
Personal Property.
10
<PAGE> 16
"Real Property" shall mean the Land and the Improvements.
"Redemption and Registration Rights Agreement" shall mean the
Redemption and Registration Rights Agreement in the form of Item 2 to the Master
Addendum which provides the Contributor and the Approved Investors with certain
redemption and registration rights.
"Redemption Shares" shall mean all of the shares of the REIT which
are to be issued to a Unit Holder upon conversion of Common Partnership Units
into REIT Shares pursuant to the Redemption and Registration Rights Agreement.
"REIT" shall mean Innkeepers USA Trust, a Maryland real estate
investment trust.
"REIT Shares" shall mean common shares of beneficial interest of the
REIT, par value $0.01 per share.
"Representation Letter" shall mean a representation letter in the
form of Item 3 of the Master Addendum.
[Intentionally Omitted.]
"SEC" shall mean the Securities and Exchange Commission.
"SEC Filings" shall mean all filings made with the SEC by the REIT
from and after the initial Registration Statement filed in connection with its
initial public offering to the Closing Date.
"Securities Act" shall mean the Securities Act of 1933, as amended.
[Intentionally Omitted]
[FOR TINTON FALLS - "Spread Calculation Period" shall mean the
period beginning on the Closing Date and ending on the date that the Mortgage
Note is first permitted to be repaid in full without penalty.]
11
<PAGE> 17
"Study Period" shall mean the period commencing at 9:00 a.m. on the
date hereof, and continuing through 5:00 p.m. E.D.T. on June 2, 1997.
"Summerfield Affiliated Partnerships" shall mean the ten (10)
partnerships which own and are contributing to the Acquiror pursuant to this
Agreement and the Other Contribution Agreements, ten (10) hotels: Addison
Summerfield Associates, L.P., Atlanta Cumberland Sierra Associates, L.P.,
Atlanta Perimeter Sierra Associates, L.P., Belmont Summerfield Associates, L.P.,
El Segundo Summerfield Associates, L.P., Las Colinas Summerfield Associates,
L.P., Mount Laurel Summerfield Associates, L.P., Phoenix Camelback Sierra
Associates, L.P., Tinton Falls Hotel Associates, L.P., and West Hollywood
Summerfield Associates, L.P.
"Survey" shall mean the survey prepared pursuant to Section 5.1(d).
"Tangible Personal Property" shall mean the items of tangible
personal property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel (excluding all Franchisor
signage used thereon), and all furniture, furnishings, equipment, machinery, and
other personal property of every kind located on or used in the operation of the
Hotel and owned by the Contributor; provided, however, that the Acquiror agrees
that all Inventory and certain Personal Property designated on the Lessee Bill
of Sale [Personal Property]shall be conveyed to Lessee or its designee.
"Title Commitment" shall mean the commitment by the Title Company to
issue the Owner's Title Policy.
"Title Company" shall mean Tri-State Commercial Closings, Inc.,
insuring through Commonwealth Title Insurance Company.
"Transfer" for purposes of Section 3.31 only, shall have the meaning
ascribed to that term in Section 3.31(b).
"Unit Holder" shall mean a person holding Common Partnership Units
which were issued in connection with this transaction to the Contributor, its
partners, or a permitted transferee of such person.
12
<PAGE> 18
"Utilities" shall mean public sanitary and storm sewers, natural
gas, telephone, public water facilities, electrical facilities and all other
utility facilities and services necessary for the operation and occupancy of the
Property as a hotel.
"Voting Agreement" means the agreement relating to voting of Common
Partnership Units and Redemption Shares in the form of the agreement attached as
Item 10 of the Master Addendum.
[FOR TINTON FALLS ONLY - "Yield Maintenance Adjustment" shall mean
the sum of the present values, calculated with a 10.25% annual discount rate, as
of the Closing Date of the Monthly Financing Spreads for each calendar month
(including any partial calendar month) during the Spread Calculation Period.]
1.2 Rules of Construction.
The following rules shall apply to the construction and
interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as the
singular and vice versa, and the masculine shall include the feminine and the
neuter.
(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The table of contents and headings contained herein are solely
for convenience of reference and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and revised (or
requested revisions of) this Agreement, and therefore any usual rules of
construction requiring that ambiguities are to be resolved against a particular
party shall not be applicable in the construction and interpretation of this
Agreement or any exhibits hereto.
2. CONTRIBUTION AND ACQUISITION;PAYMENT OF CONTRIBUTION CONSIDERATION
13
<PAGE> 19
2.1. Contribution and Acquisition.
The Contributor agrees to contribute and the Acquiror agrees to
acquire the Property for the Contribution Consideration and in accordance with
the other terms and conditions set forth herein.
2.2. Study Period.
(a) The Acquiror shall have the right, until the end of the Study
Period (and thereafter if the Acquiror does not notify the Contributor that the
Acquiror has elected to terminate this Agreement in the manner described below)
to enter upon the Real Property during normal business hours with reasonable
notice and Contributor's permission, which permission shall not be unreasonably
withheld, conditioned or delayed, and to perform, at the Acquiror's expense,
such economic, surveying, engineering, environmental, topographic and marketing
tests, studies and investigations as the Acquiror may deem appropriate.
(b) If such tests, studies, investigations and audits reveal (i)
material structural or environmental problems, or (ii) material discrepancies in
the financial statements, the Acquiror may elect not to proceed to Closing and
shall so notify the Contributor prior to the expiration of the Study Period. If
the Acquiror notifies the Contributor, in writing prior to the expiration of the
Study Period that it has determined not to proceed to Closing for one or more of
the reasons set forth in this Section 2.2(b), this Agreement automatically shall
terminate and the Acquiror and the Contributor shall be released from any
further liability or obligation under this Agreement; provided, however, that if
the Acquiror determines not to proceed to Closing because of a material
structural problem, the Acquiror shall provide the Contributor,
contemporaneously with the foregoing notice, with the written report from a
structural engineer describing the structural problem and the Contributor shall
have the right to cure such structural problem to the satisfaction of Acquiror
within thirty (30) days of its receipt of such report, and the Closing shall be
extended to the last day of the Hotel accounting period immediately after the
date of Closing set forth in Section 6.1, as such date may have otherwise been
extended.
(c) If such tests, studies and investigations do not warrant, in the
Acquiror's sole, absolute and unreviewable
14
<PAGE> 20
discretion, the acquisition of the Property for any reason not set forth in
Section 2.2(b) or 2.2(f), the Acquiror may elect not to proceed to Closing and
shall so notify the Contributor prior to the expiration of the Study Period. If
the Acquiror notifies the Contributor, in writing, prior to the expiration of
the Study Period that it has determined not to proceed to Closing pursuant to
this Section 2.2(c), this Agreement and each of the Other Contribution
Agreements shall automatically terminate and the Acquiror shall be released from
all further liability and obligations, if any, under this Agreement and the
Other Contribution Agreements.
(d) During the Study Period, the Contributor shall make available to
the Acquiror, its agents, auditors, engineers, attorneys and other designees,
for inspection, copies of all existing architectural and engineering studies,
surveys, title insurance policies, zoning and site plan materials, as-built
plans and specifications, certificates of occupancy, liquor licenses, historical
and budgeted financial information, auditors' opinions and reports, auditor's
"management letters", correspondence and other related materials or information
if any, relating to the Property which are in, or come into, the Contributor's
possession or control.
(e) The Acquiror shall indemnify and defend the Contributor against
any costs, loss, damage, claim, or expense (including reasonable costs and
attorneys fees) arising from entry upon the Real Property by the Acquiror or any
agents, contractors or employees of the Acquiror. The indemnity contained in
this Section 2.2(e) shall not be subject to the survival limitation set forth in
Section 10.10(b)(i) nor shall the indemnity be subject to the $500,000 floor set
forth in Section 9.3.
(f) During the Study Period, the Acquiror, at its expense, shall
cause an examination of title to the Property to be made and shall promptly
order the Title Commitment and the Survey, and, prior to the expiration of the
Study Period, shall notify the Contributor of any defects in title (other than
Permitted Title Exceptions) shown by such examination that the Acquiror is
unwilling to accept. Within seven (7) business days after such notification, the
Contributor shall notify the Acquiror whether the Contributor is willing to
attempt to cure such defects. If the Contributor is willing to attempt to cure
such defects, the Contributor shall act promptly and diligently
15
<PAGE> 21
to cure such defects at its expense, and, in any event, shall cure such defects
prior to Closing. If such defects consist of deeds of trust, mechanics' liens,
tax liens or other liens or charges in a fixed sum or capable of computation as
a fixed sum, the Contributor shall pay and discharge (and the Escrow Agent is
authorized to pay and discharge at Closing) such defects at Closing. If the
Contributor is unwilling or unable to cure any other such defects by Closing,
the Acquiror shall elect (1) to waive such defects and proceed to Closing
without any abatement in the Contribution Consideration or (2) to terminate this
Agreement and receive a full refund of the Deposit. The Contributor shall not,
after the date of this Agreement, knowingly subject the Property to any liens,
encumbrances, covenants, conditions, restrictions, easements or other title
matters or seek any zoning changes or take any other action which may affect or
modify the status of title without the Acquiror's prior written consent. All
title matters revealed by the Acquiror's title examination and not objected to
by the Acquiror as provided above shall be deemed Permitted Title Exceptions. If
Acquiror shall fail to examine title and notify the Contributor of any such
title objections by the end of the Study Period, all such title exceptions
(other than those rendering title unmarketable and those that are to be paid at
Closing as provided above) shall be deemed Permitted Title Exceptions.
(g) The Contributor shall have the right, until the end of the Study
Period, to terminate this Agreement and all (but not fewer than all) Other
Contribution Agreements, if the REIT's closing share price on any day in the
Study Period is less than $12.00 by delivery to Acquiror of written notice
within the earlier of (i) five (5) days after such date or (ii) the end of the
Study Period. If the Acquiror terminates this Agreement and the Other
Contribution Agreements pursuant to this Section 2.2(g), the Acquiror and the
Contributor shall be released from all liability and obligations under this
Agreement and the Other Contribution Agreements.
2.3. Payment of Contribution Consideration.
The Contribution Consideration shall be paid to the Contributor in
the following manner:
(a) The Acquiror shall take the Property subject to existing
indebtedness evidenced by the Mortgage and Mortgage Note and the Acquiror shall
receive a credit against the Contribution
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Consideration in an amount equal to the principal balance of the Mortgage Note
which the Mortgage secures, plus all accrued interest to the Closing Date plus
any prepayment premium and any other charges incurred by the Acquiror and
required by the Mortgagee in connection with the transactions contemplated by
this Agreement. [FOR TINTON FALLS - The Acquiror also shall receive a credit
against the Contribution Consideration in an amount equal to the Yield
Maintenance Adjustment. In addition, the Acquiror shall be charged and the
Contributor shall be paid for the amount of the sums being held in escrow by the
Mortgagee (as confirmed by the Mortgagee) and being assigned and transferred to
the Acquiror.]
(b) The Acquiror shall assume the lease or leases ("Capital Leases")
identified on SCHEDULE 2.3(B) and shall receive a credit against the
Contribution Consideration in an amount equal to the amount required to
completely satisfy its obligations thereunder, including but not limited to any
accrued or future rental payments, pre-payment, early payment, re-marketing or
similar fees, purchase price amounts, and any other incidental charges incurred
by Acquiror and required by the lessor under the Capital Lease in connection
with the transactions contemplated by this Agreement.
(c) The Acquiror shall pay the balance of the Contribution
Consideration (i) $______________ in the form of Common Partnership Units, all
as more particularly described in Section 2.5, and (ii) the balance in cash, to
be delivered by wire transfer to an account designated in writing by
Contributor. Upon receipt of the Common Partnership Units, the Contributor shall
become a limited partner of the Acquiror and shall execute the Acquiror's
Partnership Agreement.
The parties agree that, to the extent that the Contributor receives
Common Partnership Units, the transfer of the Property to the Acquiror shall be
treated for federal income tax purposes as a contribution of the Property in
exchange for a partnership interest in the Acquiror that qualifies as a tax-free
contribution under the Code.
2.4. Allocation of Contribution Consideration.
Prior to Closing, the parties shall use good faith efforts to agree
upon the amounts of Contribution Consideration to be allocated at Closing to the
Tangible Personal Property, to
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the Land and to the Improvements. The Acquiror and the Contributor agree to use
such allocation of Contribution Consideration to complete IRS Form 8594, if such
form is required to be filed by the Acquiror and the Contributor.
2.5. Determination of Number of Common Partnership Units.
For purposes of determining the number of Common Partnership Units
to be delivered by the Acquiror at the Closing, each Common Partnership Unit
shall be deemed to have a value equal to $15.00. The Contributor shall receive
certificates at the Closing representing the number of Common Partnership Units.
The certificates evidencing the Common Partnership Units will bear appropriate
legends indicating (a) that the Common Partnership Units have not been
registered under the Securities Act, and (b) that the Acquiror's Partnership
Agreement restricts the transfer of Common Partnership Units and (c) that the
Common Partnership Units shall be voted in accordance with the terms of the
Voting Agreement. The holders of Common Partnership Units shall be redeemable
for cash or REIT Shares and shall have such other characteristics all as more
fully described in the Acquiror's Partnership Agreement.
2.6. Authorization and Reservation of Common Shares.
The REIT shall at all times take all such action as may be required
to authorize and reserve for issuance all of the Redemption Shares and shall
take all such action as may be required to issue and deliver the Redemption
Shares to the Acquiror at such time or times and in such manner as may be
reasonably required in order for the Acquiror to deliver the Redemption Shares
to the Contributor, its partners and their permitted transferees, as provided in
the Acquiror's Partnership Agreement and the Redemption and Registration Rights
Agreement.
2.7. Contingent Consideration
[FOR SIERRA HOTELS ONLY] In addition to the Contribution
Consideration, if Acquiror receives a Return on Investment of more than
$__________, Acquiror shall distribute to Contributor an amount of Common
Partnership Units with a value equal to the Distributable Amount ("Distributable
Contingent Units") (based on a deemed value of $15.00 per unit) promptly after
the end of the Determination Period. In addition, Acquiror shall pay to
Contributor at the time it distributes the
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Distributable Contingent Units to Contributor Acquiror shall pay Contributor an
amount equal to all dividends that would have accrued on the Distributable
Contingent Units if they had been distributed to Contributor on the Closing
Date, plus interest from the dates such dividends would have been distributed at
the rate of [5%]. The deemed value of Distributable Contingent Units shall be
allocated in the manner described in Section 2.4. The term "Determination Period
shall mean the thirteen (13) consecutive four-week accounting periods ending on
the Friday closest to June 30, 1998. The term Return on Investment shall mean
(i) the total rent payable to Acquiror under the Percentage Lease and
attributable to the Property during the Determination Period, with such amount
being calculated with references only to the percentage rent formula based on
room revenues set forth in the Percentage Lease, and excluding cure and similar
payments, if any, minus (ii) real estate taxes and personal property taxes
payable by Acquiror for the Property that are attributable to the Determination
Period. The term "Distributable Amount" shall mean an amount equal to (i) the
amount by which the Return on Investment exceeds $__________ divided by (ii)
.12.
3. CONTRIBUTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to purchase the
Property, the Contributor hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Contributor
acknowledges and agrees that the Acquiror is entitled to rely and has relied.
3.1. Organization and Power.
The Contributor is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Kansas and has all
requisite powers and all governmental licenses, authorizations, consents and
approvals, except where the failure to have such governmental licenses,
authorizations, consents and approvals would not have a material adverse affect
on the business or financial condition of Contributor (a "Contributor Material
Adverse Effect") to carry on its business as now conducted and to enter into and
perform its obligations hereunder and under any document or instrument required
to be executed and delivered on behalf of the Contributor hereunder.
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3.2. Authorization and Execution.
This Agreement has been duly authorized by all necessary action on
the part of the Contributor, has been duly executed and delivered by the
Contributor, constitutes the valid and binding agreement of the Contributor and
is enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws and
equitable principles affecting creditors' rights generally. There is no other
person or entity (other than the Mortgagee) who has an ownership interest in the
Property or whose consent is required in connection with the Contributor's
performance of its obligations hereunder, other than such consents as have been
obtained or as set forth on SCHEDULE 3.2.
3.3. Noncontravention.
The execution and delivery of, and the performance by the
Contributor of its obligations under, this Agreement do not and will not
contravene, or constitute a default under, any provision of applicable law or
regulation, the Contributor's Organizational Documents or any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Contributor, other than the Mortgage Documents, or result in the creation of any
lien or other encumbrance on any asset of Contributor. There are no outstanding
agreements (written or oral) pursuant to which the Contributor (or any
predecessor to or representative of the Contributor) has agreed to sell or has
granted an option or right of first refusal to purchase the Property or any part
thereof.
3.4. No Special Taxes.
The Contributor has no knowledge of, nor has either received any
notice of, any special taxes or assessments relating to the Property or any part
thereof or any planned public improvements that may result in a special tax or
assessment against the Property which are not reflected on the Title Commitment.
3.5. Compliance with Existing Laws.
The Contributor possesses all Authorizations, except where the
failure to have such Authorizations would not have a Contributor Material
Adverse Effect, each of which is valid and in full force and effect, and no
provision, condition or limitation of any of the Authorizations has been
breached or violated in any material respect. The Contributor has neither
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misrepresented nor failed to disclose any material relevant fact in obtaining
all Authorizations, and to Contributor's Knowledge there has been no change in
the circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributor has
no knowledge, nor has Contributor received notice within the past eighteen
months (or since commencement of development or the date of acquisition of the
Facility if such development commenced or acquisition occurred within the past
eighteen months), nor to Contributor's Knowledge has Contributor received notice
within the past three years (or since commencement of development or the date of
acquisition of the Property if such development commenced within the past three
years) of any existing or threatened violation of any provision of any
applicable building, zoning, subdivision, environmental or other governmental
ordinance, resolution, statute, rule, order or regulation, including but not
limited to those of environmental agencies or insurance boards of underwriters,
with respect to the ownership, operation, use, maintenance or condition of the
Property or any part thereof, or requiring any repairs or alterations other than
those that have been made prior to the date hereof, except such violations as
have been cured to the satisfaction of the relevant authority.
3.6. Operating Agreements.
Other than the existing management agreement for the Hotel and the
agreements listed on SCHEDULE 3.6, each of the Operating Agreements may be
terminated upon not more than 30 days' prior written notice and without the
payment of any penalty, fee, premium or other amount. To Contributor's
Knowledge, Contributor has performed all of its obligations under each of the
Operating Agreements and no fact or circumstance has occurred which, by itself
or with the passage of time or the giving of notice or both, would constitute a
material default under any of the Operating Agreements. Without limiting the
foregoing, the Contributor has performed all of its obligations under the
existing management agreement for the Hotel and no fact or circumstance has
occurred which, by itself and or with the passage of time or the giving of
notice or both, would constitute a material default under the management
agreement.
3.7. Warranties and Guaranties.
The Contributor shall not before or after Closing, release or modify
any warranties or guarantees, if any, of
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contractors, builders, architects, manufacturers, suppliers and installers
relating to the Improvements and the Personal Property or any part thereof,
except with the prior written consent of the Acquiror.
3.8. Insurance.
All of the Contributor's insurance policies are valid and in full
force and effect, all premiums for such policies were paid when due and all
future premiums for such policies (and any replacements thereof) shall be paid
by the Contributor on or before the due date therefor. Prior to Closing, the
Contributor shall pay all premiums then-due on, and shall not cancel or
voluntarily allow to expire, any of the Contributor's insurance policies unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced.
3.9. Condemnation Proceedings; Roadways.
The Contributor has received no notice of any condemnation or
eminent domain proceeding pending or, to the Contributor's Knowledge threatened
against the Property or any part thereof. To Contributor's Knowledge, there has
been no material change or proposed material change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.10. Litigation.
There is no action, suit or proceeding pending or known to be
threatened against or affecting the Contributor in any court, before any
arbitrator or before or by any governmental agency which (a) in any manner
raises any question affecting the validity or enforceability of this Agreement
or any other material agreement or instrument to which the Contributor is a
party or by which it is bound and that is or is to be used in connection with,
or is contemplated by, this Agreement, (b) could materially and adversely affect
the business, financial position or results of operations of the Contributor,
(c) could materially and adversely affect the ability of the Contributor to
perform its obligations hereunder, or under any document to be delivered
pursuant hereto, (d) could create a lien on the Property, any part thereof or
any interest therein, or (e) could otherwise materially adversely affect the
Property, any part thereof or any
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interest therein or the use, operation, condition or occupancy thereof.
3.11. Labor Disputes and Agreements.
The Contributor currently has no employees and has never had any
hotel employees. There are no labor disputes pending or, to Contributor's
Knowledge, threatened as to the operation or maintenance of the Property or any
part thereof. No labor disputes are pending or threatened as to the operation or
maintenance of the Property or any part thereof. Neither Summerfield Hotel
Corporation nor the Manager is a party to any union or other collective
bargaining agreement with employees employed in connection with the ownership,
operation or maintenance of the Property. The Acquiror shall not have any
liability under any pension or profit sharing plan that the Manager may have
established with respect to the Property or their or its employees.
3.12. Financial Information.
All of Contributor's Financial Information previously delivered to
Acquiror is correct and complete in all material respects, was prepared in
accordance with GAAP consistently applied throughout the periods indicated,
subject, in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (which, if presented,
would not differ materially from those notes included in the most recent
year-end financial statements). The financial information presents accurately
the results of the operations of the Property for the periods indicated. If
requested by Acquiror, Contributor will forward promptly all four-week
period-ending financial information that it prepares or receives regarding, in
whole or in part, the Property. Since the date of the last financial statement
included in the Contributor's Financial Information, there has been no material
adverse change in the financial condition or in the operations of the Property.
Between the date of the latest financial information provided to
Acquiror before the end of the Study Period and Closing there will be no
material changes in the financial condition of the Contributor other than
changes made in the usual and ordinary conduct of the business of the
Contributor, none of
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which has been or will be materially adverse and all of which have been or will
be recorded in its books of account.
3.13. Organizational Documents.
The Contributor's Organizational Documents are in full force and
effect and have not been modified or supplemented, and no fact or circumstance
has occurred that, by itself or with the giving of notice or the passage of time
or both, would constitute a default thereunder.
3.14. Operation of Property.
The Contributor covenants that between the date hereof and the date
of Closing it will, or will cause the existing Manager of the Hotel to, (a)
operate the Property only in the usual, regular and ordinary manner consistent
with prior practice, (b) maintain its books of account and records in the usual,
regular and ordinary manner, in accordance with sound accounting principles
applied on a basis consistent with the basis used in keeping its books in prior
years, and (c) use all reasonable efforts to preserve intact its present
business organization, keep available the services of its present officers and
employees and preserve its relationships with suppliers and others having
business dealings with it.
3.15. Personal Property.
Subject only to the Permitted Title Exceptions, the Mortgage and the
Capital Lease, all of the Personal Property being conveyed by the Contributor to
the Acquiror will be free and clear of all liens and encumbrances on the Closing
Date and the Contributor has good, merchantable title thereto and the right to
convey same in accordance with the terms of this Agreement.
3.16. Bankruptcy.
No Act of Bankruptcy has occurred with respect to the Contributor or
the general partner(s) of the Contributor.
3.17. Title to Property.
Except for Permitted Title Exceptions, the Capital Lease and as set
forth on SCHEDULE 3.6, the Contributor is the
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<PAGE> 30
sole owner of good and marketable fee simple title to the Tangible Personal
Property free and clear of all liens, leases (capital or otherwise),
encumbrances, restrictions, conditions, and agreements. The Contributor shall
not take any action from the date hereof and through and including the Closing
Date that would adversely affect the status of title to the Real Property. The
Contributor has a title insurance policy insuring its fee simple title to the
Real Property.
3.18. Zoning.
To Contributor's Knowledge, the current use and occupancy of the
Property for hotel purposes are permitted as a matter of right as a principal
use under all laws applicable thereto without the necessity of any special use
permit, special exception or other special permit, permission or consent.
3.19. Historical Districts.
Neither the Property, nor any portion thereof, is (a) listed, or
eligible to be listed, in any national, state or local register of historic
places or areas, or (b) located within any designated district or area in which
the permitted uses of land located therein are restricted by regulations, rules
or laws other than those specified under local zoning ordinances.
3.20. Brokerage Commission.
Other than Montgomery Securities, the Contributor has not engaged
the services of, nor is it or will it become liable to, any real estate agent,
broker, finder or any other person or entity for any brokerage or finder's fee,
commission or other amount with respect to the transactions described herein.
The Contributor shall pay any such fee, commission or other amount if it becomes
due prior to, at, or after Closing and shall indemnify and hold Acquiror
harmless for any such fee, commission or other amount.
3.21. Hazardous Substances.
To Contributor's Knowledge: there are no (a) Hazardous Substances on
the Property, or any portion thereof, or, (b) spills, releases, discharges, or
disposal of Hazardous Substances that have occurred or are presently occurring
on or onto the Property, or any portion thereof, or (c) PCB
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transformers serving, or stored on, the Property, or any portion thereof, and to
Contributor's Knowledge, Contributor and the current manager have complied with
any applicable local, state and federal environmental laws, regulations,
ordinances and administrative and judicial orders relating to the generation,
recycling, reuse, sale, storage, handling, transport and disposal of any
Hazardous Substances.
3.22. Room Furnishings.
All public spaces, lobbies, meeting rooms, and each room in the
Hotel available for guest rental is furnished in accordance with Franchisor's
standards for the Hotel and room type.
3.23. Franchisor.
The existing agreement from the Franchisor is, and at Closing will
be, valid and in full force and effect, and Contributor is not and will not be
in default with respect thereto (with or without the giving of any required
notice and/or lapse of time).
3.24. Liquor License.
________________ currently possesses and, will immediately after
Closing, possess a liquor license for the Hotel which authorizes the
distribution of the liquor products served at the Hotel. The liquor license is
valid and in full force and effect, and no provision, condition or limitation of
the liquor license has been breached or violated in any material respect.
____________ has neither misrepresented nor failed to disclose any material
relevant fact in obtaining the liquor license and there has been no change in
the circumstances under which the liquor license was obtained that could result
in its termination, suspension, modification or limitation.
3.25. Independent Audit.
Contributor shall provide access by Acquiror's representatives to
Contributor's auditors and to all financial and other information relating to
the Property in its possession, in each case as would be reasonably required to
evaluate and/or prepare audited financial statements in conformity with
Regulation S-X of the SEC and to prepare a registration
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statement, report or disclosure statement for filing with the SEC. Contributor
shall, if requested, provide to Acquiror's representatives a signed
representation letter for use in rendering an opinion on the financial
statements related to the Property. Contributor shall, if requested, authorize
and direct Contributor's auditors, at Acquiror's expense, to cooperate with REIT
and Acquiror in providing to them reports and consents relating to financial
statements prepared or to be prepared by such auditors relating to the Property
and included in whole or part in SEC filings, including but not limited to
registration statements.
3.26. Sufficiency of Certain Items.
To Contributor's Knowledge, the Property contains not less than:
(a) a sufficient amount of furniture, furnishings, color television
sets, carpets, drapes, rugs, floor coverings, mattresses, pillows, bedspreads
and the like, to furnish each guest room, so that each such guest room is, in
fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens, so
that there are at least two and one-half sets of towels, washcloths and linens
for each guest room, together with a sufficient supply of paper goods, soaps,
cleaning supplies and other such supplies and materials, as are reasonably
adequate for the current operation of the Hotel.
3.27. Additional Representations and Warranties.
(a) A true and correct schedule of the legal names, identities and
current ownership percentages of the owners of the Contributor on the date
hereof are set forth on an exhibit to the Contributor's Partnership Agreement
included in Contributor's Organizational Documents. There are no outstanding
options, warrants or other rights to acquire any equity interest in the
Contributor. The Contributor will not issue any equity interest, or any option,
warrant or other right to acquire any equity interest, in the Contributor prior
to the Closing Date and will not, without the consent of the Acquiror, which
consent shall not be unreasonably withheld, permit any partner to sell, assign,
transfer or convey or otherwise attempt to dispose of any portion of his or her
interest in the Contributor, as applicable. The
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Contributor will, prior to the Closing Date, cause its partners to complete,
sign and deliver to Acquiror a Representation Letter; and
(b) Contributor understands that the Common Partnership Units have
not been registered under state or federal securities laws and that the
Redemption Shares issuable upon the redemption of the Common Partnership Units
shall not have been registered under state or federal securities laws and
neither the Common Partnership Units nor the Redemption Shares may be sold or
transferred except according to the terms of this Agreement, the Acquiror's
Partnership Agreement or the Redemption and Registration Rights Agreement, and
in any event pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from registration under the
Securities Act.
3.28. Securities Matters.
Contributor represents and warrants that (i) Contributor and each
Approved Investor is an "accredited investor" as defined under Regulation D
under the Securities Act, and (ii) Contributor and each Approved Investor will
complete, execute and deliver the Representation Letter on or before the
Closing.
3.29 Taxes.
(a) The Contributor has filed all income tax information returns on
IRS Form 1065 (including K-1s for each partner) and applicable state tax forms
required to be filed with the United States Government and with all states and
political subdivisions thereof where any such returns are required to be filed
and where the failure to file such return or report would subject any of them to
any material liability or penalty. All income taxes imposed by the United
States, or by any foreign country, or by any state, municipality, subdivision,
or instrumentality of the United States or of any foreign country, or by any
other taxing authority, which are due and payable by Contributor to have been
paid in full or adequately provided for by reserves shown in their records and
books of account and in the Contributor's Financial Information. Contributor has
not obtained or received any extension of time for the assessment of
deficiencies for any years. To Contributor's Knowledge no unassessed tax
deficiency is proposed or threatened against it.
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(b) Other than with respect to the subject matter of the opinion
delivered pursuant to Section 6.3(f), the Contributor represents and warrants
that it has obtained, and has advised each of its partners to obtain, from its
own counsel advice regarding the tax consequences of becoming a partner in the
Acquiror.
(c) To Contributor's Knowledge, all sales taxes, hotel accommodation
taxes or the equivalent, and all interest and penalties due thereon, required to
be paid or collected by Contributor or the existing manager in connection with
the operation of the Property as of the Closing Date will have been collected
and/or paid to the appropriate governmental authorities, as required.
Contributor shall be responsible for paying, or for causing the existing manager
to pay, all of such taxes, and all interest and penalties due thereon, due and
owing up until the day of Closing. Contributor shall file, or cause the existing
manager to file, all necessary returns and petitions and request any statutory
audits under state law, so as to release Acquiror and its Affiliates to the
maximum extent practicable, but without depositing any collateral with any
governmental agency, from any transferee liability with respect to such taxes.
3.30. No Misrepresentations.
Neither this Agreement nor the Contributor's Financial Information
delivered to Acquiror pursuant to or in connection with this Agreement and the
transactions contemplated hereby, contains or will contain any misstatement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
3.31. Tax Opinion Representations.
For purposes of the tax opinion described in Section 6.3(f) hereof,
Contributor represents, warrants, and covenants that:
(a) The Contributor at all times has been and is classified as a
partnership for federal income tax purposes;
(b) The Acquiror will assume, or take the Property subject to, only
liabilities that fall into one of the following
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four categories (for this purpose, treating any refinancing as a continuation of
the original debt to the extent that the net proceeds of the refinancing are
used to repay the original debt): (i) debt that is more than two years old and
has encumbered the Property throughout such two-year period; (ii) debt that has
not been outstanding for more than two years, but that was incurred to purchase,
or is properly allocable to capital expenditures with respect to, the Property;
(iii) a trade payable or other similar obligation incurred in the ordinary
course of the Contributor's trade or business (regardless of how long such
payable or obligation has been outstanding); or (iv) debt incurred within two
years prior to the transfer of the Property from the Contributor to the Acquiror
(the "Transfer") that has been secured by the Property since the debt's
incurrence and that was not incurred in anticipation of such Transfer.
(c) During the two-year period immediately preceding the Transfer,
the total amount of the distributions of available cash flow (including
available cash flow from a prior year that was retained by the Contributor) made
by the Contributor to each partner of the Contributor for each year did not
exceed the product of the Contributor's net cash flow from operations for the
year multiplied by such partner's percentage interest in overall profits of the
Contributor for that year. [For purposes of this representation, the term
"available cash flow" shall not include (i) proceeds of any obligations of the
Contributor that are described in Section 3.31(b)(iv) hereof or (ii) capital
contributed to the Contributor by the partners of the Contributor that, at the
time of such contribution, was reasonable required for construction of the
Hotel, but that was later determined not to be required for construction of the
Hotel.]
(d) As of the Closing Date, the Contributor does not have the
current intention of redeeming, selling or otherwise disposing of any of its
Common Partnership Units in a taxable transaction within the two-year period
immediately following the Transfer [FOR TINTON FALLS, EL SEGUNDO AND ADDISON -
Except to the extent the same will be used to pay accrued incentive management
fees (the "Management Fee Units"), -- FOR ATLANTA PERIMETER - Except to the
extent the same will be used to pay accrued base management fees the "Management
Fee Units"].
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3.23. Mortgage Documents.
The Mortgage Documents are complete, are in full force and effect
and have not been modified or supplemented, except as otherwise disclosed, and
no fact or circumstance has occurred that, by itself or with the giving of
notice or the passage of time or both, would constitute a default under any of
the Mortgage Documents. The Contributor has not been advised nor has Contributor
received any notice asserting that a default exists under any of the Mortgage
Documents. The Contributor shall not amend or supplement the Mortgage Documents
in whole or in part. The Contributor shall pay or make, as and when due and
payable, all payments of principal, interest and other amounts required to be
paid or made under the Mortgage Documents. The Contributor shall obtain Pay-Off
Letters from each of the Mortgagees at least three days prior to the Closing
Date.
3.33. Updating of Representations and Warranties.
Between the date hereof and the Closing Date, Contributor will
promptly disclose to Acquiror in writing any information of which it has actual
knowledge (a) concerning any event that would render any representation or
warranty of Contributor hereunder untrue if made as to the date of such event,
(b) which renders any information set forth in the Agreement no longer correct
in all material respects, or (c) which arises after the date hereof and which
would have been required to be included in the Agreement if such information had
existed on the date hereof.
3.34. Bulk Sales Compliance.
Contributor shall indemnify Acquiror from and against any and all
claims, losses or liabilities arising under any applicable bulk sales law in
connection with the transactions contemplated herein.
Each of the representations, warranties and covenants contained in
this Article III and its various subparagraphs are intended for the benefit of
the Acquiror and may be waived in whole or in part, by the Acquiror, but only by
an instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby, for the period specified in Section 10.10 and no
investigation, audit, inspection, review or the like conducted by or on behalf
of the Acquiror shall be deemed to terminate the effect of any such
representations,
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warranties and covenants, it being understood that the Acquiror has the right to
rely thereon and that each such representation, warranty and covenant
constitutes a material inducement to the Acquiror to execute this Agreement and
to close the transaction contemplated hereby and to pay the Contribution
Consideration to the Contributor.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ACQUIROR AND REIT
To induce the Contributor to enter into this Agreement and to contribute
the Property, the Acquiror and the REIT, jointly and severally hereby make the
following representations, warranties and covenants, upon each of which
Innkeepers acknowledges and agrees that the Contributor is entitled to rely and
has relied:
4.1 Organization and Power.
(a) The Acquiror is a limited partnership duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia,
and has all partnership powers and all governmental licenses, authorizations,
consents and approvals, except where the failure to have such governmental
licenses, authorizations, consents and approvals would not have a material
adverse affect on the business or financial condition of Acquiror (an "Acquiror
Material Adverse Effect"), to carry on its business as now conducted and to
enter into and perform its obligations under this Agreement and any document or
instrument required to be executed and delivered on behalf of the Acquiror
hereunder.
(b) The REIT is a Maryland real estate investment trust, duly
organized, validly existing and in good standing under the laws of the State of
Maryland, and has all trust powers and all material governmental licenses,
authorizations, consents and approvals, except where the failure to have such
governmental licenses, authorizations, consents and approvals would not have an
Acquiror Material Adverse Effect, to carry on its business as now conducted and
to enter into and perform its obligations under this Agreement and any document
or instrument required to be executed and delivered on behalf of the REIT
hereunder.
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4.2. Authorization and Execution.
This Agreement constitutes the valid and binding obligation of
Acquiror and the REIT, enforceable against each of them in accordance with its
terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws and equitable principles affecting creditors'
rights generally. The execution, delivery, and performance of this Agreement,
the Closing Documents, and the transactions contemplated by all such agreements
have been duly authorized by the respective boards of trustees/directors of the
REIT and the general partner of the Acquiror.
4.3. Noncontravention.
(a) The execution and delivery of this Agreement and the performance
by the Acquiror of its obligations hereunder do not and will not contravene, or
constitute a default under, any provisions of applicable law or regulation, the
Acquiror's Partnership Agreement or any agreement, judgment, injunction, order,
decree or other instrument binding upon the Acquiror or result in the creation
of any lien or other encumbrance on any asset of the Acquiror. The Acquiror is
not in violation of the Acquiror's Partnership Agreement or in material default
with respect to any material agreements.
(b) The execution and delivery of this Agreement and the performance
by the REIT of its obligations hereunder do not and will not contravene, or
constitute a default under, any provisions of applicable law or regulation, the
REIT's declaration of trust or any agreement, judgment, injunction, order,
decree or other instrument binding upon the REIT or result in the creation of
any lien or other encumbrance on any asset of the REIT. The REIT is not in
violation of its declaration of trust or in material default with respect to any
material agreements.
4.4. Compliance with Existing Laws.
Innkeepers Property Owning Partnerships and Innkeepers Lessees
possess all Authorizations, except where the failure to possess such
Authorizations would not constitute an Acquiror Material Adverse Effect, each of
which is valid and in full force and effect, and no provision, condition or
limitation of any of the Authorizations has been breached or violated in any
material respect. Innkeepers Property Owning Partnerships and Innkeepers
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Lessees have not misrepresented or failed to disclose any material relevant fact
in obtaining all Authorizations, and to Acquiror's Knowledge, there have been no
changes in the circumstances under which those Authorizations were obtained that
result in their termination, suspension, modification or limitation. To
Acquiror's Knowledge, Innkeepers Property Owning Partnerships and Innkeepers
Lessees are not in violation of any existing or threatened material violation of
any provision of any applicable building, zoning, subdivision, environmental or
other governmental ordinance, resolution, statute, rule, order or regulation,
including but not limited to those of environmental agencies or insurance boards
of underwriters, with respect to the ownership, operation, use, maintenance or
condition of Innkeepers Hotel Properties or any part thereof, or requiring any
repairs or alterations other than those that have been made prior to the date
hereof.
4.5. Litigation.
There is no action, suit or proceeding, pending or known to be
threatened, against or affecting REIT, Innkeepers Property Owning Partnerships
or Innkeepers Lessees in any court or before any arbitrator or before any
governmental agency which (a) in any manner raises any question affecting the
validity or enforceability of this Agreement or any other material agreement or
instrument to which Innkeepers is a party or by which it is bound and that is to
be used in connection with, or is contemplated by, this Agreement, (b) could
materially and adversely affect the business, financial position or results of
operations of the REIT, Innkeepers Property Owning Partnerships or Innkeepers
Lessees, (c) could materially and adversely affect the ability of any of them to
perform its respective obligations hereunder, or under any document to be
delivered pursuant hereto, (d) could create a lien on any of their assets, any
part thereof or any interest therein, or (e) could otherwise materially
adversely affect any of their assets, any part thereof or any interest therein
or the use, operation, condition or occupancy thereof.
4.6. Labor Disputes and Agreements.
None of REIT, Innkeepers Property Owning Partnership or Innkeepers
Lessee has any labor disputes pending or to Acquiror's Knowledge threatened as
to the operation or maintenance of the Innkeepers Hotel Properties. None of
REIT,
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Innkeepers Property Owning Partnership or Innkeepers Lessee is a party to any
union or other collective bargaining agreement with employees employed in
connection with the ownership, operation or maintenance of the Innkeepers Hotel
Properties.
4.7. Financial Statements.
The REIT or Innkeepers Lessee has previously provided Contributor
with the Innkeepers Financial Statements and JF Hotel Financial Statements, all
of which are true and complete in all material respects and have been prepared
in accordance with GAAP consistently followed throughout the periods indicated,
subject in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (which if presented
would not differ materially from those included in the most recent year-end
financial statements). There have been, and prior to the Closing Date there will
be, no material changes in the financial condition of the REIT, or Acquiror
other than changes made in the usual and ordinary conduct of the businesses of
the REIT, and Acquiror, none of which has been or will be materially adverse and
all of which have been or will be recorded in their respective books of account.
4.8. Title to Properties.
The Innkeepers Property Owning Partnerships have title insurance
policies insuring their fee simple title or leasehold interest, as the case may
be, to all lands and buildings described in the REIT's 1996 Form 10-K and 1996
Annual Report to Shareholders, or otherwise disclosed in its most recent
Financial Statements as being owned by it.
4.9. Zoning.
To Acquiror's Knowledge, the current use and occupancy of the
Innkeepers Hotel Properties for hotel and restaurant purposes are permitted as a
matter of right as a principal use under all laws applicable thereto without the
necessity of any special use permit, special exception or other special permit,
permission or consent.
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4.10. Insurance.
All of the Innkeepers Property Owning Partnerships' insurance
policies are valid and in full force and effect, all premiums for such policies
were paid when due and all future premiums for such policies (and any
replacements thereof) shall be paid by the Innkeepers Property Owning
Partnerships on or before the due date therefor. Prior to Closing, the
Innkeepers Property Owning Partnerships shall pay all premiums then-due on, and
shall not cancel or voluntarily allow to expire, any of the Innkeepers Property
Owning Partnerships' insurance policies unless such policy is replaced, without
any lapse of coverage, by another policy or policies providing coverage at least
as extensive as the policy or policies being replaced.
4.11. Personal Property.
Except as disclosed in the Innkeepers Financial Statements and the
JF Financial Statements, an Innkeepers Property Owning Partnership or an
Innkeepers Lessee has good and marketable title to all of the machinery,
equipment, materials, supplies, and other property of every kind, tangible or
intangible, shown as assets in its records and books of account, free and clear
of all liens, encumbrances, and charges.
4.12. Bankruptcy.
No Act of Bankruptcy has occurred with respect to Innkeepers.
4.13. Brokerage Commission.
Neither REIT nor Acquiror has engaged the services of, nor are
either of them or will either of them become liable to, any real estate agent,
broker, finder or any other person or entity for any brokerage or finder's fee,
commission or other amount with respect to the transaction described herein.
4.14. Hazardous Substances.
To Acquiror's Knowledge, there are no (a) Hazardous Substances on
the Innkeepers Properties, or any portion thereof, or (b) spills, releases,
discharges, or disposal of Hazardous Substances that have occurred or are
presently occurring on or onto any Innkeepers Properties, or any portion
thereof, or (c) PCB transformers serving, or stored on, any Innkeepers
Properties, or any portion thereof, and to Acquiror's Knowledge
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Acquiror has complied with any applicable local, state and federal environmental
laws, regulations, ordinances and administrative and judicial orders relating to
the generation, recycling, reuse, sale, storage, handling, transport and
disposal of any Hazardous Substances.
4.15. Capitalization.
(a) The REIT is authorized to issue 100,000,000 voting common
shares, par value $0.01 per share, of which 22,323,108 shares are validly issued
and outstanding, and 20,000,000 preferred shares, par value $0.01 per share,
none of which are outstanding.
(b) On the date hereof, there are 1,236,186 Common Partnership Units
and 4,063,329 preferred units of limited partnership interest issued and
outstanding. The general partner of Acquiror is Innkeepers Financial
Corporation, a Virginia corporation, which owns an approximately 80.8% interest
in Acquiror.
(c) Except as contemplated by this Agreement (including the
transactions described in Section 4.17 below), Acquiror will not issue or agree
to issue any additional units of limited partnership interest prior to Closing.
4.16. Organizational Documents.
True and correct copies of the current declaration of trust and
bylaws of the REIT and the certificate of limited partnership of the Acquiror,
with all amendments thereto, are set forth as Item 4 of the Master Addendum.
4.17. Options, Warrants, and Other Rights.
Neither the REIT, nor the Acquiror has outstanding any options,
warrants, or rights of any kind requiring it to sell or issue to anyone any
capital stock or equity interest of any class and neither of them has agreed to
issue or sell any additional equity interests except, with respect to Acquiror,
the agreements with the Summerfield Affiliated Partnerships and except as
described in the REIT's 1996 Annual Report or Form 10-K filed with the SEC, or
any Form 10-Qs filed in the period after the filing of the 1996 10-K and the
date of this Agreement, or as may be granted under the REIT's share incentive
plans.
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4.18. Taxes.
(a) Innkeepers and Innkeepers Lessee have filed all tax
returns on IRS Form 1120-REIT and applicable state tax forms required to be
filed with the United States Government and with all states and political
subdivisions thereof where any such returns are required to be filed and where
the failure to file such return or report would subject any of them to any
material liability or penalty. All taxes imposed by the United States, or by any
foreign country, or by any state, municipality, subdivision, or instrumentality
of the United States or of any foreign country, or by any other taxing
authority, which are due and payable by any of them have been paid in full or
adequately provided for by reserves shown in their records and books of account
and in the Financial Statements or JF Hotel Financial Statements. Innkeepers and
Innkeepers Lessees have not obtained or received any extension of time for the
assessment of deficiencies for any years. To Acquiror's Knowledge, no unassessed
tax deficiency is proposed or threatened against any of them.
(b) The REIT is properly taxed as a real estate investment
trust and no act or event has occurred which may adversely affect its tax
classification as a REIT.
4.19. No Misrepresentations.
Neither this Agreement, the Innkeepers Financial Statements,
JF Hotel Financial Statements, nor any of the SEC filings, contains or will
contain any misstatement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
4.20. Leases.
Each Innkeepers Hotel Lease is in full force and effect, valid
and enforceable in accordance with its terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws and equitable principles affecting creditors' rights generally and (b) as
may be limited in the jurisdiction were the relevant Innkeepers Hotel Property
is located if such limitation would not deprive the relevant Innkeepers Property
Owning Partnership, in total, of the principal benefits contemplated by the
Innkeepers Lease, and are
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not in default. No event or occurrence exists which with notice or the passage
of time, or both, would constitute an event of default thereunder. The
Innkeepers Leases will not adversely affect the tax qualification of the REIT as
a real estate investment trust for federal income tax purposes.
4.21. Common Shares and Redemption Shares.
(a) All of the issued and outstanding shares of the REIT have
been duly authorized, validly issued, and are fully paid and non-assessable,
with no preemptive rights.
(b) All of the Redemption Shares, when issued pursuant to the
Redemption and Registration Rights Agreement, will be duly authorized, validly
issued, fully paid, and non-assessable.
4.22. Tax Consequences to Contributor and its Partners.
(a) To the extent that the Contributor receives Common
Partnership Units (as opposed to cash consideration) in connection with the
transfer of the Property to the Acquiror, the Contributor will not recognize
taxable gain or loss as a result of such transfer pursuant to the Code except to
the extent Acquiror pays Contributor's transaction costs pursuant to this
Agreement. FOR TINTON FALLS, EL SEGUNDO, ADDISON AND ATLANTA PERIMETER, and
except with respect to the Management Units.
(b) [Intentionally Omitted]
4.23. Updating of Representations and Warranties.
Between the date hereof and the Closing Date, Acquiror and
REIT will promptly disclose to Contributor in writing any information of which
either of them has actual knowledge (a) concerning any event that would render
any representation or warranty of any of them untrue if made as to the date of
such event, (b) which renders any information set forth in the Agreement no
longer correct in all material respects, or (c) which arises after the date
hereof and which would have been required to be included in the Agreement if
such information had existed on the date hereof.
Each of the representations, warranties and covenants
contained in this Article IV and its various subparagraphs are intended for the
benefit of the Contributor and may be waived in
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whole or in part, by the Contributor, but only by an instrument in writing
signed by the Contributor. Each of said representations, warranties and
covenants shall survive the closing of the transaction contemplated hereby, for
the period specified in Section 10.10 and no investigation, audit, inspection,
review or the like conducted by or on behalf of the Contributor shall be deemed
to terminate the effect of any such representations, warranties and covenants,
it being understood that the Contributor has the right to rely thereon and that
each such representation, warranty and covenant constitutes a material
inducement to the Contributor to execute this Agreement and to transfer the
Property to the Acquiror.
5. CONDITIONS AND ADDITIONAL COVENANTS
5.1. Acquiror's Obligations.
The Acquiror's obligations hereunder are subject to the
satisfaction of each of the following conditions precedent and the compliance by
the Contributor with each of the following covenants, each of which may be
waived by the Acquiror, in its sole discretion:
(a) Contributor's Deliveries. The Contributor shall have
delivered to the Escrow Agent, the Acquiror, or Acquiror's designee, as the case
may be, on or before the Closing Date, all of the documents and other
information required of Contributor pursuant to Section 6.2.
(b) Representations, Warranties and Covenants; Obligations of
Contributor; Certificate. All of the Contributor's representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the Closing Date as if then made, there shall have occurred no
material adverse change in the financial condition of the Property since the
date hereof, the Contributor shall have performed all of its covenants and other
obligations under this Agreement and the Contributor shall have executed and
delivered to the Acquiror at Closing a certificate to the foregoing effect.
(c) Title Insurance. Good and marketable fee simple title to
the Real Property shall be insurable as such by the Title Company at or below
its regularly scheduled rates subject only to Permitted Title Exceptions.
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(d) Survey. The Acquiror shall have obtained a current survey
of the Land delineating the boundary lines of the Land, the location of the
Improvements, all rights of way and easements thereon and contiguous public
roads and otherwise acceptable to the Acquiror. The Survey shall be prepared for
the benefit of, and shall be certified to, the Acquiror, the Title Company and
any lender or underwriter designated by Acquiror, with a certification
reasonably acceptable to Acquiror, the Title Company or such lender or
underwriter. Furthermore, the Survey shall be adequate for the Title Company to
delete any exception for general survey matters in the Owner's Title Policy.
(e) Condition of Improvements. The Improvements and the
Tangible Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in substantially the same condition at Closing as
they are at the end of the Study Period, reasonable wear and tear excepted.
Prior to Closing, the quality or quantity of maintenance and upkeep services
heretofore provided to the Real Property and the Tangible Personal Property
shall not be diminished. Between the end of the Study Period and Closing, the
Contributor or its agent(s) shall not have removed or caused or permitted to be
removed any part or portion of the Real Property or the Tangible Personal unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
(f) Utilities. All of the Utilities shall be installed in and
operating at the Property, and service shall be available for the removal of
garbage and other waste from the Property. Between the date hereof and the date
of Closing, the Contributor or its agent(s) shall have received no notice of any
extraordinary increase or proposed increase in the rates charged for the
Utilities from the rates in effect as of the date hereof.
(g) Land Use. The current use and occupancy of the for hotel
purposes are permitted as a matter of right as a principal use under all laws
applicable thereto without the necessity of any special use permit, special
exception or other special permit, permission or consent.
(h) Hotel Franchise. Lessee and the Franchisor shall have
entered into, at no cost or expense to the Acquiror or its
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Affiliates, the Franchise Agreement with respect to the Hotel for a minimum term
of twenty (20) years, to be effective on the Closing Date.
(i) Management Agreement. Lessee and Manager shall have
entered into, at no cost or expense to the Acquiror or its Affiliates, the
Management Agreement with respect to the Property, to be effective on the
Closing Date.
(j) Percentage Lease Agreement; Lease Master Agreement. The
Lessee shall have entered into the Percentage Lease with respect to the Property
and the Lease Master Agreement, to be effective on the Closing Date.
(k) Redemption and Registration Rights Agreement. The
Contributor and its partners shall have entered into the Redemption and
Registration Rights Agreement.
(l) Franchisor Comfort Letter. The Franchisor shall have
executed the Franchisor Comfort Letter.
(m) Voting Agreement. Contributor and the beneficial owners of
the Common Partnership Units shall have entered into the Voting Agreement.
(n) Pay-Off Letters. Contributor shall have caused the Pay-Off
Letters to be delivered to Acquiror. [FOR TINTON FALLS - Acquiror shall have
assumed Contributor's Obligations under the Mortgage Documents on terms and
conditions acceptable to Acquiror].
(o) Simultaneous Closing. Except to the extent (i) any of the
Other Contribution Agreements have been terminated pursuant to Sections 2.2(b),
2.2(f) or 9.6 therein, (ii) the Closing Date has been extended pursuant to
Section 2.3(b) hereof or (iii) the Closing Date under any Other Contribution
Agreements have been extended pursuant to Section 2.3(b) thereof, Contributor
shall simultaneously close on the contribution of each of the ten (10) hotel
properties owned by the Summerfield Affiliated Partnerships under the Other
Contribution Agreements.
5.2. Contributor's Obligations.
The Contributor's obligations hereunder are subject to the
satisfaction of each of the following conditions precedent
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and the compliance by the Acquiror with each of the following covenants, each of
which may be waived by the Contributor in its sole discretion:
(a) Innkeepers Deliveries. Innkeepers shall have delivered to
the Escrow Agent, the Contributor, or Contributor's designee, as the case may
be, on or before the date of Closing, all of the documents and other information
required of Innkeepers pursuant to Section 6.3.
(b) Representations, Warranties and Covenants; Obligations of
Innkeepers; Certificate. All of the Innkeepers representations and warranties
made in this Agreement shall be true and correct as of the date hereof and as of
the date of Closing as if then made, there shall have occurred no material
adverse change in the financial condition of Innkeepers since the date hereof,
Innkeepers shall have performed all of its covenants and other obligations under
this Agreement and Innkeepers shall have executed and delivered to the
Contributor at Closing a certificate to the foregoing effect.
(c) Percentage Lease. Acquiror shall have entered into the
Percentage Lease with respect to the Hotel, to be effective on the Closing Date.
(d) New Board Member. Rolf E. Ruhfus shall have been appointed
to the Board of Trustees of the REIT as a Class I trustee, to be effective on
the Closing Date.
(e) Redemption and Registration Rights Agreement. Acquiror and
REIT shall have entered into the Redemption and Registration Rights Agreement.
(f) Simultaneous Closing. Except to the extent (i) any of the
Other Contribution Agreements have been terminated pursuant to Sections 2.2(b),
2.2(f) or 9.5 therein, (ii) the Closing Date has been extended pursuant to
Section 2.3(b) hereof or (iii) the Closing Date under any Other Contribution
Agreements have been extended pursuant to Section 2.3(b) thereof, Acquiror shall
simultaneously close on the acquisition of each of the ten (10) hotel properties
owned by the Summerfield Affiliated Partnerships under the Other Contribution
Agreements.
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(g) SEC Filings. REIT shall have timely filed and shall have
provided Contributor with all SEC filings made by REIT after March 31, 1997.
6. CLOSING
6.1. Closing.
Closing shall be held at the Washington, D.C. offices of
Hunton & Williams, 1900 K Street, N.W., Washington, D.C., on June 20, 1997 at
10:00 a.m. or such later time as the parties shall mutually agree. Possession of
the Property shall be delivered to the Acquiror at Closing, subject only to
Permitted Title Exceptions and the Mortgage.
6.2. Contributor's Deliveries.
At Closing, the Contributor shall deliver to Acquiror all of
the following instruments, each of which shall have been duly executed by the
Contributor, its partners, the Lessee and/or the Franchisor, as applicable, and,
where applicable, acknowledged on behalf of such party or parties, and shall be
dated as of the date of Closing:
(a) The certificate required by Section 5.1(b).
(b) The Deed.
(c) [Intentionally Deleted].
(d) The Bill of Sale [Inventory].
(e) The Bill of Sale [Personal].
(f) The Lessee Bill of Sale [Personal Property].
(g) The Assignment and Assumption Agreements.
(h) Any and all other documentation reasonably requested by
the Acquiror, and at the expense of the Acquiror, or required hereby.
(i) Certificate(s)/Registration of Title for any vehicle owned
by the Contributor and used in connection with the Property.
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(j) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title Policy.
(k) The FIRPTA Certificate.
(l) True, correct and complete copies of all warranties, if
any, of contractors, builders, roofers, architects, manufacturers, suppliers and
installers possessed by the Contributor and relating to the Improvements and the
Personal Property, or any part thereof.
(m) Certified copies of the Contributor's Organizational
Documents.
(n) Appropriate consents of the partners of the Contributor
together with all other necessary approvals and consents of the Contributor,
authorizing the execution on behalf of the Contributor of this Agreement and the
documents to be executed and delivered by the Contributor prior to, at or
otherwise in connection with Closing, and the performance by the Contributor of
its obligations hereunder and under such documents.
(o) A legal opinion from Foulston & Siefken, the Contributor's
counsel in a form satisfactory to Acquiror's counsel stating that this Agreement
and each agreement referred to in this Agreement which Contributor shall execute
and deliver in connection with the transaction contemplated by this
Agreement,(i) has been duly authorized by all necessary action on the part of
the Contributor and is partners, (ii) has been duly executed and delivered by
the Contributor, (iii) constitutes the valid and binding agreement of the
Contributor, and (iv) is enforceable in accordance with its terms.
(p) A valid, final and unconditional certificate of occupancy
for the Improvements, issued by the appropriate governmental authority.
(q) A written instrument executed by the Contributor,
conveying and transferring to the Acquiror all of the Contributor's right, title
and interest in any telephone numbers and facsimile numbers relating to the
Property, and, if the Contributor maintains a post office box, conveying to the
Acquiror all of its interest in and to such post office box and
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the number associated therewith, so as to assure a continuity in operation and
communication.
(r) Written notice executed by Contributor notifying all
interested parties that the Property has been conveyed to the Acquiror.
(s) All current real estate and personal property tax bills in
the Contributor's possession or under its control.
(t) The Percentage Lease and the Lease Master Agreement.
(u) A counterpart signature page to Acquiror's Partnership
Agreement.
(v) The Voting Agreement.
(w) The Franchisor Comfort Letter.
(x) Any other document or instrument reasonably requested by
the Acquiror.
6.3. Acquiror's Deliveries.
At Closing, the Acquiror shall pay or deliver to the
Contributor the following, each of which, if an instrument, shall have been duly
executed and, where applicable, acknowledged on behalf of the Acquiror and shall
be dated as of the date of Closing:
(a) The Certificate required by Section 5.2(b).
(b) The Contribution Consideration.
(c) The Assignment and Assumption Agreements.
(d) The certificates reflecting Contributor's ownership of the
Common Partnership Units described in Section 2.5.
(e) A legal opinion from Hunton & Williams in a form
satisfactory to Contributor's counsel stating that:
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(i) this Agreement, and each agreement referred
to in this Agreement which Acquiror and REIT shall execute and deliver in
connection with the transaction contemplated by this Agreement, have been duly
authorized by all necessary action on the part of Acquiror and REIT, have been
duly executed and delivered by Acquiror and REIT, constitute the valid and
binding agreements of Acquiror and REIT and are enforceable in accordance with
their respective terms;
(ii) that the Acquiror's Partnership Agreement
has been duly adopted and is in full force and effect;
(iii) the Common Partnership Units are duly
authorized, and will be validly issued and outstanding when delivered in
accordance with this Agreement; and
(iv) the appointment of Rolf E. Ruhfus to the
Board of Trustees of Innkeepers is effective.
(f) The opinion of Hunton & Williams in the form of Item 7 of
the Master Addendum.
(g) The Percentage Lease and the Lease Master Agreement.
(h) Any other document or instrument reasonably requested by
the Contributor.
6.4. Closing Costs.
Acquiror agrees to pay certain costs incurred in preparation
for Closing:
(a) The Acquiror shall pay for all transactional costs
associated with this transaction, of any kind or nature, including all filing
fees, recording fees, survey costs, title insurance fees, inspection fees,
environmental review fees, transfer taxes, sales taxes, mortgage taxes, escrow
fees and closing costs. The foregoing shall not include Contributor's (i) legal
fees and expenses, or (ii) subject to subsection (b) below, accounting fees and
expenses, or (iii) costs, fees and expenses incurred in connection with
obtaining (A) environmental reviews or updates other than the update to Phase I
Environmental Site Assessment and/or Phase I Environmental Site Assessment
prepared by SCS Engineers in March 1997 and delivered to
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Acquiror, (B) title commitments and searches, (C) surveys other than updates
and/or re-certifications to Acquiror that are required by Acquiror and are
delivered on or before Closing, (D) appraisals, (E) Smith Travel information
other than information requested by Acquiror, or (F) other third-party reports
or data obtained by Contributor other than such reports or data obtained by
Contributor after receiving Acquiror's written request therefor.
(b) Acquiror will pay all costs associated with obtaining an
audit report required by Acquiror on the financial statements of Contributor.
6.5. Income and Expense Allocations.
All income and expenses with respect to the Property, and
applicable to the period of time before and after Closing, determined in
accordance with GAAP, shall be allocated between the Contributor and the
Acquiror. The Contributor shall be entitled to all income and responsible for
all expenses accrued for the period up to but not including the date of closing,
and the Acquiror shall be entitled to all income and responsible for all
expenses for the period of time from, after and including the date of Closing.
Only adjustments for real estate taxes shall be shown on the settlement
statements (with such supporting documentation as the parties hereto may require
being attached as exhibits to the settlement statements) and shall increase or
decrease (as the case may be) the amount payable by the Acquiror pursuant to
Section 2.4. All other such adjustments shall be made by separate agreement
between the parties and shall be payable by check or wire directly between the
parties.
The Contributor shall be required to pay all sales and use
taxes and similar impositions, including interest and penalties, relating to the
conduct of business at the Property currently through the date of Closing, but
excluding those arising from the Contribution.
Acquiror shall not be obligated to collect any accounts
receivable or revenues for Contributor, but if Acquiror collects same, such
amounts will be promptly remitted to Contributor in the form received.
If accurate allocations cannot be made at Closing because
current bills are not obtainable (as, for example, in the
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case of utility bills or tax bills), the parties shall allocate such income or
expenses at Closing on the best available information, subject to adjustment
upon receipt of the final bill or other evidence of the applicable income or
expense. Any income received or expense incurred by the Contributor or the
Acquiror with respect to the Property after the date of Closing shall be
promptly allocated in the manner described herein and the parties shall promptly
pay or reimburse any amount due.
Acquiror is assuming, pursuant to Section 2.4(b)(i), accrued
but unpaid interest on the Mortgage Note; such amount shall not be pro-rated for
income or expense purposes.
7. POST CLOSING COVENANTS
7.1. Taxable Sale of Real Property.
The Acquiror agrees that, as long as any of (i) the
Contributor, (ii) a partner of the Contributor or (iii) a Permitted Transferree
holds any of the Common Partnerhip Units issued to the Contributor on the
Closing Date for a period of five (5) years after the First Closing, the
Acquiror will not dispose of the Real Property in a transaction that would
result in the allocation of taxable income or gain by the Acquiror to any of
such persons under Section 704(c) of the Code. "Permitted Transferees" are those
persons who received from the Contributor or a partner thereof, and at the
relevant time retain, a carryover tax basis, in whole or in part, in Common
Partnership Units. The Acquiror further agrees that, if the Contributor, the
Summerfield Affiliated Partnerships, or any of their partners (or their
Permitted Transferees) hold at least 40% of the Common Partnership Units issued
to any of the Summerfield Affiliated Partnerships, during the period beginning
five (5) years after the First Closing and ending seven (7) years after the
First Closing, the Acquiror will not dispose of the Real Property in a
transaction that would result in the allocation of taxable income or gain by the
Acquiror to the Contributor or its partners (or their Permitted Transferees)
under Section 704(c) of the Code. If the Acquiror disposes of the Real Property
in violation of the foregoing covenant, and notwithstanding such prohibition,
then in such event the Acquiror shall pay to the Contributor, Contributor's
partners, or their Permitted Transferees the amount of federal and state taxes
(together with any interest and
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penalties thereon) of the Contributor, its partners or Permitted Transferees
attributable to such Code Section 704(c) allocation.
7.2. [Intentionally Omitted]
7.3. [Intentionally Omitted]
7.4. Tax Elections.
Acquiror shall make an election under section 704(c) of the
Code to allocate the tax items arising from the ownership of the Property,
including the items of depreciation, amortization, and gain or loss under the
"traditional method" as provided in Treasury Regulations Section 1.704-3(b).
7.5. Re-election of Board Member.
The Board of Trustees of REIT shall re-nominate Rolf E. Ruhfus
to the Board of Trustees of the REIT and support his election by shareholders
(i) as long as he continues to own directly or indirectly, (a) 25% of the Common
Partnership Units attributable to his ownership interest in the Contributor and
the Summerfield Affiliated Partnerships and/or an equivalent number of REIT
Shares, (ii) in the absence of acts or failures to act (other than, without
more, participation by Rolf E. Ruhfus and his affiliates in the hotel business)
by Rolf E. Ruhfus which the Board unanimously decides are detrimental to the
REIT and as a result of which the Board makes a unanimous good faith
determination that it cannot so nominate him or (iii) unless he is otherwise
legally disqualified from serving as a trustee.
7.6. Timely Filing of SEC Filings.
REIT will maintain its qualification to use registration
statements of the type(s)required to satisfy its obligations under the
Redemption and Registration Rights Agreement.
7.7. Book Capital Accounts.
The initial book capital account of Contributor to be
reflected on the partnership books and records of Acquiror shall be the face
amount of the Common Partnership Units.
7.8. Release of Mortgage Note.
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The Acquiror shall indemnify and hold harmless Contributor
from all liability under the Mortgage Note.
7.9. Common Partnership Units.
Except for Units transferred to the Lessee [FOR TINTON FALLS,
EL SEGUNDO, ADDISON AND ATLANTA PERIMETER - AND EXCEPT FOR THE MANAGEMENT FEE
UNITS], the Contributor shall not distribute or transfer the Common Partnership
Units for at least twelve (12) months and thereafter only in accordance with the
terms of this Agreement or the Acquiror's Partnership Agreement.
7.10. Contributor's Financing.
Except for the pledge of Common Partnership Units contemplated
by the Lease, each of the Summerfield Affiliated Partnerships (including
Contributor) (or the partners thereof, to the extent distributed to them) shall
be entitled to pledge the Common Partnership Units received under this Agreement
and the Other Contribution Agreements provided that the following conditions are
satisfied: (i) the principal amount of loan secured by the pledged Common
Partnership Units shall not be more than 40% of the value of such pledged Common
Partnership Units, assuming that each pledged Common Partnership Unit has a
value equal to the average closing price of REIT Shares on the New York Stock
Exchange for the ten (10) trading days preceding the date of funding of the loan
with respect to which the Common Partnership Units are pledged, (ii) a
mechanism, acceptable to both the Summerfield Affiliated Partnerships (including
Contributor) (or the partners thereof, as the case may be) and the Acquiror,
shall be established that ensures that all distributions on the pledged
Partnership Units are applied first to make payments of accrued interest and
principal on the loan, (iii) the pledgor of the Common Partnership Units pledged
to secure the loan shall not transfer or redeem such units while the loan
remains outstanding, (iv) the pledgors will obtain such loans only from bank
lending offices located in the U.S., (v) the pledgors will use their best
efforts to minimize the number of lenders to which Common Partnership Units are
pledged, and (vi) each pledgor will promptly pay or reimburse Acquiror or its
Affiliates for the out-of-pocket costs and expenses incurred by Acquiror or its
Affiliates in connection with the pledgor's loan(s). Acquiror will endeavor in
good faith to facilitate pledges complying with the foregoing, but the Acquiror
may refuse
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to execute and deliver agreements or instruments or do acts or things required
by a lender which in, the exercise of Acquiror's reasonable discretion, subject
Acquiror to undue burden or obligations. Acquiror and its Affiliates, including
the REIT, shall have no liability to any person or entity for any failure or
refusal of a lender to extend any loan.
7.11. Liquor License.
If applicable law requires that the owner of the Hotel be the
licensee under the required liquor license for the Hotel, the Contributor shall
use all reasonable efforts to cause to be transferred to the Acquiror or its
designee, such liquor licenses and alcoholic beverages licenses. To that end,
the Contributor and the Acquiror shall cooperate each with the other, and each
shall execute such transfer forms, license applications and other documents as
may be necessary to effect such transfer. If permitted under the laws of the
jurisdiction in which the Facility is located, the parties shall execute and
file all necessary transfer forms, applications and papers with the appropriate
liquor and alcoholic beverage authorities prior to Closing, to the end that the
transfer shall take effect, if possible, on the date of Closing, simultaneously
with Closing. If not so permitted, then the Contributor and the Acquiror agree
each with the other that they will promptly execute all transfer forms,
applications and other documents required by the liquor authorities in order to
effect such transfer at the earliest date in time possible consistent with the
laws of the jurisdiction in which the Property is located, in order that all
liquor licenses may be transferred to the Acquiror or its designee at the
earliest possible time. If under the laws of the jurisdiction in which the
Property is located, such licenses cannot be transferred or obtained until after
the Closing of the transaction contemplated hereby, then the Contributor
covenants and agrees that the Contributor shall cooperate with the Acquiror in
continuing and maintaining the regular liquor and alcoholic beverage service at
the Hotel between the date of Closing and the time when such liquor license
transfer actually become effective (to the extent permitted under applicable
laws and for up to 180 days following the Closing), by exercising management and
supervision of such facilities and service until such time under the existing
licenses; provided, however, that in such event (i) the Acquiror shall indemnify
and hold the Contributor harmless from any liability, damages or claims
encountered in connection with such operations during said period of time,
except for the
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Contributor's gross negligence or willful misconduct, and (ii) if Acquiror is
required to obtain a liquor policy with respect to the Hotel, the Contributor
shall be named as an additional insured under the Acquiror's liquor liability
policy to the extent permitted under applicable insurance regulations.
8. CONDEMNATION; RISK OF LOSS
8.1. Condemnation.
In the event of any actual or threatened taking, pursuant to
the power of eminent domain, of all or any portion of the Real Property, or any
proposed sale in lieu thereof, the Contributor shall give written notice thereof
to the Acquiror promptly after the Contributor learns or receives notice
thereof. If all or any part of the Real Property is, or is to be, so condemned
or sold, the Acquiror shall have the right to terminate this Agreement pursuant
to Section 9.5. If the Acquiror elects not to terminate this Agreement, all
proceeds, awards and other payments arising out of such condemnation or sale
(actual or threatened) shall be paid or assigned, as applicable, to the Acquiror
at Closing.
8.2. Risk of Loss.
The risk of any loss or damage to the Property prior to the
Closing shall remain upon the Contributor. If any such loss or damage occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 9.5. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
9. LIABILITY OF ACQUIROR; INDEMNIFICATION; TERMINATION RIGHTS
9.1. Liability of Acquiror.
Except for any obligation expressly assumed or agreed to be
assumed by the Acquiror hereunder, the Acquiror does not assume any obligation
of the Contributor or any liability for claims arising out of any occurrence
prior to Closing.
9.2. Indemnification by Contributor.
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Subject to the provisions of Section 10.10, the Contributor
hereby indemnifies and holds the Acquiror harmless from and against any and all
claims, costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees), net of any insurance proceeds, income tax benefits,
or other benefits or recoveries, that may at any time be incurred by the
Acquiror, whether before or after Closing, as a result of any breach by the
Contributor of any of its representations, warranties, covenants or obligations
set forth herein or in any other document delivered by the Contributor pursuant
hereto to the extent claims of the Acquiror arising under such breaches exceed
in the aggregate $500,000. The liability of Contributor under this Agreement
shall be limited to the sum of the cash and the value of Common Partnership
Units received by Contributor under this Agreement. For purposes of this
paragraph, the Common Partnership Units shall be deemed to have a fair market
value equal to $15. Indemnification obligations of Contributor under this
Article IX may be satisfied by payment in Common Partnership Units received
under this Agreement(or REIT Shares for which such Common Partnership Units are
redeemed), which will be deemed to have the same value on the payment date as
the value of the Common Partnership Units on the Closing Date. Indemnification
obligations exceeding the value of any Common Partnership Units (or REIT Shares)
delivered to satisfy indemnification obligations pursuant to the immediately
preceding sentence shall be satisfied in cash.
9.3. General Indemnification by Acquiror.
Subject to the provisions of Section 10.10 and the more
specific provisions of Section 9.4 below with respect to certain tax matters,
the Acquiror hereby indemnifies and holds the Contributor harmless from and
against any and all claims, costs, penalties, damages, losses, liabilities and
expenses (including reasonable attorneys' fees), net of any insurance proceeds,
income tax benefits, or other benefits or recoveries, that may at any time be
incurred by the Contributor, whether before or after Closing, as a result of any
breach by the Acquiror of any of its representations, warranties, covenants or
obligations set forth herein or in any other document delivered by the Acquiror
pursuant hereto, other than the representation set forth in Section 4.22 hereof
regarding the tax consequences of the transaction, the liabilities agreed to be
assumed by the Acquiror and post closing covenants of Acquiror pursuant to
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Article VII, to the extent claims of the Contributor arising under such breaches
exceed in the aggregate $500,000.
9.4. Tax Indemnification by Acquiror.
(a) Subject to Section 10.10 (b)(ii), the Acquiror hereby
agrees to indemnify and hold the partners of the Contributor (each, an
"Indemnitee," and in the aggregate, the "Indemnitees") harmless from and against
any and all claims (each, an "Indemnifiable Claim") and the costs, penalties,
interest, liabilities and expenses (including reasonable attorneys' fees)
relating thereto, net of any other benefits or recoveries, that may be asserted
against or incurred by any Indemnitee as a result of any breach by the Acquiror
of the representation set forth in Section 4.22 regarding the tax consequences
of the transaction to the Contributor and the Indemnitees, to the extent that
claims of (1) the Indemnitees arising under this Section 9.4 and (2) one or more
other Summerfield Affiliated Partnerships and/or their partners arising under
Section 9.4 of one or more of the Other Contribution Agreements exceed in the
aggregate $500,000; provided, however, that a Final Determination (as defined
below) pursuant to which the federal income tax liability of an Indemnitee was
increased has occurred with respect to such Indemnifiable Claim or Claims; and
provided, further, that the Acquiror shall not indemnify any Indemnitee with
respect to the amount of any federal income tax liability that such Indemnitee
would have incurred irrespective of any breach of the representation set forth
in Section 4.22.
For purposes of this Section, the term "Final Determination"
means (i) a final decision, judgment, decree or other order by any court of
competent jurisdiction, (ii) any settlement agreement entered into in connection
with any administrative or judicial proceeding, including, but not limited to, a
closing agreement entered into under Section 7121 of the Code, or an IRS Form
870-AD, or (iii) notice from the Acquiror to the Contributor that any proposed
adjustment or disallowance by the IRS will not be contested or protested.
(b) Audit Notice. The Contributor shall notify the Acquiror
within thirty (30) days after it receives notice thereof if the IRS (i) proposes
to audit the 1997 tax return of the Contributor or any Indemnitee or (ii)
proposes any adjustments to a tax return of the Contributor or any Indemnitee.
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(c) Control of Proceedings. In the case of any audit or
administrative or judicial proceeding involving an issue which would, upon a
Final Determination, result in an indemnification obligation of the Acquiror
under Section 9.4(a), the Acquiror or its Affiliate shall have the right to
control such audit or proceeding at the Acquiror's (or its Affiliate's) cost. If
the Acquiror opts to control any such audit or proceeding, the Acquiror shall
notify the relevant Indemnitee or Indemnitees (each, an "Interested Party")
promptly and periodically as to the status and material developments of such
audit or proceeding, provide the Interested Parties with copies of all reports,
notices and correspondence relating to such matters, and convey to the IRS all
procedural requests made by the Interested Parties, unless any such request
relates to the issue of the tax consequences of the transaction contemplated by
this Agreement and is reasonably objectionable to the Acquiror's tax counsel.
The Acquiror shall not enter into a settlement agreement relating to any issue
not related to the tax consequences of the transaction contemplated by this
Agreement which results in the imposition of any additional tax, interest or
penalties on the Interested Parties unless (i) Acquiror obtains the consent of
the Interested Parties or (ii) Acquiror pays the cost of such Settlement
(including any future years' taxes resulting from such change). Each Interested
Party and its counsel shall have the right, at its sole cost and expense, to be
present at in all meetings with the IRS relating to any audit or proceeding
described in this Section 9.4(c). Notwithstanding the foregoing, nothing in this
Section 9.4(c) shall require the Acquiror to defend any audit of or proceeding
against the Contributor or any Partner.
(d) Costs. If any audit or proceeding described in Section
9.4(c) results in a Final Determination which is favorable to the Interested
Party or Parties, the Contributor, or to the extent the Contributor has
distributed the Common Partnership Units to the Interested Parties, the
Interested Parties, shall reimburse the Acquiror for the reasonable costs and
expenses (including reasonable legal and accounting fees but excluding any
taxes, interest or penalties paid by the Acquiror) the Acquiror incurred in
connection with the audit or proceeding on behalf of the Interested Parties.
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9.5. Termination by Acquiror.
(a) After the Study Period, if any condition set forth herein
cannot or will not be satisfied prior to Closing, or upon the occurrence of any
other event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributor fails to cure any such matter within
ten (10) business days after notice thereof from the Acquiror, the Acquiror, at
its option, may elect either (a) to terminate this Agreement, in which event (i)
Contributor shall immediately pay to Acquiror, in cash, "Acquiror's Break-Up
Fee" (as defined in Subsection (b) below) and, (ii) upon receipt of the
Acquiror's Break-Up Fee, and subject to the two immediately subsequent
sentences,(A) such fee shall be deemed full and complete liquidated damages, (B)
such fee shall be deemed Acquiror's complete remedy and (C) all other rights and
obligations of the Contributor and the Acquiror hereunder shall terminate
immediately, or (b) to waive its right to terminate and, instead, to proceed to
Closing. If the Acquiror terminates this Agreement as a consequence of a knowing
or willful misrepresentation or breach of a warranty or covenant by the
Contributor or a willful failure by the Contributor to perform its obligations
hereunder, then notwithstanding the receipt by Acquiror of the Acquiror's
Break-Up Fee the Acquiror shall retain all remedies accruing as a result
thereof. If the Acquiror terminates this Agreement and is entitled to the
Acquiror's Break-Up Fee, then, without limiting Acquiror's rights to receive
such fee, Acquiror shall retain all remedies accruing as a result of the
termination until such fee has been received by Acquiror. Notwithstanding any
termination hereof, the parties shall nevertheless remain liable for breaches of
the representations and warranties set forth in Sections 3.20 and 4.13.
(b) The "Acquiror's Break-Up Fee" shall mean, without
duplication,(i) if Contributor has executed a definitive agreement to transfer
the Hotel to a party other than Acquiror (or an Affiliate of Acquiror), or
executes such an agreement on or before the date which is six (6) months after
the termination hereof, a cash fee in an amount equal to 3% of the Contribution
Consideration,(ii) if Acquiror terminates this Agreement under Sections 2.2(c)
or 2.2(f), or after a failure to satisfy the conditions set forth in Sections
5.1(c), 5.1(d) or 5.1(f), or under Sections 8.1 or 8.2, a cash fee equal to
"Acquiror's Out-of-Pocket Costs" (as defined in Subsection (c) below) plus 10%
of Acquiror's Out-of-Pocket Costs, (iii) if Acquiror terminates this Agreement
after a failure to satisfy the condition set forth in Section 5.1(o)(i) and
Acquiror would be entitled to receive an
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"Acquiror's Break-Up Fee" payment pursuant to an Other Contribution Agreement,
Acquiror shall be entitled to an analogous Acquiror's Break-Up Fee payment under
this Contribution Agreement, or, (iv) in all other cases, a cash fee in an
amount equal to 1% of the Contribution Consideration. If Acquiror terminates
this Agreement because of a casualty or condemnation of the Property, this
Agreement shall be deemed to have been terminated under Section 8.2 hereof.
Acquiror's pursuit or collection of the amount described under (iv) above shall
not preclude its pursuit or collection of the amount described under (i) above,
but any amount collected by Acquiror under (iv) above shall be credited to the
amount, if any, owed by Contributor to Acquiror under (i) above.
(c) "Acquiror's Out-of-Pocket Costs" shall mean, (1) when less
than all of the transactions contemplated under this Agreement and the Other
Contribution Agreements are terminated under Section 9.5 hereof and thereof, the
actual costs and expenses paid or payable by Acquiror to third parties
specifically in connection with investigating and closing the contribution of
the Property and, (2) when all of the transactions contemplated by this
Agreement and the Other Contribution Agreements are terminated under Section 9.5
hereof and thereof, the actual costs and expenses paid or payable by Acquiror to
third parties specifically in connection with such transactions, which shall
include but not be limited to the costs and expenses incurred by Acquiror in
negotiating and drafting this Agreement and the agreements, instruments and
documents contemplated hereby, investigating and closing the contribution of the
Property and obtaining the financing thereof.
9.6. Termination by Contributor.
(a) If, prior to Closing, the Acquiror defaults in performing
any of its obligations under this Agreement (including its obligation to acquire
the Property), and the Acquiror fails to cure any such default within ten (10)
business days after notice thereof from the Contributor, then the Contributor's
sole remedy for such default shall be to terminate this Agreement and receive
the "Contributor's Break-Up Fee" (as defined in Subsection (b) below). If the
Contributor terminates this Agreement and is entitled to the Contributor's
Break-Up Fee, then, without limiting Contributor's rights to receive such fee,
Contributor shall retain all remedies accruing as a result of the termination
until such fee has been received by the Contributor.
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The Contributor and the Acquiror agree that, in the event of such a default, the
damages that the Contributor would sustain as a result thereof would be
difficult if not impossible to ascertain. Therefore, the Contributor and the
Acquiror agree that the Contributor shall receive the Contributor's Break-Up Fee
as full and complete liquidated damages and as the Contributor's sole remedy.
(b) The "Contributor's Break-Up Fee" shall mean, without
duplication, (i) if Contributor terminates this Agreement under Section 2.2(g),
a cash fee equal to "Contributor's Out-of-Pocket Costs" (as defined in
Subsection (c) below) plus 10% of Contributor's Out-of-Pocket Costs or, (ii) in
all other cases, a cash fee equal to 1% of the Contribution Consideration.
(c) "Contributor's Out-of-Pocket Costs" shall mean, (1) when
less than all of the transactions contemplated under this Agreement and the
Other Contribution Agreements are terminated under Section 9.6 hereof and
thereof, the actual costs and expenses paid or payable by Contributor to third
parties specifically in connection with closing the contribution of the Property
and, (2) when all of the transactions contemplated by this Agreement and the
Other Contribution Agreements are terminated under Section 9.5 hereof and
thereof, the actual costs and expenses paid or payable by Acquiror to third
parties specifically in connection with such transactions.
10. MISCELLANEOUS PROVISIONS
10.1. Completeness; Modification.
This Agreement constitutes the entire agreement between the
parties hereto with respect to the transactions contemplated hereby and
supersedes all prior discussions, understandings, agreements and negotiations
between the parties hereto. This Agreement may be modified only by a written
instrument duly executed by the parties hereto.
10.2. Assignments; Taking Title.
The Acquiror may assign any or all of its rights and
obligations hereunder to an Affiliate in which Acquiror owns at least 95% of the
interests, without the consent of Contributor. The Acquiror may assign its
rights and obligations with respect to items of Tangible Personal Property to be
selected by Acquiror
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to the Lessee without the consent of Contributor. The Acquiror shall remain
liable with respect to such obligations notwithstanding any such assignment. The
Acquiror may also designate such an Affiliate to take title to the Property,
without the consent of the Contributor. Except as provided in this Section 10.2,
the Acquiror may not assign its rights or obligations hereunder without the
prior written consent of the Contributor. The Contributor may not assign its
rights or obligations hereunder without the prior written consent of the
Acquiror.
10.3. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
10.4. Days.
If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
10.5. Governing Law.
This Agreement and all documents referred to herein shall be
governed by and construed and interpreted in accordance with the laws of the
State of Kansas, except those provisions relating to the Real Property, which
shall be governed by the laws of the state where the Real Property is located,
and except the Acquiror's Partnership Agreement, which shall be governed by the
laws of Virginia.
10.6. Counterparts.
To facilitate execution, this Agreement may be executed in as
many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties
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hereto appear on each counterpart hereof. All counterparts hereof shall
collectively constitute a single agreement.
10.7. Severability.
If any term, covenant or condition of this Agreement, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
10.8. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
If to the Contributor: c/o SUMMERFIELD HOTEL CORPORATION
8100 E. 22nd Street
Building 500
Wichita, KS 67226
Attn: John R. Morse, Esq.
Fax: 316/681-5157
with a copy to: Foulston & Siefkin, L.L.P.
700 Fourth Financial Center
100 N. Broadway
Wichita, KS 67202
Attn: Harvey R. Sorensen, Esq.
Fax: 316/267-6345
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If to the Acquiror: INNKEEPERS USA LIMITED PARTNERSHIP
306 Royal Poinciana Way
Palm Beach, FL 33480
Attn: Mr. Jeffrey H. Fisher
Fax: 407/835-0457
with a copy to: Hunton & Williams
1900 K Street
Suite 1200
Washington, DC 20006
Attn: John M. Ratino, Esq.
Fax: 202/778-2201
or to such other address as the intended recipient may have
specified in a notice to the other party. Any party hereto may change its
address or designate different or other persons or entities to receive copies by
notifying the other party and the Escrow Agent in a manner described in this
Section.
10.9. Incorporation by Reference.
All of the exhibits attached hereto are by this reference
incorporated herein and made a part hereof.
10.10. Survival.
(a) The representations, warranties, and covenants of
Contributor contained in this Agreement shall survive the Closing only to the
limited extent provided herein:
(i) Representations, warranties, and covenants
as to the title to the Real Property shall be merged with the Deed and shall not
survive delivery of the Deed.
(ii) All other representations, warranties, and
covenants shall survive until twelve (12) months after the Closing Date.
(iii) All post-closing covenants shall survive
until they expire by their respective terms.
(iv) Any pre-condition to Closing shall be deemed
satisfied and waived if Closing occurs unless the parties otherwise agree in
writing.
62
<PAGE> 68
(b) The representations, warranties, and covenants of Acquiror
contained in this Agreement shall survive the Closing only to the limited extent
provided herein:
(i) All representations, warranties, and
covenants contained in this Agreement, except those related to the tax
consequences of the transaction to Contributor and its partners, shall survive
until twelve (12) months after the Closing Date.
(ii) The representations, warranties, and
covenants related to the tax consequences of the transaction to Contributor and
its partners shall survive the Closing and continue until all applicable
statutes of limitation for state and federal income taxes (including extensions
and waivers thereof) have lapsed.
(iii) All post-Closing covenants shall survive
until they expire by their respective terms.
(iv) Any pre-condition to Closing shall be deemed
satisfied and waived if Closing occurs unless the parties otherwise agree in
writing.
(c) Nothing herein is intended to modify or limit the
obligations of Innkeepers under the Securities Act.
10.11. Further Assurances.
The Contributor and the Acquiror each covenant and agree to
sign, execute and deliver, or cause to be signed, executed and delivered, and to
do or make, or cause to be done or made, upon the written request of the other
party, any and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may be reasonably required by either
party hereto for the purpose of or in connection with consummating the
transactions described herein.
10.12. Time of Essence.
Time is of the essence with respect to every provision hereof.
63
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10.13. Confidentiality.
Except as set forth in the subsequent sentence, the
Contributor, the Acquiror, and their representatives, including any brokers or
other professionals representing the Contributor or the Acquiror, shall keep the
existence and terms of this Agreement strictly confidential. The Acquiror may,
consistent with its obligations under applicable securities laws and New York
Stock Exchange rules, as well as good marketing and public relations practices,
issue press releases relating to this Agreement and the transactions
contemplated hereby, and information relating to this Agreement, the Property
and the transactions contemplated hereby may be included in the REIT's
registration statements and periodic reports filed with the SEC as well as
packages distributed to the Company's underwriters and securities analysts.
Prior to Closing, Acquiror shall present to Contributor, for Contributor's
approval, written press releases and announcements proposed for release by
Acquiror or its Affiliates with respect to the transactions contemplated by this
Agreement. Contributor shall comment on such proposals within 48 hours of such
presentation. Acquiror agrees to consider Contributor's comments but is not
obligated to reflect the comments in the press releases and announcements, and
Contributor shall not unreasonably withhold its approval of such releases.
Contributor's failure to respond within the 48 hour period shall be deemed
approval of the proposed press release or announcement.
IN WITNESS WHEREOF, the Contributor and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
[Signatures Continued on Following Page]
64
<PAGE> 70
CONTRIBUTOR:
----------------------------------,
L.P.,
a Kansas limited partnership
By: [Summerfield Suites
---------------------
Corporation, a Delaware
Corporation, its general partner
By:
Its:
ACQUIROR:
INNKEEPERS USA LIMITED
PARTNERSHIP, a Virginia limited partnership
By: Innkeepers Financial Corporation, a
Virginia Corporation, its sole
general partner
By:
-------------------------------------
Name: Jeffrey H. Fisher
Title: President
REIT:
INNKEEPERS USA TRUST,
a Maryland Real Estate Investment Trust
By:
-----------------------------------------
Name: Jeffrey H. Fisher
Title: Chairman of the Board and President
65
<PAGE> 1
EXHIBIT 10.2.
LEASE AGREEMENT
DATED AS OF JUNE ___, 1997
BETWEEN
INNKEEPERS SUMMERFIELD GENERAL, L.P.
AS LESSOR
AND
SUMMERFIELD SUITES LEASE COMPANY, L.P.
AS LESSEE
IN CONNECTION WITH THE
_____________ SUMMERFIELD SUITES HOTEL
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1........................................................................1
1.1. Leased Property.........................................................1
1.2. Term....................................................................2
1.3. Initial Transition......................................................4
ARTICLE 2........................................................................4
2.1. Definitions........................................................4
ARTICLE 3.......................................................................16
3.1. Rent...................................................................16
3.2. Confirmation of Percentage Rent........................................20
3.3. Additional Charges.....................................................21
3.4. No Set Off.............................................................22
3.5. Annual Budget..........................................................22
3.6. Books and Records......................................................25
3.7. Performance Failures...................................................25
3.8. Changes in Operations..................................................29
ARTICLE 4.......................................................................29
4.1. Payment of Impositions.................................................29
4.2. Notice of Impositions..................................................30
4.3. Adjustment of Impositions..............................................31
4.4. Utility Charges........................................................31
ARTICLE 5.......................................................................31
5.1. No Termination, Abatement, etc.........................................31
ARTICLE 6.......................................................................32
6.1. Ownership of the Leased Property.......................................32
6.2. Lessee's Personal Property.............................................32
6.3. Lessor's Lien..........................................................32
ARTICLE 7.......................................................................33
7.1. Condition of the Leased Property.......................................33
7.2. Use of the Leased Property.............................................34
ARTICLE 8.......................................................................36
8.1. Compliance with Legal and Insurance Requirements, etc..................36
8.2. Legal Requirement Covenants............................................36
8.3. Environmental Covenants................................................37
ARTICLE 9.......................................................................40
9.1. Maintenance and Repair; Capital Expenditures...........................40
9.2. Encroachments, Restrictions, Etc.......................................41
ARTICLE 10......................................................................42
10.1. Alterations...........................................................42
10.2. Salvage...............................................................43
10.3. Lessor Alterations....................................................43
ARTICLE 11......................................................................43
11.1. Liens.................................................................43
ARTICLE 12......................................................................44
12.1. Permitted Contests....................................................44
ARTICLE 13......................................................................45
13.1. General Insurance Requirements........................................45
13.2. Replacement Cost......................................................47
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
13.3. (Intentionally omitted)...............................................47
13.4. Waiver of Subrogation.................................................47
13.5. Form Satisfactory, etc................................................48
13.6. Increase in Limits....................................................48
13.7. Blanket Policy........................................................48
13.8. Separate Insurance....................................................49
13.9. Reports On Insurance Claims...........................................49
ARTICLE 14......................................................................49
14.1. Insurance Proceeds....................................................49
14.2. Reconstruction in the Event of Damage or Destruction Covered by
Insurance.............................................................50
14.3. Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance or When Holder Will Not Release Insurance Proceeds.......51
14.4. Lessee's Property and Business Interruption Insurance.................51
14.5. Abatement of Rent.....................................................51
ARTICLE 15......................................................................52
15.1. Definition............................................................52
15.2. Parties' Rights and Obligations.......................................52
15.3. Total Taking..........................................................52
15.4. Allocation of Award...................................................53
15.5. Partial Taking........................................................53
15.6. Temporary Taking......................................................54
ARTICLE 16......................................................................54
16.1. Events of Default.....................................................54
16.2. Remedies..............................................................56
16.3. Waiver................................................................58
16.4. Application of Funds..................................................58
ARTICLE 17......................................................................58
17.1. Lessor's Right to Cure Lessee's Default...............................58
ARTICLE 18......................................................................59
18.1. Personal Property Limitation..........................................59
18.2. Sublease Rent Limitation..............................................59
18.3. Sublease Lessee Limitation............................................60
18.4. Lessee Ownership Limitation...........................................60
18.5. Director, Officer and Employee Limitation.............................60
ARTICLE 19......................................................................61
19.1. Holding Over..........................................................61
ARTICLE 20......................................................................61
20.1. Indemnification.......................................................61
ARTICLE 21......................................................................62
21.1. Subletting and Assignment.............................................62
21.2. Attornment............................................................63
21.3. Management Agreement..................................................63
ARTICLE 22......................................................................64
22.1. Officer's Certificates; Financial Statements; Lessor's Estoppel
Certificates and Covenants............................................64
ARTICLE 23......................................................................67
23.1. Regular Meetings; Lessor's Right to Inspect...........................67
ARTICLE 24......................................................................68
</TABLE>
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<TABLE>
<S> <C>
24.1. No Waiver.............................................................68
ARTICLE 25......................................................................68
25.1. Remedies Cumulative...................................................68
ARTICLE 26......................................................................68
26.1. Acceptance of Surrender...............................................68
ARTICLE 27......................................................................69
27.1. No Merger of Title....................................................69
ARTICLE 28......................................................................69
28.1. Conveyance by Lessor..................................................69
28.2. Lessor May Grant Liens................................................69
ARTICLE 29......................................................................72
29.1. Quiet Enjoyment.......................................................72
ARTICLE 30......................................................................72
30.1. Notices...............................................................72
ARTICLE 31......................................................................73
31.1. Appraisers............................................................73
ARTICLE 32......................................................................74
32.1. Lessee's Right to Cure................................................74
ARTICLE 33......................................................................74
33.1. Miscellaneous.........................................................74
33.2. Transition Procedures.................................................75
33.3. Waiver of Presentment, etc............................................76
33.4. Standard of Discretion................................................77
33.5. Action for Damages....................................................77
33.6. Lease Assumption in Bankruptcy Proceeding.............................77
33.7. Intra-Family Transfers................................................77
ARTICLE 34......................................................................78
34.1. Memorandum of Lease...................................................78
ARTICLE 35......................................................................78
ARTICLE 36......................................................................78
36.1. Lessor's Option to Terminate Lease; Lessee's Limited Rights
of First Offer........................................................78
ARTICLE 37......................................................................81
37.1. Compliance with Franchise Agreement...................................81
ARTICLE 38......................................................................82
38.1. Capital Expenditures..................................................82
ARTICLE 39......................................................................83
39.1. Lessor's Default......................................................83
ARTICLE 40......................................................................84
40.1. Arbitration...........................................................84
</TABLE>
iii
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<TABLE>
<S> <C>
40.2. Alternative Arbitration...............................................84
40.3. Arbitration Procedures................................................84
</TABLE>
iv
<PAGE> 6
LIST OF EXHIBITS
Exhibit A - Property Description
Exhibit B - Other Properties
Exhibit C - Percentage Rent Formula
Exhibit D - Room Revenues
LIST OF SCHEDULES
Schedule 9.1(b) - Required Capital Improvements (5/10/15 Re-do)
v
<PAGE> 7
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the
________ day of June, 1997, by and between INNKEEPERS SUMMERFIELD GENERAL, L.P.,
a Virginia limited partnership (hereinafter called "Lessor"), and SUMMERFIELD
SUITES LEASE COMPANY, L.P., a Kansas limited partnership (hereinafter called
"Lessee"), provides as follows.
W I T N E S S E T H:
Contemporaneously with the execution hereof, Lessor or its Affiliates
acquired (i) the Leased Property (as hereinafter defined)and certain Other
Properties, and (ii) Lessor is entering with Lessee into the Other Leases; and
Lessor and Lessee now wish to enter into this Lease.
NOW, THEREFORE, Lessor, in consideration of the payment of rent by
Lessee to Lessor, the covenants and agreements to be performed by Lessee, and
upon the terms and conditions hereinafter stated, does hereby rent and lease
unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased
Property.
ARTICLE
1
1.1. Leased Property.
The leased property (the "Leased Property") is comprised of
Lessor's interest in the following:
(a) the land described in Exhibit "A" attached hereto and by
reference incorporated herein (the "Land");
(b) all buildings, structures and other improvements of every
kind including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures presently situated upon
the Land (collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating to the
Land and the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of
property required for or incidental to the use of the Leased Improvements as a
hotel, including all components thereof, now and hereafter permanently affixed
to or incorporated into the
<PAGE> 8
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
(f) all existing leases of the Leased Property (including any
security deposits or collateral held by Lessor pursuant thereto).
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH
WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE
SURVEY THEREOF.
1.2. Term.
(a) The term of the Lease (the "Term") shall commence on the
date hereof (the "Commencement Date") and shall end on the fifteenth anniversary
of the last day of the Accounting Period in which the Commencement Date occurs,
unless sooner terminated in accordance with the provisions hereof. Lessor and
Lessee acknowledge that the Commencement Date is the date of Lessor's
acquisition of the Leased Property.
(b) Lessee may elect to extend this Lease for two (2)
consecutive periods of seven and one-half years (each, a "Renewal Term") by
providing written Notice (a "Renewal Notice") to Lessor no sooner than thirty
(30) months and no later than twenty four (24) months prior to the end of the
Term or the Renewal Term, as applicable. A Renewal Notice, if given, shall be
irrevocable, but it shall not preclude Lessor from exercising any of its rights
to terminate this Lease in accordance with the provisions
2
<PAGE> 9
hereof. Lessee acknowledges that Lessor will rely on any Renewal Notice received
from Lessee and not pursue opportunities to select another lessee for the
Facility and will be materially damaged if Lessee fails subsequently to act as
lessee for the applicable Renewal Term for any reason other than Lessor's
termination of the Lease in accordance herewith. No Renewal Notice may be given
or shall be effective if an Event of Default shall have occurred and, if curable
hereunder, shall not have been cured.
The terms of the Lease during a Renewal Term shall be the same
as the terms hereof, except with respect to the amount of Base Rent payable in
each Lease Year of the Renewal Term and the dollar amounts used in the formula
set forth on Exhibit C with respect to the calculation of Percentage Rent, all
of which shall be modified to reflect the then-current market rates for
comparable leases, as shall be determined (each, a "Determination" and together,
the "Determinations") by agreement of the parties or, if the parties cannot
agree before the date which is six (6) months before the end of the then-current
Term or Renewal Term, as applicable (the "Third Party Date"), by one or more
third parties, as follows. If the parties have not agreed on the Determinations
by the Third Party Date, the parties shall, within five (5) days thereafter,
select a mutually acceptable third-party to make the Determinations. If the
parties have not agreed on a mutually acceptable third-party within five (5)
days after the Third-Party Date, the parties shall, within ten (10) days after
the Third-Party Date, designate in a written Notice delivered to the other party
a third-party to make the Determinations. If a party fails to so designate a
third-party within such ten (10) day period, the third party designated by the
other party shall make the Determinations hereunder and both parties shall be
bound thereby. If the parties each designate third-parties within such ten (10)
day period, the two third- parties so designated shall select a third
third-party within twenty-five (25) days after the Third-Party Date. Each of the
third-parties so designated shall submit Determinations hereunder within sixty
(60) days after the Third-Party Date. For each Determination, the average of the
two closest amounts submitted by the three third-parties shall become the amount
deemed included in the Lease commencing at the beginning of the applicable
Renewal Term.
Determinations made by third-parties shall be such
third-parties' estimates of the terms that would be agreed upon by a willing
lessor and a willing lessee, which are unaffiliated, and with each having
knowledge of the applicable business, hotel product and market, and this Lease.
In making the Determinations, the third-parties shall consider similar or
analogous terms in other comparable leases or documents entered
3
<PAGE> 10
into or in effect at the time between parties that are not Affiliates
("Unaffiliated Leases"). Unaffiliated Leases shall include, without limitation,
any lease (a) between parties with respect to which Jeffrey H. Fisher is not a
director and/or executive officer of both and (b) if the lessee and lessor or
their parent companies each are registered, or have registered securities, under
the federal Securities Act of 1933 or Securities Exchange Act of 1934, each as
amended.
1.3. Initial Transition.
Simultaneously with the execution of this Lease, (i) an
Affiliate of Lessee has agreed to deliver to Lessee, in immediately available
funds, a sum equal to the amount of all deposits, prepaid revenue and similar
accounts existing at or with respect to the Leased Property as of the
Commencement Date, and in consideration of entering into this Lease, Lessee
shall be entitled to retain all such cash and other accounts for its own use and
(ii) Lessee shall acquire for fair market value from Lessor or the contributor
of the Leased Property to Lessor all of the Inventory existing at the Leased
Property.
ARTICLE
2
2.1. Definitions.
For all purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (a) the terms defined in this
Lease have the meanings assigned to them in this Article and include the plural
as well as the singular, (b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP, (c) all references
in this Lease to designated "Articles", "Sections" and other subdivisions are to
the designated Articles, Sections and other subdivisions of this Lease and (d)
the words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Lease as a whole and not to any particular Article, Section or
other subdivision:
Accounting Period: The four (4) week periods commencing on a Saturday
and ending on a Friday designated by Lessee as the fiscal periods of the
Facility, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Lessee's accounting system to the calendar. Each
Lease Year shall contain thirteen (13) consecutive Accounting Periods and shall
end on the Friday closest to December 31st of such Lease Year.
Additional Charge(s): As defined in Section 3.3.
4
<PAGE> 11
Affiliate: The term "Affiliate" of a Person shall mean (a) any Person
that, directly or indirectly, controls or is controlled by or is under common
control with such Person, (b) any other Person that owns, beneficially, directly
or indirectly, ten percent or more of the outstanding capital stock, shares or
equity interests of such Person, or (c) any officer, director, employee, partner
or trustee of such Person or any Person controlling, controlled by or under
common control with such Person (excluding trustees and Persons serving in
similar capacities who are not otherwise an Affiliate of such Person). For the
purposes of this definition, "control" (including the correlative meanings of
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
through the ownership of voting securities, partnership interests or other
equity interests, by contract or otherwise.
Annual Budget: As used in this Lease, the term "Annual Budget" shall
mean an Operating Budget and a Capital Budget prepared by Lessee and approved by
Lessor in accordance with Section 3.5.
Award: As defined in Section 15.1(c).
Base Rate: The prime rate (or base rate) reported in the Money Rates
column or comparable section of The Wall Street Journal, Eastern Edition, as the
rate then in effect for corporate loans at large U.S. money center commercial
banks, whether or not such rate has actually been charged by any such bank. If
no such rate is reported in The Wall Street Journal, Eastern Edition or if such
rate is discontinued, then Base Rate shall mean such other successor or
comparable rate as Lessor may reasonably designate.
Base Rent: As defined in Article 3.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which national banks in the City of Palm Beach, Florida, or in
the municipality wherein the Leased Property is located are closed.
Capital Budget: As defined in Section 3.5.
Capital Expenditures: Amounts advanced to pay the costs of Capital
Improvements.
Capital Expenditures Allowance: As defined in Article 38.
5
<PAGE> 12
Capital Impositions: Taxes, assessments or similar charges imposed upon
or levied against the Leased Property for the costs of public improvements,
including, without limitation, roads, sidewalks, public lighting fixtures,
utility lines, storm sewers drainage facilities, and similar improvements.
Capital Improvements: Improvements to the Leased Property and
replacement or refurbishing of Fixtures and of Furniture and Equipment, all as
designated as capital improvements by and determined in accordance with GAAP.
CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Section 1.2.
Company: Innkeepers USA Trust, a Maryland real estate investment trust.
Condemnation, Condemnor: As defined in Section 15.1.
Consolidated Financials: For any fiscal year or other accounting period
for (i) Lessee and (ii) Lessee and Lessee's Affiliates, if any, that lease hotel
properties from Lessor or its Affiliates, a balance sheet and statements of
operations, partners' capital and cash flow (or, in the case of a corporation,
statements of operations, retained earnings and cash flow) for such period and
for the period from the beginning of the respective fiscal year to the end of
such period and the related balance sheet as at the end of such period, together
with the notes to any such yearly statement, all in such detail as may be
required by the SEC with respect to filings made by the Company or Lessor, and
setting forth in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, and prepared in accordance
with GAAP and audited annually (and quarterly if required by the SEC) by Coopers
& Lybrand L.L.P. or another so-called "Big Six" firm of independent certified
public accountants selected by Lessor. Consolidated Financials shall be prepared
on the basis of a fiscal year ending on the Friday closest to December 31.
Consumer Price Index: The "Consumer Price Index" published by the
Bureau of Labor Statistics of the United States Department of Labor, U.S. City
Average, All Item for Urban Wage Earners and Clerical Workers (1982-1984=100).
Date of Taking: As defined in Section 15.1(b).
6
<PAGE> 13
Emergency Expenditures: Expenditures required to take necessary or
appropriate actions to respond to Emergency Situations.
Emergency Situations: Fire, any other casualty, or any other events,
circumstances or conditions which threaten the safety or physical well-being of
the Facility's guests or employees or which involve the risk of material
property damage or material loss to the Facility.
Environmental Authority: Any department, agency or other body or
component of any Government that exercises any form of jurisdiction or authority
under any Environmental Law.
Environmental Authorization: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.
Environmental Laws: All applicable federal, state, local and foreign
laws and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including without limitation laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials. Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.
Environmental Liabilities: Any and all actual or potential obligations
to pay the amount of any judgment or settlement, the cost of complying with any
settlement, judgment or order for injunctive or other equitable relief, the cost
of compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or criminal
fine, and any court costs and reasonable amounts for attorney's fees, fees for
witnesses and experts, and costs of investigation and preparation for defense of
any claim or any Proceeding, regardless of whether such Proceeding is
threatened, pending or completed, that may be or have been asserted against or
imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any
property used therein and arising out of:
(a) the failure to comply at any time with all Environmental
Laws applicable to the Leased Property;
(b) the presence of any Hazardous Materials on, in, under, at
or in any way affecting the Leased Property;
7
<PAGE> 14
(c) a Release or threatened Release of any Hazardous Materials
on, in, at, under or in any way affecting the Leased Property;
(d) the identification of Lessee, Lessor or any Predecessor as
a potentially responsible party under CERCLA or under any other Environmental
Law;
(e) the presence at any time of any above-ground and/or
underground storage tanks, as defined in RCRA or in any applicable Environmental
Law on, in, at or under the Leased Property or any adjacent site or facility; or
(f) any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or located
at the Leased Property, or resulting from operation thereof or any adjoining
property.
Event of Default: As defined in Section 16.1.
Facility: The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as
amended.
Fixtures: As defined in Section 1.1.
Franchise Agreement: The franchise agreement or license agreement with
Summerfield Suites Management Company, L.P., or any other franchisor under which
the Facility is operated.
Furniture and Equipment: The terms "furniture and equipment" shall mean
collectively all furniture, furnishings, wall coverings, Fixtures and hotel
equipment and systems located at, or used in connection with, the Facility,
together with all replacements therefor and additions thereto, including,
without limitation, (i) all equipment and systems required for the operation of
kitchens, bars and restaurants, and laundry and dry cleaning facilities, (ii)
office equipment, (iii) dining room wagons, materials handling equipment, and
cleaning and engineering equipment, (iv) telephone and computerized accounting
systems, and (v) vehicles.
GAAP: Generally accepted accounting principles as are at the time
applicable and otherwise consistently applied.
Government: The United States of America, any city, county, state,
district or territory thereof, any foreign nation, any
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city, county, state, district, department, territory or other political division
thereof, or any political subdivision of any of the foregoing.
Gross Operating Expenses: The term "Gross Operating Expenses" shall
have the same meaning as the term "Total Costs and Expenses" contained in the
Uniform System and shall include all salaries and employee expenses and payroll
taxes (including salaries, wages, bonuses and other compensation of all
employees of the Facility, and benefits including life, medical and disability
insurance and retirement benefits), expenditures described in Section 9.1,
operational supplies, utilities, governmental fees and assessments, food,
beverages, laundry service expense, the cost of Inventory, license fees,
advertising, marketing, reservation systems and any and all other operating
expenses as are reasonably necessary for the proper and efficient operation of
the Facility 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)
Real Estate Taxes and Personal Property Taxes, (iv) payments on any Mortgage or
other security instrument on the Facility, and (v) depreciation and
amortization; all determined in accordance with GAAP and the Uniform System). No
part of Lessee's central office overhead or general or administrative expense
(as opposed to that of the Facility) shall be deemed to be a part of Gross
Operating Expenses, except the accounting fee, data processing fee and legal fee
currently being charged to the Facility as of the date hereof.
Gross Operating Profit: For any Lease Year, the excess of Gross
Revenues over Gross Operating Expenses.
Gross Revenues: All revenues, receipts, and income of any kind derived
directly or indirectly by Lessee from or in connection with the Facility
(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 GAAP and the Uniform
System, 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) gratuities, (iv) proceeds
of insurance and condemnation Awards,
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(v) proceeds from sales other than sales in the ordinary course of business,
(vi) all loan proceeds from financing or refinancings of the Facility or
interests therein or components thereof, (vii) judgments and awards, except any
portion thereof arising from normal business operations of the hotel, and (viii)
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 in any
Environmental Law;
(b) Hazardous substances, as defined in CERCLA or in any
Environmental Law;
(c) Toxic substances, as defined in TSCA or in any
Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined in
FIFRA or in any Environmental Law;
(e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenols, asbestos and urea formaldehyde;
(f) Asbestos or asbestos containing materials;
(g) Urea Formaldehyde foam insulation; and
(h) Radon gas.
Holder: Any holder of a Mortgage, any purchaser of the Leased Property
or any portion thereof at a foreclosure sale or any sale in lieu thereof, or any
designee of any of the foregoing.
Impositions: Collectively, all taxes (including, without limitation,
all ad valorem, sales and use, occupancy, single business, gross receipts,
transaction privilege, rent or similar taxes as the same relate to or are
imposed upon Lessee or Lessor or Lessee's business conducted upon the Leased
Property), assessments (including, without limitation, all private property
association assessments and all assessments for public improvements or benefit,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), ground rents, water, sewer or other rents
and charges, excises, tax inspection, authorization and similar fees and all
other governmental charges, in each case whether general
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or special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property or the business conducted thereon by
Lessee (including all interest and penalties thereon caused by any failure in
payment by Lessee), which at any time prior to, during or with respect to the
Term hereof may be assessed or imposed on or with respect to or be a lien upon
(a) Lessor's interest in the Leased Property, (b) the Leased Property, or any
part thereof or any rent therefrom or any estate, right, title or interest
therein, or (c) any occupancy, operation, use or possession of, or sales from,
or activity conducted on or in connection with the Leased Property, or the
leasing or use of the Leased Property or any part thereof by Lessee. Nothing
contained in this definition of Impositions shall be construed to require Lessee
to pay (1) any tax based on net income (whether denominated as a franchise or
capital stock or other tax) imposed on Lessor or any other person, or (2) any
net or gross revenue tax of Lessor or any other person, or (3) any tax imposed
with respect to the sale, exchange or other disposition by Lessor of any Leased
Property or the proceeds thereof.
Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an Indemnified
Party pursuant to any provision of this Lease.
Insurance Requirements: All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.
Inventory: All "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System, including, but not limited to,
linens, china, silver, glassware and other non-depreciable personal property,
and any property of the type described in Section 1221(1) of the Code.
Land: As defined in Article 1.
Lease: This Lease.
Lease Year: Any thirteen (13) consecutive Accounting Periods ending on
the Friday closest to December 31, or any shorter period at the beginning or the
end of the Term.
Lease Master Agreement: That certain Lease Master Agreement of even
date herewith relating to this Lease and the Other Leases.
Leased Improvements: As defined in Article 1.
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Leased Property: 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, operation or alteration thereof (whether by Lessee or
otherwise), whether or not hereafter enacted and in force, including (a) all
laws, rules or regulations pertaining to the environment, occupational health
and safety and public health, safety or welfare, and (b) any laws, rules or
regulations that may (1) require repairs, modifications or alterations in or to
the Leased Property or (2) in any way adversely affect the use and enjoyment
thereof; and all permits, licenses and authorizations necessary or appropriate
to operate the Leased Property for its Primary Intended Use and all covenants,
agreements, restrictions and encumbrances contained in any instruments, either
of record or known to Lessee (other than encumbrances hereafter created by
Lessor without the consent of Lessee), at any time in force affecting the Leased
Property.
Lessee: The Lessee designated on this Lease and its permitted
successors and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest in Lessee, the officers,
directors, stockholders, partners, members, employees, agents and
representatives of any of the foregoing Persons and any corporate stockholder,
agent, or representative of any of the foregoing Persons, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, partner, member, stockholder, employee, agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
Lessor: The Lessor designated on this Lease and its respective
successors and assigns.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, including
the Company, any other Person against whom any claim for indemnification may be
asserted hereunder as a result of a direct or indirect ownership interest in
Lessor, the officers, trustees, directors, stockholders, partners, members,
employees, agents and representatives of any of the foregoing Persons and of any
stockholder, partner, member, agent, or representative of any of the foregoing
Persons, and the respective heirs, personal representatives, successors and
assigns of any such officer,
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trustee, director, partner, member, stockholder, employee, agent or
representative.
Lessor's Audit: An audit by Lessor's independent certified public
accountants of the operation of the Leased Property during any Lease Year, which
audit may, at Lessor's election, be either a complete audit of the Leased
Property's operations or an audit of Room Revenues realized from the operation
of the Leased Property during such Lease Year.
Management Agreement: As defined in Section 21.3.
Manager: As defined in Section 21.3.
Market Decline: As defined in Section 3.7(b).
Mortgage: As defined in Section 28.2.
Notice: A notice given pursuant to Article 30.
Officer's Certificate: A certificate of Lessee reasonably acceptable to
Lessor, signed by the chief financial officer or another officer duly authorized
so to sign by Lessee or a general partner of Lessee, or any other person whose
power and authority to act has been authorized by delegation in writing by any
such officer.
Operating Budget: As defined in Section 3.5.
Other Leases: The leases of the Other Properties.
Other Properties: The properties described on Exhibit B attached
hereto, as the same may be amended from time to time pursuant to the provisions
of the Lease Master Agreement.
Overdue Rate: On any date, a rate equal to the Base Rate plus 5% per
annum, but in no event greater than the maximum rate then permitted under
applicable law.
Payment Date: Any due date for the payment of any installment of Rent.
Percentage Rent: As defined in Article 3.
Performance Failure: A Revenue Performance Shortfall, a Market Decline
or a Profit Decline.
Person: The term "Person" means and includes individuals, corporations,
general and limited partnerships, limited liability companies, stock companies
or associations, joint ventures,
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associations, companies, trusts, banks, trust companies, land trusts, business
trusts, or other entities and any Government and agencies and political
subdivisions thereof.
Personal Property Taxes: All personal property taxes imposed on the
furniture, furnishings or other items of personal property located on, and used
in connection with, the operation of the Leased Improvements as a hotel (other
than Inventory and other personal property owned by the Lessee), together with
all replacements, modifications, alterations and additions thereto.
Predecessor: Any Person whose liabilities arising under any
Environmental Law have or may have been retained or assumed by Lessor or Lessee
pursuant to the provisions of this Lease.
Primary Intended Use: As defined in Section 7.2(b).
Proceeding: Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
Profit Decline: As defined in Section 3.7(c).
RCRA: The Resource Conservation and Recovery Act, as amended.
Real Estate Taxes: All real estate taxes, including general and special
assessments, if any, which are imposed upon the Land and any improvements
thereon.
Release: A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.
Rent: Collectively, the Base Rent, Percentage Rent, and Additional
Charges.
Revenue Performance Shortfall: As defined in Section 3.7(a).
Room Revenues: Gross revenue from the rental of guest rooms, whether to
individuals, groups or transients, at the Facility, determined in a manner
consistent with the Uniform System and excluding the following:
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(a) The amount of all credits, bad debt write-off rebates or
refunds to customers, guests or patrons; and
(b) All sales taxes or any other taxes imposed on the rental
of such guest rooms; and
(c) any fees collected for amenities including, but not
limited to, telephone, laundry, movies or concessions.
Lessee agrees that bad-debt expenses will be recorded in a
manner which is consistent with the past practice of the current operator of the
Facility for bad debt writeoffs.
SARA: The Superfund Amendments and Reauthorization Act of 1986, as
amended.
SEC: The U.S. Securities and Exchange Commission or any successor
agency.
State: The State or Commonwealth of the United States in which the
Leased Property is located.
STR Reports: Reports compiled by Smith Travel Research which contain
historical supply and demand, occupancy, and average rate information for the
Facility and hotels with which it competes.
Subsidiaries: Corporations or other entities in which Lessee owns,
directly or indirectly, 50% or more of the voting rights or control, as
applicable (individually, a "Subsidiary").
Taking: A permanent or temporary taking or voluntary conveyance during
the Term hereof of all or part of the Leased Property, or any interest therein
or right accruing thereto or use thereof, as the result of, or in settlement of,
any Condemnation or other eminent domain proceeding affecting the Leased
Property whether or not the same shall have actually been commenced.
Tax Law Change: A change in the Code (including, without limitation, a
change in the Treasury regulations promulgated thereunder) or in the judicial or
administrative interpretations of the Code, which will permit the Company or a
wholly-owned subsidiary of the Company to operate the Facility as a hotel
without adversely affecting the Company's qualification for taxation as a real
estate investment trust under the applicable provisions of the Code.
Term: As defined in Section 1.2.
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Termination Fee: As defined in Section 36.1(d).
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delay: Delay due to strikes, lock-outs, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty,
condemnation or other similar causes beyond the reasonable control of the party
responsible for performing an obligation hereunder, provided that lack of funds
shall not be deemed a cause beyond the reasonable control of either party hereto
unless such lack of funds is caused by the breach of the other party's
obligation to perform any obligations of such other party under this Lease.
Uneconomic for its Primary Intended Use: A state or condition of the
Facility such that in the reasonable judgment of Lessor the Facility cannot be
operated on a commercially practicable basis for its Primary Intended Use, such
that Lessor intends to, and shall, cease operation of the Facility.
Uniform System: Shall mean the Uniform System of Accounts for Hotels
(9th Revised Edition, 1996) as published by the Hotel Association of New York
City, Inc., as the same may hereafter be revised, and as the same is interpreted
and applied by the Lessor's independent certified public accountants in
connection with any audit.
Unsuitable for its Primary Intended Use: A state or condition of the
Facility such that in the reasonable judgment of Lessor the Facility (i) cannot
function as an integrated hotel facility consistent with standards applicable to
a well maintained and operated hotel comparable in quality and function to that
of the Facility prior to the damage or loss and, (ii) notwithstanding the
application of insurance proceeds that may occur under Section 14.1, will remain
unsuitable for its Primary Intended Use for a period of 90 days or more.
ARTICLE
3
3.1. Rent.
Lessee will pay to Lessor, by wire transfer, in lawful money
of the United States of America which shall be legal tender for the payment of
public and private debts, at Lessor's address set forth in Article 30 hereof or
at such other place or to such other Person as Lessor from time to time may
designate in a
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Notice, all Base Rent, Percentage Rent and Additional Charges, during the Term,
as follows:
(a) For the short 1997 Lease Year commencing on the date
hereof, the Rent payable in each remaining Accounting Period shall be
(i) (A) the amount of base rent ("Base Rent")
set forth on Exhibit C for such Accounting Period, plus (B) the aggregate amount
of Base Rent set forth on Exhibit C for all preceding Accounting Periods in the
Lease Year for which Base Rent and Percentage Rent was due less (C) an amount
equal to the Base Rent paid for the Lease Year to date; provided, however, that
the first payment of Base Rent shall be prorated as to any partial Accounting
Period; plus
(ii) Percentage Rent, calculated as set forth in
(c)(ii) below. Rent for each Accounting Period in the 1997 Lease Year shall be
paid on or before the fifteenth (15th) day of the next Accounting Period;
(b) For the 1998 and all subsequent Lease Years, the Rent
payable in each Accounting Period shall equal
(i) (A) the amount of Base Rent set forth on
Exhibit C forsuch Lease Year (subject to increase as set forth in Subparagraph
(d) hereof), divided by (B) thirteen (13) multiplied by (C) the number of
Accounting Periods elapsed during the Lease Year, less (D) an amount equal to
the Base Rent and Percentage Rent paid for the Lease Year to date, provided,
however, that (1) Base Rent shall be prorated as to any Lease Year which is less
than thirteen Accounting Periods, and (2) the last payment of Base Rent shall be
pro rated as to any partial Accounting Period; plus
(ii) percentage rent ("Percentage Rent"),
calculated by the following formula:
For any Accounting Period, Percentage Rent shall equal:
The amount equal to the Period Revenues Computation (defined
below)
less
an amount equal to the Base Rent paid for the Lease Year to
date (including the amount paid or payable for such Accounting
Period under (b)(i) above
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less
an amount equal to the Percentage Rent paid for the Lease Year
to date.
Base Rent for each Accounting Period during such period of the
Term shall be payable in arrears in consecutive installments, on or before the
first business day of each subsequent Accounting Period. Percentage Rent for
each Accounting Period during such period of the Term shall be paid on or before
the fifteenth (15th) day of the next Accounting Period. In no event shall
Percentage Rent be less than zero. For purposes of defining the Period Revenues
Computation:
(A) "Cumulative Period Portion" shall mean a fraction having
as its numerator the total number of Accounting Periods (including partial
Accounting Periods) in a Lease Year which have elapsed prior to the Accounting
Period in which a payment of Percentage Rent is due, and having as its
denominator the total number of Accounting Periods (including partial Accounting
Periods) in the Lease Year. For example, the Cumulative Period Portion in a
13-Accounting Period Lease Year for the first Accounting Period Percentage Rent
payment due on the 15th day of the second Accounting Period will be 1/13 and for
the second Accounting Period Percentage Rent payment due on the tenth day of the
third Accounting Period will be 2/13, and such progression shall continue for
each successive Accounting Period so that the Cumulative Period Portion for the
thirteenth Accounting Period Percentage Rent payment due on the tenth day of the
first Accounting Period of the next Lease Year will be 13/13 or 100%.
(B) "First Tier Room Revenue Percentage," and "Second Tier
Room Revenue Percentage," shall mean the percentages corresponding to each of
such terms as set forth on Exhibit C.
(C) "Annual Room Revenues Break Point" shall mean the amount
of annual Room Revenues corresponding to each of such terms as set forth on
Exhibit D.
(D) The "Period Revenues Computation" shall be the amount
obtained by adding, for the applicable Lease Year, (i) an amount equal to the
First Tier Room Revenue Percentage of all year-to-date Room Revenues up to (but
not exceeding) the Cumulative Period Portion of the Annual Room Revenues Break
Point, and (ii) an amount equal to the Second Tier Room Revenue Percentage of
all year-to-date Room Revenues in excess of the Cumulative Period Portion of the
Annual Room Revenues Break Point.
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<PAGE> 25
If the Term begins or ends in the middle of a calendar year,
then the number of Accounting Periods falling within the Term during such
calendar year shall constitute a separate Lease Year. In that event, the Annual
Room Revenues Break Point shall be multiplied by a fraction equal to (x) the
number of Accounting Periods (including partial Accounting Periods) in the Lease
Year divided by (y) thirteen (13), and the Cumulative Period Portion for each of
the Accounting Periods in such Lease Year shall be determined as set forth in
the definition of Cumulative Period Portion above.
(d) Officer's Certificates. An Officer's Certificate shall be
delivered to Lessor with each Percentage Rent payment setting forth the
calculation of the Percentage Rent payment for the most recently completed
Accounting Period of each Lease Year in the Term. There shall be no reduction in
Base Rent regardless of the results of the Period Revenues Computation.
Percentage Rent shall be subject to confirmation and adjustment, if applicable,
as set forth in Section 3.2.
The obligation to pay Percentage Rent shall survive the
expiration or earlier termination of the Term, and a final reconciliation,
taking into account, among other relevant adjustments, any adjustments which are
accrued after such expiration or termination date but which related to
Percentage Rent accrued prior to such termination date, shall be made not later
than sixty (60) days after such expiration or termination date.
(e) CPI Adjustments. For each Lease Year during the Term
beginning with the Lease Year commencing on or about January 1, 1998, the Base
Rent then in effect and the Annual Room Revenues Break Point then included in
the Revenues Computation set forth in Section 3.1(b)(ii), shall be increased as
follows:
(i) For the Lease Year commencing January 1,
1999, and for each Lease Year thereafter during the Term, the Consumer
Price Index for the day before the day that the new Lease Year
commences (the "Measurement Date") shall be divided by the Consumer
Price Index for the day that is twelve months preceding the Measurement
Date;
(ii) The new Base Rent for the then current Lease
Year shall be the product of the Base Rent in effect in the most
recently ended Lease Year and the quotient obtained under subparagraph
(i) above; and
(iii) The new Annual Room Revenues Break Point in
the Revenues Computation described in Section 3.1(b)(ii) above for the
then current Lease Year shall be the product
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<PAGE> 26
of the Annual Room Revenues Break Point in effect in the most recently
ended Lease Year and the quotient obtained in subparagraph (i) above.
In no event shall the Base Rent or the Annual Room Revenues
Break Point be reduced as a result of any changes in the Consumer Price Index.
Adjustments calculated as set forth above in the Base Rent and
the Annual Room Revenues Break Point shall be effective on the first day of each
Lease Year to which such adjusted amounts apply. If Rent is paid prior to the
determination of the amount of any adjustment to Base Rent or the Annual Room
Revenues Break Point applicable for such period, whether because of a delay in
the publication of the Consumer Price Index for the Measurement Date or because
of any other reason, payment adjustments for any shortfall in or overpayment of
Rent paid shall be made with the first Base Rent and Percentage Rent payments
due after the amount of the adjustments are determined.
If (1) a significant change is made in the number or nature
(or both) of items used in determining the Consumer Price Index, or (2) 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 and Annual Room Revenues Break
Point hereunder. If for any reason the Bureau of Labor Statistics does not
furnish such an index and such information, the parties will instead mutually
select, accept and use such other index or comparable statistics on the cost of
living in various U.S. cities that is computed and published by an agency of the
United States or a responsible financial periodical of recognized authority.
3.2. CONFIRMATION OF PERCENTAGE RENT.
Lessee shall utilize, or cause to be utilized, an accounting
system for the Leased Property in accordance with its usual and customary
practices, and in accordance with GAAP and the Uniform System, that will
accurately record all data necessary to compute Percentage Rent, and Lessee
shall retain, for at least five (5) years after the expiration of each Lease
Year, reasonably adequate records conforming to such accounting system showing
all data necessary to conduct Lessor's Audit and to compute Percentage Rent for
the applicable Lease Years. Lessor shall have the right, for a period of two
years following each Lease Year, from time to time, by its accountants or
representatives, to audit such information in connection with Lessor's Audit,
and to examine all Lessee's records (including
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<PAGE> 27
supporting data and sales and excise tax returns) reasonably required to
complete Lessor's Audit and to verify Percentage Rent, subject to any
prohibitions or limitations on disclosure of any such data under Legal
Requirements. If any Lessor's Audit discloses a deficiency in the payment of
Percentage Rent, and either Lessee agrees with the result of Lessor's Audit or
the matter is otherwise determined or compromised, Lessee shall forthwith pay to
Lessor the amount of the deficiency, as finally agreed or determined, together
with interest at the Overdue Rate from the date when said payment should have
been made to the date of payment thereof. If any Lessor's Audit discloses a
deficiency in the determination or reporting of Room Revenue which, as finally
agreed or determined, exceeds 3%, Lessee shall pay the costs of the portion of
Lessor's Audit allocable to the determination of Gross Revenues (the "Revenue
Audit"). Any proprietary information obtained by Lessor pursuant to the
provisions of this Section shall be treated as confidential, except that such
information may be used, subject to appropriate confidentiality safeguards, in
any litigation between the parties and except further that Lessor may disclose
such information to prospective lenders, investors and underwriters and to any
other persons to whom disclosure is necessary to comply with applicable laws,
regulations and government requirements. The obligations of Lessee contained in
this Section shall survive the expiration or earlier termination of this Lease.
Any dispute as to the existence or amount of any deficiency in the payment of
Percentage Rent as disclosed by Lessor's Audit shall, if not otherwise settled
by the parties, be submitted to arbitration pursuant to the provisions of
Section 40.2.
3.3. Additional Charges.
In addition to the Base Rent and Percentage Rent, (a) Lessee
also will pay and discharge as and when due and payable all other amounts,
liabilities, obligations and Impositions that Lessee assumes or agrees to pay
under this Lease, and (b) in the event of any failure on the part of Lessee to
pay any of those items referred to in clause (a) of this Section 3.3, Lessee
also will promptly pay and discharge every fine, penalty, interest and cost that
may be added for non-payment or late payment of such items (the items referred
to in clauses (a) and (b) of this Section 3.3 being additional rent hereunder
and being referred to herein collectively as the "Additional Charge(s)"), and
Lessor shall have all legal, equitable and contractual rights, powers and
remedies provided either in this Lease or by statute or otherwise in the case of
non-payment of the Additional Charges as in the case of non-payment of the Base
Rent. If any installment of Base Rent, Percentage Rent or Additional Charges
(but only as to those Additional Charges that are payable directly to Lessor)
shall not be paid on its due date, Lessee will pay Lessor within
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<PAGE> 28
ten (10) days of demand, as Additional Charges, an amount equal to the interest
computed at the Overdue Rate on the amount of such installment, from the due
date of such installment to the date of payment thereof. To the extent that
Lessee pays any Additional Charges to Lessor pursuant to any requirement of this
Lease, Lessee shall be relieved of its obligation to pay such Additional Charges
to the entity to which they would otherwise be due and Lessor shall pay the same
from monies received from Lessee.
3.4. No Set Off.
Rent shall be paid to Lessor without set off, deduction or
counterclaim, subject to Lessee's right to assert any claim or mandatory
counterclaim in any action brought by either party under this Lease.
3.5. Annual Budget.
(a) Not later than October 15 of each Lease Year, Lessee shall
prepare and submit to Lessor a preliminary Room Revenues budget for the
subsequent Lease Year on an Accounting Period basis, together with any
assumptions made then-to-date by Lessee, in narrative form, forming the basis of
such schedules.
(b) Not later than November 15 of each Lease Year, Lessee
shall prepare and submit to Lessor an operating budget (the "Operating Budget")
and a capital budget (the "Capital Budget") prepared in accordance with the
requirements of this Section 3.5 for the subsequent Lease Year. The Operating
Budget and the Capital Budget (together, the "Annual Budget") shall be prepared
in accordance with the Uniform System to the extent applicable and show by
Accounting Period and for the subsequent Lease Year as a whole in the degree of
detail specified by the Uniform System for monthly statements, and in accordance
with the detail level of monthly financial statements, the following:
(i) Lessee's reasonable estimate of Gross
Revenues, Gross Operating Expenses and Gross Operating Profit (including room
rates and Room Revenues) for the forthcoming Lease Year itemized on schedules on
an Accounting Period basis as approved by Lessor and Lessee, together with the
assumptions, in narrative form, forming the basis of such schedules.
(ii) An estimate of the amounts to be spent for
the repair, replacement, or refurbishment of Furniture and Equipment.
(iii) An estimate of the amounts to be spent on
Capital Improvements during the current and the next five (5)
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<PAGE> 29
Lease Years, including a project-by-project schedule of estimated start and
completion dates.
(iv) A cash flow projection.
(v) A narrative description of the program for
marketing and managing the Facility for the forthcoming Lease Year, including,
among other things, details as to significant accounts and customers, competitor
performance (to the extent Lessee can obtain same without unreasonable effort),
existing, new and projected supply analysis, demand analysis, estimated market
penetration by market segment (to the extent Lessee can obtain same without
unreasonable effort), target accounts, marketing and advertising budgets,
changes in personnel policies, staffing levels, major events plans, franchise
issues and other matters affecting the performance and operation of the
Facility, and containing a detailed budget itemization of proposed expenditures
by category and the assumptions, in narrative form, forming the basis of such
budget itemization.
(vi) Lessee's estimate for each Accounting Period
of the Lease Year of Percentage Rent, including Room Revenues.
Lessor shall have thirty (30) days after the date on which it
receives the Annual Budget to review, approve, disapprove or change the entries
and information appearing in the Annual Budget. If the parties are not able to
reach agreement on the Annual Budget for any Lease Year during Lessor's thirty
(30) day review period, the parties shall attempt in good faith during the
subsequent thirty (30) day period to resolve any disputes, which attempt shall
include, if requested by either party, at least one (1) meeting of
executive-level officers of Lessor and Lessee. In the event the parties are
still not able to reach agreement on the Annual Budget for any particular Lease
Year after complying with the foregoing requirements of this Section 3.5, the
parties shall adopt such portions of the Operating Budget and the Capital Budget
as they may have agreed upon, and any matters not agreed upon shall be referred
to arbitration as provided for in Section 40.2 hereof. Pending the results of
such arbitration or the earlier agreement of the parties, (i) if the Operating
Budget has not been agreed upon, for the first ninety (90) days of the new Lease
Year the Leased Property will be operated in a manner reflecting the prior Lease
Year's actual revenues, and thereafter the Leased Property will be operated for
the full Lease Year (including the first 90 days thereof) in a manner consistent
with the prior Lease Year's Operating Budget, in each case adjusted pursuant to
Section 3.1(e) hereof until a new Operating Budget is adopted, and (ii) if the
Capital Budget has not been agreed upon, no Capital Expenditures shall be made
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unless the same are set forth in a previously approved Capital Budget or are
specifically required by Lessor or are otherwise required to comply with Legal
Requirements or to make Emergency Expenditures.
The Annual Budget, once approved and as approved, shall form
the basis on which expenditures for the Leased Property shall be made. Unless
such expenditures are otherwise permitted in writing by Lessor or are Emergency
Expenditures, Lessee agrees to use its best efforts not to cause or permit any
expenditures for a Lease Year in excess of those set forth in the Capital
Budget, or any expenditures for a Lease Year that exceed one hundred five
percent (105%) of the total expenditures for operating expenses contemplated by
the approved Operating Budget for such Lease Year ("Excess Expenditures"). If,
notwithstanding Lessee's best efforts, Excess Expenditures are contemplated,
Lessee shall provide Lessor a written explanation of such expenditures, which
shall include (a) estimates of the Excess Expenditures, (b) the basis upon which
such estimates were made, (c) the reasons for such variances from the budgeted
expenses for such items and (d) the Lessee's plan, if any, to reduce such
expenditures in the future or avoid expenditures on such items which are in
excess of the amounts budgeted for such items in the future. Lessee shall
consider in good faith any proposals by Lessor of alternatives to reduce or
avoid any Excess Expenditures on an item greater than 105% of the amount
budgeted for the item. Lessee shall provide Lessor any additional information
regarding Excess Expenditures, and from time to time provide Lessor with status
reports on the Excess Expenditures and the implementation of any plan to reduce
or avoid such Excess Expenditures, each as reasonably requested by Lessor or its
representatives. Notwithstanding the foregoing, expenditures in excess of 105%
of the amount budgeted for an item in an Operating Budget may be made by Lessee
(i) for Real Estate Taxes, Personal Property Taxes, and insurance and utility
expenses resulting from unanticipated rate changes,(ii) if such expenditures are
Emergency Expenditures and (iii) for rooms costs and utilities as a result of
and in proportion to a corresponding increase in occupancy over the amounts
projected in the Operating Budget. Lessee shall promptly report to Lessor in
writing any actual or anticipated deviation from the Operating Budget or Capital
Budget resulting from the application of the preceding sentence. In the event
that Lessee fails to provide the Notices, information or reports required under
this Section 3.5, then Lessor, in addition to its other rights and remedies
under this Lease and under applicable law, shall have the right to submit the
matter to arbitration under Section 40.1 hereof.
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3.6. Books and Records.
Lessee shall keep full and adequate books of account and other
records reflecting the results of operation of the Facility on an accrual basis,
all in accordance with the Uniform System and GAAP and the obligations of Lessee
under this Lease. The books of account and all other records relating to or
reflecting the operation of the Facility (whether maintained by Lessee or
Manager) shall be kept either at the Facility or at 8100 East 22nd Street, Bldg.
500, Wichita, Kansas, and shall be available to Lessor and its representatives
and its auditors or accountants, at all reasonable times for examination, audit,
inspection, and transcription. All of such books and records pertaining to the
Facility (whether maintained by Lessee or Manager) including, without
limitation, books of account, guest records and front office records, at all
times shall be the property of Lessor and shall not be removed from the Facility
or Lessee's offices without Lessor's prior written approval. Lessee shall be
entitled to make copies of any or all such books and records for its own files.
Lessee's obligations under this Section 3.6 shall survive termination of this
Lease for any reason.
3.7. Performance Failures.
(a) If, with respect to two (2) out of any three (3)
consecutive Lease Years during the Term commencing on or after January 1, 1998,
Lessee shall fail to realize from the operation of the Facility an amount equal
to at least ninety percent (90%) of Room Revenues as set forth in the Annual
Budget for such Lease Year, such failure shall constitute a "Revenue Performance
Shortfall" under this Lease, except to the extent such failure is caused by an
Unavoidable Occurrence. The existence of a Revenue Performance Shortfall for any
Lease Year shall be determined by Lessor on the basis of the first Officer's
Certificate delivered by Lessee to Lessor in the subsequent Lease Year pursuant
to the requirements of the first paragraph of Section 3.1(d) and shall be
subject to confirmation pursuant to Section 3.2. Notwithstanding the foregoing,
no Lease Year that would otherwise be included in the period of a Revenue
Performance Shortfall shall be so included if the Lessor and its Affiliates
receive Rent payments from the Lessee and its Affiliates under this Lease and
the Other Leases which, in the aggregate, amount to 95% (the "Overall Shortfall
Cure Percentage") of the aggregate Rent budgeted for such Lease Year in the
Operating Budgets for the facility and the other hotel properties leased under
the Other Leases (each such Lease Year, an "Excluded Lease Year"). Lessee and
its Affiliates as a group may rely on the foregoing for a total of five (5)
Excluded Lease Years and, thereafter, the Overall Shortfall Cure Percentage
shall increase to 100%.
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(b) If, with respect to any Lease Year during the Term, (i)
the RevPAR Yield Index of the Leased Property as of the end of such Lease Year
shall have declined by more than fifteen (15) percentage points (the "Decline
Percentage") from ______ percent (____%) [i.e., the Leased Property's RevPAR
Yield Index at the beginning of the Term] (the "RevPAR Index Baseline") and (ii)
the RevPAR Yield Index shall have declined below ninety-five percent (95%), such
combined decline shall constitute a "Market Decline" under this Lease, except to
the extent such failure is caused by an Unavoidable Occurrence. [For Cumberland
and Sierra: Beginning with the period commencing on June 30, 1998, the RevPAR
Index Baseline shall be reset to the Yield Index for the Hotel for the 12-months
ended June 30, 1998.] As used herein, "RevPAR Yield Index," when used with
respect to the Leased Property, shall mean the percentage amount obtained by
dividing the RevPAR of the Leased Property by the RevPAR of the Leased
Property's Competitive Set, with the terms "RevPAR" and "Competitive Set" having
the meanings ascribed to them in STR Reports. Lessor and Lessee shall work in
good faith to determine any additions and deletions to the Leased Property's
Competitive Set, and any resetting of the RevPAR Index Baseline as necessary to
reflect changed circumstances, on or before December 15 of each Lease Year, with
such changes to be applicable for the following Lease Year. In the event Lessor
and Lessee cannot agree to the Leased Property's Competitive Set or the RevPAR
Index Baseline changes by December 15 of any Lease 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 40.2). The costs of resetting the
Leased Property's Competitive Set or the RevPAR Index Baseline shall be borne
equally by the parties. The existence of a Market Decline shall be determined on
the basis of a STR Report which contains a full calendar year calculation of the
RevPAR Yield Index of the Leased Property. If STR Reports are no longer
published or do not contain sufficient information for the determination of a
Market Decline, the existence of a Market Decline shall instead be determined,
using the methodology presently employed by STR Reports, from information on the
RevPAR Yield Index of the Leased Property contained in any other publication
reasonably selected by Lessor and recognized by the hotel industry as being an
authoritative source of such information or, if no such publication exists, from
an analysis of the RevPAR Yield Index of the Leased Property conducted at the
joint expense of the parties by any nationally recognized accounting firm with a
hospitality division of which neither Lessor or an Affiliate of Lessor nor
Lessee or an Affiliate of Lessee is a significant client. Notwithstanding the
foregoing, a "Market Decline" shall not be deemed to have occurred in a Lease
Year if the Lessee makes a cash payment to Lessor on the due date of the final
Rent payment
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for such Lease Year in an amount equal to (a) the Rent that would have been paid
if the Room Revenues for such Lease Year equaled the amount necessary to cause
the RevPAR Yield Index for the Lease Year to be ninety-five percent (95%) and
(b) the Rent paid for such Lease Year. Any payment made under the immediately
preceding sentence shall be deemed Rent paid with respect to the Lease Year.
Lessor shall have no obligation to repay any amount advanced by Lessee to cure a
Market Decline. The Lessee may only cure a Market Decline in two Lease Years.
(c) If, with respect to any Lease Year during the Term, the
ratio of Gross Operating Profit to Gross Revenues ("GOP Percentage") is five (5)
percentage points less than the ratio of Gross Operating Profit to Gross
Revenues actually achieved in the prior Lease Year ("Prior Year GOP
Percentage"), such event shall constitute a "Profit Decline" under this Lease;
provided, however, that the foregoing shall not constitute a Profit Decline
under this Lease to the extent that the decline results from an Unavoidable
Occurrence, generally prevailing market conditions (including without limitation
those conditions affecting the hotel industry generally) within five (5) miles
of the Facility, or major renovations or other construction which materially
reduces the availability of rooms at the Facility. The existence of a Profit
Decline shall be determined on the basis of the year-end financial information
submitted by Lessee to Lessor pursuant to Article 22 and shall be subject to
confirmation by Lessor's Audit. Notwithstanding the foregoing, a "Profit
Decline" shall not be deemed to have occurred in a Lease Year if the Lessee
makes a cash payment to Lessor on the due date of the final Rent payment for
such Lease Year in an amount equal to (a) the Rent that would have been paid if
Room Revenues for such Lease Year equaled the amount necessary to increase the
Gross Revenues for the Lease Year to an amount which, given the actual Gross
Operating Expenses for such Lease Year, would have produced a GOP Percentage
which is less than five percentage points less than the Prior Year GOP
Percentage less (b) the Rent paid for such Lease Year. Any payment made under
the immediately preceding sentence shall be deemed Rent paid with respect to the
Lease Year. Lessor shall have no obligation to repay any amount advanced by
Lessee to cure a Profit Decline. The Lessee may only cure a Profit Decline in
two Lease Years.
(d) Upon the occurrence of a Revenue Performance Shortfall,
Lessor shall have the right, subject to subsection (e) of this section 3.7, at
Lessor's option, to terminate this Lease upon thirty (30) days' notice (the
"Notice Period") to Lessee, in which event Lessee shall immediately surrender
the Leased Property to Lessor, and, if Lessee fails to so surrender, Lessor
shall have the right, without notice, to enter upon and take possession of the
Leased Property and to expel or remove Lessee
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and its effects without being liable for prosecution or any claim for damages
therefor; and Lessee shall, and hereby agrees to, indemnify Lessor for the total
of (1) in the event that Lessee does not promptly surrender the Leased Property,
the reasonable costs of recovering the Leased Property and all other losses,
liabilities and reasonable expenses incurred by Lessor in connection with
Lessee's failure to surrender; (2) the unpaid Rent earned as of the date of
termination, plus interest at the Overdue Rate accruing after the due date; and
(3) all other sums of money then owing by Lessee to Lessor. Except as provided
in the Lease Master Agreement, termination of this Lease and recovery of the
Rent and other amounts as aforesaid shall constitute Lessor's sole remedy for
the Revenue Performance Shortfall, and Lessee shall not be liable to Lessor for
damages arising therefrom.
(e) Lessor's right to terminate the Lease pursuant to
subsection (d) above following any Lease Year, shall be subject to Lessee's
right to cure the Revenue Performance Shortfall occurring thereunder with
respect to such Lease Year, by making a cash payment to Lessor during the Notice
Period equal to the difference between the Percentage Rent actually paid for the
Lease Year and ninety percent (90%) (the "Hotel Shortfall Cure Percentage") of
the Percentage Rent budgeted for the Lease Year in the Annual Budget for the
Lease Year. Any payment made by Lessee under this subsection (e) shall be deemed
Rent paid with respect to the Lease Year. Lessor shall have no obligation to
repay any amount advanced by Lessee to cure a Revenue Performance Shortfall. The
Lessee may only cure two Revenue Performance Shortfalls, occurring under
subparagraph (d) by paying Lessor based on a 90% Hotel Shortfall Cure
Percentage. Thereafter, the Hotel Shortfall Cure Percentage shall be 100%.
(f) For the purposes of this Section 3.7, the term
"Unavoidable Occurrence" shall mean the occurrence of strikes, lockouts, labor
unrest, inability to procure materials, power or other utility failure, acts of
God, governmental restrictions, enemy action, civil commotion, fire, casualty,
condemnation or other similar causes beyond the reasonable control of Lessee;
provided, as to Subsections (a) and (b) above, that 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 (or,
if foreseeable, the provision for such event in the Annual Budget was denied by
Lessor).
(g) Upon a Transfer, as defined in Section 9 of the Lease
Master Agreement, (i) the cure rights set forth in subsections (b) and (c) above
shall not be available to the Transferee, (ii) the Overall Shortfall Cure
Percentage applicable
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to the Transferee under this Lease at all times shall be 100% and (iii) the
Decline Percentage applicable to the Transferee at all times shall be 10%.
3.8. Changes in Operations.
Without Lessor's prior written consent, which shall not be
unreasonably withheld, Lessee shall not (i) provide food and/or beverage
operations at the Facility if not presently provided, (ii) discontinue any food
and/or beverage operations which are presently provided, or (iii) convert a
subtenant, licensee or concessionaire to an operating department of the Facility
or vice-versa.
ARTICLE
4
4.1. Payment of Impositions.
Subject to Article 12 relating to permitted contests, Lessee
will pay, or cause to be paid, all Impositions other than Real Estate Taxes and
Personal Property Taxes, before any fine, penalty, interest or cost may be added
for nonpayment, such payments to be made directly to the taxing or other
authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments. Lessee's
obligation to pay such Impositions shall be deemed absolutely 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 Article 12) 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, and taxes on its
capital stock, and Lessee, at its expense, shall, to the extent required or
permitted by applicable laws and regulations, prepare and file all other tax
returns and reports in respect of any Imposition as may be required by
governmental authorities. Lessee shall submit copies of Real Estate Taxes and
Personal Property Tax invoices to Lessor upon Lessee's receipt of such invoices.
If any refund shall be due from any taxing authority in respect of any
Imposition paid
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by Lessee, the same shall be paid over to or retained by Lessee if no Event of
Default shall have occurred hereunder and be continuing. If an Event of Default
shall have been declared by Lessor and be continuing, any such refund shall be
paid over to or retained by Lessor. Any such funds retained by Lessor due to an
Event of Default shall be applied as provided in Article 16. Any refund for Real
Estate Taxes and Personal Property Taxes shall be promptly remitted to Lessor.
Lessor and Lessee shall, upon request of the other, cooperate with the other
party and otherwise provide such data as is maintained by the party to whom the
request is made with respect to the Leased Property as may be necessary to
prepare any required returns and reports. Lessor, to the extent it possesses the
same, and Lessee, to the extent it possesses the same, will provide the other
party, upon request, with cost and depreciation records necessary for filing
returns for any property classified as personal property. Lessor may, upon
notice to Lessee, at Lessor's option and at Lessor's sole expense, protest,
appeal, or institute such other proceedings (in its or Lessee's name) as Lessor
may deem appropriate to effect a reduction of real estate assessments, and
Lessee, at Lessor's expense as aforesaid, shall fully cooperate with Lessor in
such protest, appeal, or other action. Lessor hereby agrees to indemnify,
defend, and hold harmless Lessee from and against any claims, obligations, and
liabilities against or incurred by Lessee in connection with such cooperation.
Lessor, however, reserves the right to effect any such protest, appeal or other
action and, upon notice to Lessee, shall control any such activity, which shall
then proceed at Lessor's sole expense. Upon such notice, Lessee, at Lessor's
expense, shall cooperate fully with such activities. To the extent received by
it, Lessee shall furnish Lessor with copies of all assessment notices for Real
Estate Taxes at least thirty (30) days before the date in sufficient time for
Lessor to file any protest with respect to such tax must be made and pay such
taxes without penalty.
4.2. Notice of Impositions.
Lessor shall give prompt Notice to Lessee of all Impositions
payable by Lessee hereunder of which Lessor at any time has knowledge, provided
that Lessor's failure to give any such Notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions, but if Lessee did not otherwise
have knowledge of such Imposition sufficient to permit it to pay same, such
failure shall obviate any default hereunder for a reasonable time after Lessee
receives Notice of any Imposition which it is obligated to pay during the first
taxing period applicable thereto.
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4.3. Adjustment of Impositions.
Impositions payable by Lessee which are imposed in respect of
the tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof after termination shall survive such termination.
4.4. Utility Charges.
Lessee will be solely responsible for obtaining and
maintaining utility services to the Leased Property and will pay or cause to be
paid all charges for electricity, gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.
ARTICLE
5
5.1. No Termination, Abatement, etc.
Except as otherwise specifically provided in this Lease,
Lessee, to the extent permitted by law, shall remain bound by this Lease in
accordance with its terms and shall neither take any action without the written
consent of Lessor to modify, surrender or terminate the same, nor seek nor be
entitled to any abatement, deduction, deferment or reduction of the Rent, or
setoff against the Rent, nor shall the obligations of Lessee be otherwise
affected by reason of (a) any damage to, or destruction of, any Leased Property
or any portion thereof from whatever cause or any Taking of the Leased Property
or any portion thereof, (b) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (c) for
any other cause whether similar or dissimilar to any of the foregoing other than
a discharge of Lessee from any such obligations as a matter of law. Lessee
hereby specifically waives all rights, arising from any default under this Lease
by Lessor, which may now or hereafter be conferred upon it by law to (1) modify,
surrender or terminate this Lease or quit or surrender the Leased Property or
any portion thereof, or (2) entitle Lessee to any abatement, reduction,
suspension or deferment of or set off against the Rent or other sums payable by
Lessee hereunder, except as otherwise specifically provided in this Lease. The
obligations of Lessee hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Lessee hereunder shall
continue to be payable in all events unless the obligations to pay the same
shall be terminated pursuant to the
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express provisions of this Lease or by termination of this Lease other than by
reason of an Event of Default.
ARTICLE
6
6.1. Ownership of the Leased Property.
Lessee acknowledges that the Leased Property is the property
of Lessor and that Lessee has only the right to the possession and use of the
Leased Property upon the terms and conditions of this Lease.
6.2. Lessee's Personal Property.
At commencement of the Term, Lessee shall purchase for fair
market value from Lessor or the Contributor of the Leased Property to Lessor all
Inventory at the Leased Property. At all times during the Term, Lessee shall
maintain Inventory consistent with the amount of inventory which is customarily
maintained in a hotel of the type and character of the Facility and is otherwise
required to operate the Leased Property in the manner contemplated by this Lease
and in compliance with the Franchise Agreement and all Legal Requirements. All
Inventory shall be the property of Lessee. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee (collectively, the "Lessee's Personal
Property"). Lessee may, subject to the following sentence of this Section 6.2,
remove any of Lessee's Personal Property at any time during the Term or upon the
expiration or any prior termination of the Term. All of Lessee's Personal
Property not removed by Lessee within thirty days following the expiration or
earlier termination of the Term shall be considered abandoned by Lessee and may
be appropriated, sold, destroyed or otherwise disposed of by Lessor without
first giving Notice thereof to Lessee, without any payment to Lessee and without
any obligation to account therefor. Lessee will, at its expense, restore the
Leased Property to the condition required by Section 9.1(d), including repair of
all damage to the Leased Property caused by the removal of Lessee's Personal
Property, whether effected by Lessee or Lessor.
6.3. Lessor's Lien.
To the fullest extent permitted by applicable law, Lessor is
granted a lien and security interest on all Lessee's Personal Property now or
hereinafter placed in or upon the Leased Property, and such lien and security
interest shall remain attached to such Lessee's Personal Property until payment
in full
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of all Rent and satisfaction of all of Lessee's obligations hereunder; provided,
however, Lessor shall subordinate its lien and security interest only to that of
any non-Affiliate of Lessee which finances such Lessee's Personal Property or
any non-Affiliate conditional seller of such Lessee's Personal Property, the
terms and conditions of such subordination to be satisfactory to Lessor in the
exercise of reasonable discretion. Lessee shall, upon the request of Lessor,
execute such financing statements or other documents or instruments reasonably
requested by Lessor to perfect the lien and security interests herein granted.
ARTICLE
7
7.1. Condition of the Leased Property.
Lessee acknowledges receipt and delivery of possession of the
Leased Property. Lessee has examined and otherwise has knowledge of the
condition of the Leased Property and has found the same to be satisfactory for
its purposes hereunder. Lessee is leasing the Leased Property "as is", "with all
faults", and in its present condition. Except as otherwise specifically provided
herein, Lessee waives any claim or action against Lessor in respect of the
condition of the Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY, OR ANY PART THEREOF,
EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE.
LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY TO IT. Lessor shall have the right to proceed against any
predecessor in title for breaches of warranties or representations or for latent
defects in the Leased Property, and Lessor shall, if requested by Lessee, assign
any such right to Lessee (other than claims against Affiliates of Lessee). If
either party determines to exercise such right, the other party shall fully
cooperate in the prosecution of any such claim, in Lessor's or Lessee's name,
all at the cost and expense of the prosecuting party, who hereby agrees to
indemnify, defend and hold harmless the other party from and against any claims,
obligations and liabilities against or incurred by such other party in
connection with such cooperation, and who further agrees to apply all amounts
realized from the prosecution of such claim, less its expenses in connection
therewith, to remedy such breach or cure such defect.
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7.2. Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due
diligence and will exercise its best efforts to obtain and to maintain all
approvals needed to use and operate the Leased Property and the Facility under
applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property
only as a hotel facility, and for such other uses as may be necessary or
incidental to such use, or such other use as otherwise approved by Lessor (the
"Primary Intended Use"). Lessee shall not use the Leased Property or any portion
thereof for any other use without the prior written consent of Lessor. No use
other than the Primary Intended Use shall be made or permitted to be made of the
Leased Property, and no acts shall be done other than the Primary Intended Use,
which will cause the cancellation or increase the premium of any insurance
policy covering the Leased Property or any part thereof (unless another adequate
policy satisfactory to Lessor is available and Lessee pays any premium
increase), nor shall Lessee sell or permit to be kept, used or sold in or about
the Leased Property any article which is prohibited by law or fire underwriter's
regulations. Lessee shall comply with all of the requirements pertaining to the
Leased Property of any insurance board, association, organization or company
necessary for the maintenance of insurance, as herein provided, covering the
Leased Property and Lessee's Personal Property, which compliance shall be
performed at Lessee's sole cost.
(c) Subject to the provisions of Articles 14 and 15, Lessee
covenants and agrees that during the Term it will either directly or through an
approved manager (1) operate continuously the Leased Property as a hotel
facility, (2) keep in full force and effect and comply in all material respects
with all the provisions of the Franchise Agreement, (3) not terminate or amend
in any respect the Franchise Agreement without the consent of Lessor, (4)
maintain appropriate certifications and licenses for such use and (5) keep
Lessor advised of the status of any material litigation affecting the Leased
Property.
(d) Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility, nor shall Lessee cause or
permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property
or any portion thereof, or Lessee's Personal Property, to be used in such a
manner as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case
may be) title thereto or to any portion thereof, or (2) may reasonably make
possible a
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claim or claims of adverse usage or adverse possession by the public, as such,
or of implied dedication of the Leased Property or any portion thereof.
(f) Lessee shall comply with all of the Lessor's covenants, in
any loan agreement or other financing arrangement, applicable to this Lease or
the operation of the Leased Property. Notwithstanding the foregoing, Lessee
shall not be obligated to comply with Lessor's covenants in any loan agreements
which (A)(i) are not customary, (ii) are not otherwise contemplated by this
Lease Agreement or any agreement or instrument executed by Lessee in connection
herewith for the benefit of Lessor, and (iii)(x) materially and adversely affect
the operations at the Facility or (y) materially increase Lessee's costs of
doing business or decrease revenues, unless in cases where Subsection (iii)(y)
is relied upon by Lessee the additional cost thereof is borne by Lessor, or (B)
obligate Lessee to guarantee repayment of any debt of Lessor, or (C) require any
indemnification undertakings other than customary undertakings with respect to
servicing agents or similar administrative agents which administer escrow
accounts into which Lessee may deposit Rent payments as required by Lessor's
lenders or other servicing agents. Lessor will provide Lessee with not less than
fifteen (15), and will attempt in good faith to provide not less than thirty
(30), days prior written notice of the terms of such covenants, and if Lessee is
relying upon Subsection (iii)(y), Lessee shall within five (5) days of receipt
of such notice, notify Lessor in writing of any anticipated material additional
costs which Lessee may incur. Lessor shall then notify Lessee in writing whether
it agrees to pay or reimburse Lessee for the material additional cost thereof as
incurred by Lessee, and Lessee's receipt of such notice shall be a condition
precedent to Lessee's obligation to comply with such covenants. Lessor shall
have the right to dispute Lessee's reliance on Subsections (A)-(C) or Lessee's
estimates of additional costs pursuant to Subsection (A)(iii)(y), and either
party may submit any such disputes to arbitration under the provisions of
Article 40.
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ARTICLE
8
8.1. Compliance with Legal and Insurance Requirements, etc.
Subject to Section 8.2, 8.3(b) below and Article 12 relating
to permitted contests, Lessee, at its expense, will promptly (a) comply with all
applicable Legal Requirements and Insurance Requirements in respect of the use,
operation, maintenance, repair and restoration of the Leased Property, and (b)
procure, maintain and comply with all appropriate licenses and other
authorizations required for any use of the Leased Property and Lessee's Personal
Property then being made, and for the proper erection, installation, operation
and maintenance of the Leased Property or any part thereof.
8.2. Legal Requirement Covenants.
(a) Subject to Section 8.3(b) below, Lessee covenants and
agrees that the Leased Property and Lessee's Personal Property shall not be used
by anyone other than Lessor for any unlawful purpose, and that Lessee shall use
all commercially reasonable efforts not to permit or suffer to exist any
unlawful use of the Leased Property by others. Lessee shall acquire and maintain
all licenses, certifications, permits and other authorizations and approvals
required to operate the Leased Property in its customary manner for the Primary
Intended Use, and any other lawful use conducted on the Leased Property as may
be permitted from time to time hereunder. Lessee further covenants and agrees
that Lessee's use of the Leased Property and maintenance, alteration, and
operation of the same, and all parts thereof, shall at all times conform to all
Legal Requirements, unless the same are finally determined by a court of
competent jurisdiction to be unlawful (and Lessee shall cause all its
sub-tenants, invitees or others to so comply with all Legal Requirements).
(b) As between Lessor and Lessee, Lessee is solely responsible
for all liabilities or obligations of any kind with respect to employees at the
Leased Property during the Term. Without limiting the generality of the
foregoing sentence, Lessee is solely responsible for any required compliance
with the Worker Adjustment, Retraining and Notification Act of 1988 (WARN) or
any similar state law applicable to the Leased Property; any required compliance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(COBRA); and all alleged and actual obligations and claims arising from or
relating to any employment agreement, collective bargaining agreement or
employee benefit plans, any grievances, arbitrations, or unfair labor practice
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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.
Notwithstanding the Lessee's obligations under Section 8.1 to obtain
and maintain all permits and licenses required for the use of the Leased
Property, and without limiting any obligations of Lessee hereunder, if (i)
applicable law requires that the owner (rather than a lessee) of a hotel be the
licensee under the required liquor license for the Facility or (ii) the former
owner of the Facility is holding the liquor license and continuing to exercise
management and supervision of the liquor services at the Facility pending
transfer of the license to Lessor or Lessee, the Lessee shall indemnify and hold
the Lessor harmless from any liability, damages or claims (a) arising in
connection with liquor operations at the Facility during such period of time,
except for the Lessor's gross negligence or willful misconduct or (b) made by or
through the former owner with respect to liquor operations at the Facility.
8.3. Environmental Covenants.
Lessor and Lessee (in addition to, and not in diminution of,
Lessee's covenants and undertakings in Sections 8.1 and 8.2 hereof) covenant and
agree as follows:
(a) At all times hereafter until Lessee completely vacates the
Leased Property and surrenders possession of the same to Lessor, Lessee shall
fully comply with all Environmental Laws applicable to the Leased Property and
the operations thereon, except to the extent that such compliance would require
the remediation of Environmental Liabilities for which Lessee has no indemnity
obligations under Section 8.3(b). Lessee agrees to give Lessor prompt written
notice of (1) all Environmental Liabilities; (2) all pending, threatened or
anticipated Proceedings, and all notices, demands, requests or investigations,
relating to any Environmental Liability or relating to the issuance, revocation
or change in any Environmental Authorization required for operation of the
Leased Property; and (3) all Releases at, on, in, under or in any way
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affecting the Leased Property, or any Release known by Lessee at, on, in or
under any property adjacent to the Leased Property; in each case as to which it
has actual knowledge.
(b) Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities except to the extent that the same (i) are caused by
the intentionally wrongful acts or grossly negligent failures to act of Lessor,
or (ii) result from Releases or other violations of Environmental Laws
originating on adjacent property but affecting the Leased Property (a
"Migration"), provided that such exclusions shall not apply to the extent that
the Migration has been exacerbated by Lessee's act or negligent failure to act.
(c) Lessor hereby agrees to defend, indemnify and save
harmless any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities to the extent that the same were caused by the
intentionally wrongful acts or grossly negligent failures to act of Lessor.
(d) If any Proceeding is brought against any Indemnified Party
in respect of an Environmental Liability with respect to which such Indemnified
Party may claim indemnification under either Section 8.3(b) or (c), the
Indemnifying Party, upon request, shall at its sole expense resist and defend
such Proceeding, or cause the same to be resisted and defended by counsel
designated by the Indemnifying Party and approved by the Indemnified Party,
which approval shall not be unreasonably withheld; provided, however, that such
approval shall not be required in the case of defense by counsel designated by
any insurance company undertaking such defense pursuant to any applicable policy
of insurance. Each Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel will be at the sole expense of such
Indemnified Party unless a conflict of interest prevents representation of such
Indemnified Party by the counsel selected by the Indemnifying Party and such
separate counsel has been approved by the Indemnifying Party, which approval
shall not be unreasonably withheld. The Indemnifying Party shall not be liable
for any settlement of any such Proceeding made without its consent, which shall
not be unreasonably withheld, but if settled with the consent of the
Indemnifying Party, or if settled without its consent (if its consent shall be
unreasonably withheld), or if there be a final, nonappealable judgment for an
adversary party in any such Proceeding, the Indemnifying Party shall indemnify
and hold harmless the Indemnified Parties from and against any liabilities
incurred by such Indemnified Parties by reason of such settlement or judgment.
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(e) At any time any Indemnified Party has reason to believe
circumstances exist which could reasonably result in an Environmental Liability,
upon reasonable prior written notice to the Lessee and the Lessor stating such
Indemnified Party's basis for such belief, an Indemnified Party shall be given
immediate access to the Leased Property (including, but not limited to, the
right to enter upon, investigate, drill wells, take soil borings, excavate,
monitor, test, cap and use available land for the testing of remedial
technologies), Manager and Lessee's or Manager's employees, and to all relevant
documents and records regarding the matter as to which a responsibility,
liability or obligation is asserted or which is the subject of any Proceeding;
provided that such access may be conditioned or restricted as may be reasonably
necessary to ensure compliance with law and the safety of personnel and
facilities or to protect confidential or privileged information. All Indemnified
Parties requesting such immediate access and cooperation shall endeavor to
coordinate such efforts to result in as minimal interruption of the operation of
the Leased Property as practicable.
(f) The indemnification rights and obligations provided for in
this Article 8 shall be in addition to any indemnification rights and
obligations provided for elsewhere in this Lease, provided that in the event of
a conflict between the provisions of this Section 8.3 and Article 20, the
provisions of this Section 8.3 shall control.
(g) The indemnification rights and obligations provided for in
this Article 8 shall survive the termination of this Lease.
For purposes of this Section 8.3, all amounts for which any
Indemnified Party seeks indemnification shall be computed net of (a) any actual
income tax benefit resulting therefrom to such Indemnified Party, (b) any
insurance proceeds received (net of tax effects) with respect thereto, and (c)
any amounts recovered (net of tax effects) from any third parties based on
claims the Indemnified Party has against such third parties which reduce the
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.
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ARTICLE
9
9.1. Maintenance and Repair; Capital Expenditures.
(a) Lessee will keep the Leased Property and all private
roadways, sidewalks and curbs appurtenant thereto that are under Lessee's
control, including windows and plate glass, parking lots, HVAC, mechanical,
electrical and plumbing systems and equipment (including conduit and ductwork),
and non-load bearing interior walls, in good order and repair, except for
ordinary wear and tear (whether or not the need for such repairs occurred as a
result of Lessee's use, any prior use, the elements or the age of the Leased
Property, or any portion thereof but subject to the obligation to make necessary
and appropriate repairs and replacements as provided in this Section 9.1(a)),
and, except as otherwise provided in Article 14 or Article 15, with reasonable
promptness, make all necessary and appropriate repairs, replacements and
improvements thereto of every kind and nature, whether interior or exterior,
ordinary or extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to the commencement of the Term of this Lease
(concealed or otherwise), or required by any governmental agency having
jurisdiction over the Leased Property. Lessee, however, shall be permitted to
prosecute claims against Lessor's predecessors in title for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action, the taking or omission of which might materially impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use. If Lessee fails to make any required repairs or replacements after
fifteen (15) days notice from Lessor, or after such longer period as may be
reasonably required provided that Lessee at all times diligently proceeds with
such repair or replacement, then Lessor shall have the right, but shall not be
obligated, to make such repairs or replacements on behalf of and for the account
of Lessee. In such event, such work shall be paid for in full by Lessee as
Additional Charges.
(b) Subject to Lessor's obligation to make available to the
Lessee amounts for Capital Expenditures as set forth in Article 38, Lessee shall
be required to make all Capital Expenditures in accordance with the Capital
Budgets, and required in connection with (i) Emergency Situations, (ii) Legal
Requirements, (iii) maintenance of the Franchise Agreement, (iv) the performance
by Lessee of its obligations under this Lease, and (v) other additions to the
Leased Property as it may
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reasonably deem appropriate and that are permitted hereunder during the Term.
Without limitation (or duplication) as to Capital Improvements that may be
required to be made as set forth in the Capital Budgets or required by the
Franchisor, Lessee shall complete the Capital Improvements described on Schedule
9.1(b). 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. Lessor shall have the right to
give, record and post, as appropriate, notices of non-responsibility under any
mechanic's lien laws now or hereafter existing.
(c) Nothing contained in this Lease and no action or inaction
by Lessor shall be construed as (1) constituting the request of Lessor,
expressed or implied, to any contractor, subcontractor, laborer, materialman or
vendor to or for the performance of any labor or services or the furnishing of
any materials or other property for the construction, alteration, addition,
repair or demolition of or to the Leased Property or any part thereof, or (2)
giving Lessee any right, power or permission to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against Lessor
in respect thereof or to make any agreement that may create, or in any way be
the basis for any right, title, interest, lien, claim or other encumbrance upon
the estate of Lessor in the Leased Property, or any portion thereof.
(d) Lessee will, upon the expiration or prior termination of
the Term, vacate and surrender the Leased Property to Lessor in the condition in
which the Leased Property was originally received from Lessor, except as
repaired, rebuilt, restored, altered or added to as permitted or required by the
provisions of this Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and repair in
accordance with Section 9.1(a) above, as would a prudent owner of comparable
property, during the entire Term) or damage by casualty or Condemnation (subject
to the obligation of Lessee to restore or repair as set forth in this Lease.)
9.2. Encroachments, Restrictions, Etc.
If any of the Leased Improvements, at any time, materially
encroach upon any property, street or right of way adjacent to a Leased
Property, or violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting a Leased Property, or any part
thereof, or impair the rights of others under any easement or right of way to
which said Leased Property is subject, then promptly upon the
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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
10.1. Alterations.
After first obtaining the written approval of Lessor, which
shall not be unreasonably withheld, Lessee shall have the right, but not the
obligation, to make such additions, modifications or improvements to the Leased
Property from time to time as Lessee deems desirable for its permitted uses and
purposes, provided that such action will not alter the character or purposes of
the Leased Property or detract from the value or operating efficiency thereof
and will not impair the revenue-producing capability of the Leased Property or
adversely affect the ability of the Lessee to comply with the provisions of this
Lease. All such work shall be performed in a first class manner in accordance
with all applicable governmental rules and regulations and after receipt of all
required permits and licenses. The cost of such additions, modifications or
improvements to the Leased Property shall be paid by Lessee, and all such
additions, modifications and improvements shall, without payment by Lessor at
any time, be included under the terms of this Lease and upon expiration or
earlier termination of this Lease shall pass to and become the property of
Lessor.
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10.2. Salvage.
All materials which are scrapped or removed in connection with
the making of repairs required by Articles 9 or 10 shall be or become the
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work.
10.3. Lessor Alterations.
Lessor shall have the right, but not the obligation, to make
such other additions to the Leased Property as it may reasonably deem
appropriate during the Term, subject to the Lessee's approval which shall not be
unreasonably withheld. All such work shall be done after reasonable notice to
and coordination with Lessee, so as to minimize any disruptions or interference
with the operation of the Facility.
ARTICLE
11
11.1. Liens.
Subject to the provision of Article 12 relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property resulting from the action
or inaction of Lessee, or any attachment, levy, claim or encumbrance in respect
of the Rent, excluding, however, (a) this Lease, (b) the matters, if any,
included as exceptions or insured against in the title policy insuring Lessor's
interest in the Leased Property,(c) restrictions, liens and other encumbrances
which are consented to in writing by Lessor, (d) liens for those taxes which
Lessee is not required to pay hereunder, (e) subleases permitted by Article 21
hereof, (f) liens for Impositions or for sums resulting from noncompliance with
Legal Requirements so long as (1) the same are not yet delinquent or (2) such
liens are in the process of being contested as permitted by Article 12, (g)
liens of mechanics, laborers, suppliers or vendors for sums either disputed or
not yet due provided that any such liens for disputed sums are in the process of
being contested as permitted by Article 12 hereof, and (h) any liens which are
the responsibility of Lessor pursuant to the provisions of Article 32 of this
Lease.
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ARTICLE
12
12.1. Permitted Contests.
Lessee shall have the right to contest the amount or validity
of any Imposition to be paid by Lessee or any Legal Requirement or any lien,
attachment, levy, encumbrance, charge or claim (any such Imposition, Legal
Requirement, lien, attachment, levy, encumbrance, charge or claim herein
referred to as "Claims") not otherwise permitted by Article 11, by appropriate
legal proceedings in good faith and with due diligence (but this shall not be
deemed or construed in any way to relieve, modify or extend Lessee's covenants
to pay or its covenants to cause to be paid any such charges at the time and in
the manner as in this Article provided), on condition, however, that such legal
proceedings shall not operate to relieve Lessee from its obligations hereunder
and shall not cause the sale or risk the loss of any portion of the Leased
Property, or any part thereof, or cause Lessor or Lessee to be in default under
any mortgage, deed of trust, security deed or other agreement encumbering the
Leased Property or any interest therein. Upon the request of Lessor, Lessee
shall either (a) provide a bond or other assurance reasonably satisfactory to
Lessor that all Claims which may be assessed against the Leased Property
together with interest and penalties, if any, thereon and legal fees anticipated
to be incurred in connection therewith will be paid, or (b) deposit within the
time otherwise required for payment with a bank or trust company as trustee upon
terms reasonably satisfactory to Lessor, as security for the payment of such
Claims, money in an amount sufficient to pay the same, together with interest
and penalties thereon and legal fees anticipated to be incurred in connection
therewith, as to all Claims which may be assessed against or become a Claim on
the Leased Property, or any part thereof, in said legal proceedings. Lessee
shall furnish Lessor and any lender of Lessor with reasonable evidence of such
deposit within five days of the same. Lessor agrees to join in any such
proceedings if the same be required to legally prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability for the payment of any costs or expenses in
connection with any proceedings brought by Lessee; and Lessee covenants to
indemnify and save harmless Lessor from any such costs or expenses. Lessee shall
be entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and for which
Lessor has been fully reimbursed. In the event that Lessee fails to pay any
Claims when due or to provide the security therefor as provided in this
paragraph and to diligently prosecute any contest of the same, Lessor may, upon
ten days advance Notice to Lessee, pay such charges together with
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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 only give such Notice as is practical under the circumstances.
Lessor reserves the right to contest any of the Claims at its expense not
pursued by Lessee. Lessor and Lessee agree to cooperate in coordinating the
contest of any Claims.
ARTICLE
13
13.1. General Insurance Requirements.
(a) Coverages. During the Term of this Lease, the Leased
Property shall at all times be insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized to
issue insurance in the State. The policies must name the Lessor as an additional
named insured, and the Manager shall also be named as an additional insured
under the coverages described in Sections 13.1(a)(iv) through (xi). Losses
shall be payable to Lessor or Lessee as provided in this Lease. Any loss
adjustment for coverages insuring both parties shall require the written consent
of Lessor and Lessee, each acting reasonably and in good faith. Evidence of
insurance shall be deposited with Lessor. The policies on the Leased Property,
including the Leased Improvements, Fixtures and Lessee's Personal Property,
shall satisfy the requirements of the Franchise Agreement and of any ground
lease, mortgage, security agreement or other financing lien affecting the Leased
Property and at a minimum shall include:
(i) Building insurance on the "Special Form" (formerly
"All Risk" form) (including earthquake and flood in reasonable amounts
if and as determined by Lessor, in the exercise of its reasonable
discretion, or Lessor's underwriters or lenders) in an amount not less
than 100% of the then full replacement cost thereof (as defined in
Section 13.2) or such other amount which is acceptable to Lessor, and
personal property insurance on the "Special Form" in the full amount of
the replacement cost thereof;
(ii) Insurance for loss or damage (direct and indirect)
from steam boilers, pressure vessels or similar apparatus, air
conditioning systems, piping and machinery, and sprinklers, if any, now
or hereafter installed in the Facility, in the minimum amount of
$5,000,000 or in such greater amounts as are then customary or as may
be reasonably requested by Lessor from time to time;
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(iii) Loss of income insurance on the "Special Form", in
the amount of eighteen (18) months of the sum of Base Rent plus
Percentage Rent (based on the last Lease Year of operation or, to the
extent the Leased Property has not been operated for an entire 18-month
Lease Year, based on prorated Percentage Rent) for the benefit of
Lessor, and business interruption insurance on the "Special Form" in
the amount of eighteen (18) months of gross profit, for the benefit of
Lessee;
(iv) Commercial general liability insurance, with amounts
not less than $1,000,000 combined single limit for each occurrence and
$2,000,000 for the aggregate of all occurrences within each policy
year, as well as excess liability (umbrella) insurance with limits of
at least $50,000,000 per occurrence, covering each of the following:
bodily injury, death, or property damage liability per occurrence,
personal and advertising injury, general aggregate, products and
completed operations, with respect to Lessor, and "all risk legal
liability" (including liquor law or "dram shop" liability, if liquor or
alcoholic beverages are served on the Leased Property) with respect to
Lessor and Lessee;
(v) Fidelity bonds or blanket crime policies with limits
and deductibles as may be reasonably determined by Lessor, covering
Lessee's and/or Manager's employees in job classifications normally
bonded under prudent hotel management practices in the United States or
otherwise required by law;
(vi) Workers' compensation insurance to the extent
necessary to protect Lessor, Lessee and the Leased Property against
Lessee's and/or Manager's workman's compensation claims to the extent
required by applicable state laws;
(vii) Comprehensive form vehicle liability insurance for
owned, non-owned, and hired vehicles, in the amount of $1,000,000;
(viii) Garagekeeper's legal liability insurance covering
both comprehensive and collision-type losses with a limit of liability
of $3,000,000 for any one occurrence, of which coverage in excess of
$1,000,000 may be provided by way of an excess liability policy;
(ix) Innkeeper's legal liability insurance covering
property of guests while on the Leased Property for which Lessor is
legally responsible with a limit of not less
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than $2,000 per guest and $50,000 in any one occurrence or $25,000
annual aggregate;
(x) Safe deposit box legal liability insurance covering
property of guests while in a safe deposit box on the Leased Property
for which Lessor is legally responsible with a limit of not less than
$50,000 in any one occurrence; and
(xi) Insurance covering such other hazards (such as plate
glass or other common risks) and in such amounts as may be (A) required
by a Holder, or (B) customary for comparable properties in the area of
the Leased Property and is available from insurance companies,
insurance pools or other appropriate companies authorized to do
business in the State at rates which are economically practicable in
relation to the risks covered as may be reasonably determined by
Lessor.
(b) Responsibility for Insurance. Lessee shall obtain the
insurance and pay the premiums for the coverages described in Section 13.1(a)
above. The Lessee shall also be responsible for any and all deductibles in
connection with such coverages. In the event that Lessor can obtain comparable
insurance coverage required to be carried by Lessee from comparable insurers and
at a cost significantly less than that at which Lessee can obtain such coverage,
the parties shall cooperate in good faith to obtain such coverage at the lower
cost and the Lessee shall pay the premiums therefor.
13.2. Replacement Cost.
The term "full replacement cost" as used herein shall mean the
actual replacement cost of the Leased Property requiring replacement from time
to time including an increased cost of construction endorsement, if available,
and the cost of debris removal. In the event either party believes that full
replacement cost has increased or decreased at any time during the Term, it
shall have the right to have such full replacement cost redetermined.
13.3. (Intentionally omitted)
13.4. Waiver of Subrogation.
All insurance policies covering the Leased Property, the
Fixtures, the Facility or Lessee's Personal Property, including, without
limitation, contents, fire and casualty insurance, shall expressly waive any
right of subrogation on the part of the insurer against the other party. Each
party agrees
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to seek recovery from any applicable insurance coverage prior to seeking
recovery against the other party.
13.5. Form Satisfactory, etc.
All of the policies of insurance referred to in this Article
13 shall be written in a form, with deductibles and by insurance companies
satisfactory to Lessor and shall satisfy the requirements of any ground lease,
mortgage, security agreement or other financing lien on the Leased Property and
of the Franchise Agreement. The Lessee shall pay all of the premiums therefor,
and deliver copies of such policies or certificates thereof to the Lessor prior
to their effective date (and, with respect to any renewal policy, 30 days prior
to the expiration of the existing policy), and in the event of the failure of
the Lessee either to effect such insurance as herein called for or to pay the
premiums therefor, or to deliver such policies or certificates thereof to the
Lessor at the times required, the Lessor shall be entitled, but shall have no
obligation, after 10 days' Notice to Lessee (or after less than 10 days' Notice
if required to prevent the expiration of any existing policy), to effect such
insurance and pay the premiums therefor, and to be reimbursed by Lessee for any
such premiums upon written demand therefor. Each insurer mentioned in this
Article 13 shall agree, by endorsement to the policy or policies issued by it,
or by independent instrument furnished to the Lessor that it will give to Lessor
30 days' written notice before the policy or policies in question shall be
materially altered, allowed to expire or canceled.
13.6. Increase in Limits.
If either Lessor or Lessee at any time deems the limits of the
personal injury or property damage under the comprehensive public liability
insurance then carried to be either excessive or insufficient, Lessor and Lessee
shall endeavor in good faith to agree on the proper and reasonable limits for
such insurance to be carried and such insurance shall thereafter be carried with
the limits thus agreed on until further change pursuant to the provisions of
this Section. If the parties fail to agree on such limits, the matter shall be
referred to arbitration as provided for in Article 40.
13.7. Blanket Policy.
Notwithstanding anything to the contrary contained in this
Article 13, Lessee may bring the insurance provided for herein within the
coverage of a so-called blanket policy or policies of insurance carried and
maintained by Lessee; provided, however, that the coverage afforded to Lessor
and Lessee will not
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be reduced or diminished or otherwise be different from that which would exist
under a separate policy meeting all other requirements of this Lease by reason
of the use of such blanket policy of insurance, and provided further that the
requirements of this Article 13 are otherwise satisfied.
13.8. Separate Insurance.
Neither Lessor nor Lessee shall on its own initiative or
pursuant to the request or requirement of any third party, take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article to be furnished, or increase the amount of any then
existing insurance by securing an additional policy or additional policies,
unless all parties having an insurable interest in the subject matter of the
insurance, including in all cases Lessor, are included therein as additional
insureds, and the loss is payable under such additional separate insurance in
the same manner as losses are payable under this Lease. Each party shall
immediately notify the other party that it has obtained any such separate
insurance or of the increasing of any of the amounts of the then existing
insurance.
13.9. Reports On Insurance Claims.
Lessee shall promptly investigate and make a complete and
timely written report to the appropriate insurance company as to all accidents,
all claims for damage relating to the ownership, operation, and maintenance of
the Facility, and any damage or destruction to the Facility and the estimated
cost of repair thereof and shall prepare any and all reports required by any
insurance company in connection therewith. All such reports shall be timely
filed with the insurance company as required under the terms of the insurance
policy involved, and a copy of all such reports shall be furnished to Lessor.
Lessee shall be authorized to adjust, settle or compromise any insurable loss,
or to execute proofs of such losses, in the aggregate, of [$50,000] or less,
with respect to any single casualty or other event.
ARTICLE
14
14.1. Insurance Proceeds.
Subject to the provision of Section 13.9, all proceeds of the
insurance contemplated by Sections 13.1(a)(i) and (ii) payable by reason of any
loss or damage to the Leased Property, or any portion thereof, and insured under
any policy of insurance required by Article 13 of this Lease shall be paid to
Lessor and held in trust in an interest bearing account and made available,
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if applicable, for reconstruction or repair, as the case may be, of any damage
to or destruction of the Leased Property or any portion thereof, and, if
applicable, shall be paid out by Lessor from time to time for the reasonable
costs of such reconstruction or repair upon satisfaction of reasonable terms and
conditions specified by Lessor. Any excess proceeds of insurance remaining after
the completion of the restoration or reconstruction of the Leased Property shall
be paid to Lessor. If neither Lessor nor Lessee is required or elects to repair
and restore, and the Lease is terminated as described in Section 14.2, all such
insurance proceeds shall be retained by Lessor except for any amount thereof
paid with respect to Lessee's Personal Property. All salvage resulting from any
risk covered by insurance shall belong to Lessor, except to the extent of
salvage relating to Lessee's Personal Property.
14.2. Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) If during the Term the Leased Property is totally or
partially destroyed by a risk covered by the insurance described in Article 13
and the Facility thereby is rendered Unsuitable for its Primary Intended Use,
the Lease shall terminate as of the date of the casualty and neither Lessor nor
Lessee shall have any further liability hereunder except for any liabilities
which have arisen prior to or which survive such termination, and Lessor shall
be entitled to retain all insurance proceeds except for any amount thereof paid
with respect to Lessee's Personal Property.
(b) If during the Term the Leased Property is partially
destroyed by a risk covered by the insurance described in Article 13, but the
Facility is not thereby rendered Unsuitable for its Primary Intended Use, Lessor
or, at the election of Lessor, Lessee shall restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease. Such damage
or destruction shall not terminate this Lease. If Lessee restores the Facility,
the insurance proceeds shall be paid out by Lessor from time to time for the
reasonable costs of such restoration upon satisfaction of terms and conditions
specified by Lessor, and any excess proceeds remaining after such restoration
shall be paid to Lessor except for any amount thereof paid with respect to
Lessee's Personal Property.
(c) If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessor from the insurance required under Article
13, Lessor shall agree to contribute any excess amounts needed to restore the
Facility prior to requiring
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Lessee to commence such work. Such difference shall be made available by Lessor,
together with any other insurance proceeds, for application to the cost of
repair and restoration in accordance with the provisions of Section 14.2(b).
14.3. Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance or When Holder Will Not Release Insurance Proceeds.
If during the Term the Facility is totally or materially
damaged or destroyed by a risk not covered by the insurance described in Article
13, or, notwithstanding the provisions of Section 14.2(b), if the Holder will
not make the proceeds of such insurance available to Lessor for restoration of
the Facility, whether or not in either event such damage or destruction renders
the Facility Unsuitable for its Primary Intended Use, Lessor, at its option,
shall either, (a) at Lessor's sole cost and expense, restore the Facility to
substantially the same condition it was in immediately before such damage or
destruction and such damage or destruction shall not terminate this Lease, or
(b) terminate the Lease and neither Lessor nor Lessee shall have any further
liability thereunder except for any liabilities which have arisen or occurred
prior to such termination and those which expressly survive termination of this
Lease. If such damage or destruction is determined by Lessor not to be material,
Lessor may, at Lessor's sole cost and expense, restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease, and such
damage or destruction shall not terminate the Lease.
14.4. Lessee's Property and Business Interruption Insurance.
All insurance proceeds payable by reason of any loss of or
damage to any of Lessee's Personal Property and the business interruption
insurance maintained for the benefit of Lessee shall be paid to Lessee;
provided, however, no such payments shall diminish or reduce the insurance
payments otherwise payable to or for the benefit of Lessor hereunder.
14.5. Abatement of Rent.
Any damage or destruction due to casualty notwithstanding, and
provided the Lease has not otherwise been terminated, this Lease shall remain in
full force and effect and Lessee's obligation to pay Rent required by this Lease
shall remain unabated by any damage or destruction which does not result in a
reduction of Gross Revenues. If and to the extent that any damage or destruction
results in a reduction of Gross
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Revenues which would otherwise be realizable from the operation of the Facility,
then Lessor shall receive all loss of income insurance and Lessee shall have no
obligation to pay Rent in excess of the amount of Percentage Rent, if any,
realizable from Gross Revenues generated by the operation of the Leased Property
during the existence of such damage or destruction.
ARTICLE
15
15.1. Definition.
(a) "Condemnation" means a Taking resulting from (1) the
exercise of any governmental power, whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending.
(b) "Date of Taking" means the date the Condemnor has the
right to possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
15.2. Parties' Rights and Obligations.
If during the Term there is any Condemnation of all or any
part of the Leased Property or any interest in this Lease, the rights and
obligations of Lessor and Lessee shall be determined by this Article 15.
15.3. Total Taking.
If title to the fee of the whole of the Leased Property is
condemned by any Condemnor, this Lease shall cease and terminate as of the Date
of Taking by the Condemnor. If title to the fee of less than the whole of the
Leased Property is so taken or condemned, which nevertheless renders the Leased
Property Unsuitable for its Primary Intended Use or Uneconomic for its Primary
Intended Use, then either Lessee or Lessor shall have the option, by notice to
the other, at any time prior to the Date of Taking, to terminate this Lease as
of the Date of Taking. Upon such date, if such Notice has been given, this Lease
shall thereupon cease and terminate. All Base Rent, Percentage Rent
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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, neither
Lessor nor Lessee shall initiate, prosecute or acquiesce in any proceedings that
may result in a diminution of any Award payable to the other.
15.5. Partial Taking.
(a) If title to less than the whole of the Leased Property is
condemned, and the Leased Property is not Unsuitable for its Primary Intended
Use or Uneconomic for its Primary Intended Use, or if Lessor is entitled but
elects not to terminate this Lease as provided in Section 15.3, then Lessor or,
at Lessor's election, Lessee shall, with all reasonable dispatch and to the
extent that the Holder permits the application of the Award therefor and the
Award is sufficient therefor, restore the untaken portion of any Leased
Improvements so that such Leased Improvements constitute a complete
architectural unit of the same general character and condition (as nearly as may
be possible under the circumstances) as the Leased Improvements existing
immediately prior to the Condemnation. Lessor and Lessee shall each contribute
to the cost of restoration that part of its Award specifically allocated to such
restoration, if any, together with severance and other damages awarded for the
taken Leased Improvements; provided, however, that the amount of such
contribution shall not exceed such cost.
(b) In the event of a partial Taking as described in Section
15.5(a), which does not result in a termination of this Lease by Lessor, the
Base Rent shall be abated in the manner and to the extent that is fair, just and
equitable to both Lessee and Lessor, taking into consideration, among other
relevant factors, the number of usable rooms, the amount of square footage, or
the revenues affected by such partial Taking. If Lessor and Lessee are unable to
agree upon the amount of such abatement within 30 days after such partial
Taking, the matter shall be submitted to Arbitration as provided for in Section
40.2 hereof.
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15.6. Temporary Taking.
If the whole or any part of the Leased Property or of Lessee's
interest under this Lease is condemned by any Condemnor for its temporary use or
occupancy, this Lease shall not terminate by reason thereof, and Lessee shall
continue to pay, in the manner and at the times herein specified, the full
amounts of Base Rent and Additional Charges, but only to the extent of the Award
made to Lessee for such Condemnation allocable to the Term. In addition, to the
extent of the remaining balance, if any, of the Award made for such Condemnation
allocable to the Term (after payment of Base Rent and Additional Charges),
Lessee shall pay Percentage Rent at a rate equal to the average Percentage Rent
during the last three preceding full Lease Years (or if three full Lease Years
shall not have elapsed, the average during the preceding full Lease Years).
Except only to the extent that Lessee may be prevented from so doing pursuant to
the terms of the order of the Condemnor, Lessee shall continue to perform and
observe all of the other terms, covenants, conditions and obligations hereof on
the part of the Lessee to be performed and observed, as though such Condemnation
had not occurred. In the event of any Condemnation as in this Section 15.6
described, the entire amount of any Award made for such Condemnation allocable
to the Term of this Lease, whether paid by way of damages, rent or otherwise,
shall be paid to Lessee. Lessee covenants that upon the termination of any such
period of temporary use or occupancy it will, to the extent that its Award is
sufficient therefor and subject to Lessor's contribution as set forth below,
restore the Leased Property as nearly as may be reasonably possible to the
condition in which the same was immediately prior to such Condemnation, unless
such period of temporary use or occupancy extends beyond the expiration of the
Term, in which case Lessee shall not be required to make such restoration. If
restoration is required hereunder, Lessor shall contribute to the cost of such
restoration that portion of its entire Award that is specifically allocated to
such restoration in the judgment or order of the court, if any.
ARTICLE
16
16.1. Events of Default.
Any one or more of the following events shall constitute an
Event of Default hereunder:
(a) if Lessee fails to make any payment of Base Rent or
Percentage Rent or Additional Charges within ten (10) days after receipt by the
Lessee of Notice from Lessor that the same
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has become due and payable, provided that Lessor shall not be required to give
any such Notice more than twice in any Lease Year and that any third or
subsequent failure by Lessee during such Lease Year to make any payment of Base
Rent or Percentage Rent on the date the same becomes due and payable shall
constitute an immediate Event of Default; or
(b) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not curable, or if
curable is not cured by Lessee within a period of 30 days after receipt by the
Lessee of Notice thereof from Lessor, unless such failure is curable but cannot
with due diligence be cured within a period of 30 days, in which case it shall
not be deemed an Event of Default if (i) Lessee, within such 30 day period,
proceeds with due diligence to cure the failure and thereafter diligently
completes the curing thereof within 120 days of Lessor's Notice to Lessee, which
120-day period shall cease to run during any period that a cure of such failure
is prevented by an Unavoidable Delay and shall resume running upon the cessation
of such Unavoidable Delay, and (ii) the failure does not result in a notice or
declaration of default under any material contract or agreement to which Lessor,
the Company, or any Affiliate of either of them is a party or by which any of
their assets are bound; or
(c) if Lessee or Manager shall (i) be generally not paying its
debts as they become due, (ii) file, or consent by answer or otherwise to the
filing against it of, a petition for relief or reorganization or arrangement or
any other petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, (iii) make an assignment for
the benefit of its creditors, (iv) consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its assets, (v) be adjudicated insolvent
or (vi) take corporate action for the purpose of any of the foregoing; or if a
court or governmental authority of competent jurisdiction shall enter an order
appointing, without consent by Lessee, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its assets, or if an order for relief shall be entered in
any case or proceeding for liquidation or reorganization or otherwise to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of Lessee, or if any petition for any
such relief shall be filed against Lessee and such petition shall not be
dismissed within 60 days; or
(d) if Lessee or Manager is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or,
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in any manner, ceases to do business or permits the sale or divestiture of
substantially all of its assets; or
(e) if the estate or interest of Lessee in the Leased Property
or any part thereof is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in any Proceeding; or
(f) if, except as a result of and to the extent required by
damage, destruction, Condemnation or Unavoidable Delay, Lessee ceases operations
on the Leased Property; or
(g) if notice of a default or an event of default has been
given by the franchisor under the Franchise Agreement with respect to the
Facility on the Leased Property, which default or event of default is not cured
within applicable cure periods and does not arise directly from Lessor's breach
of any of its obligations under this Lease; or
(h) if a Performance Failure has occurred and not been cured
in accordance with this Lease; or
(i) if an Event of Default based on a failure to pay Rent when
due occurs under any of the Other Leases; or
(j) if a Default by Lessee shall occur under the Lease Master
Agreement.
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.
16.2. Remedies.
Upon the occurrence of an Event of Default, Lessor shall have the
right, at Lessor's option, to elect to do any one or more of the following
without further notice or demand to Lessee: (a) terminate this Lease, in which
event Lessee shall immediately surrender the Leased Property to Lessor, and, if
Lessee fails to so surrender, Lessor shall have the right, without notice, to
enter upon and take possession of the Leased Property and to expel or remove
Lessee and its effects without being liable for prosecution or any claim for
damages therefor; and Lessee shall, and hereby agrees to, indemnify Lessor for
all loss and damage which Lessor suffers by reason of such termination,
including without limitation, damages in an amount equal to the total of (1) the
reasonable costs of recovering the Leased Property in the event that Lessee does
not promptly surrender the Leased
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Property, and all other reasonable expenses incurred by Lessor in connection
with Lessee's default; and (2) the unpaid Rent earned as of the date of
termination, plus interest at the Overdue Rate accruing after the due date; (3)
the total Rent (including Percentage Rent as determined below) which Lessor
would have received under this Lease for the remainder of the Term, but
discounted to the then present value at a rate of twelve percent (12%) per
annum, less the fair market rental value of the balance of the Term as of the
time of such default discounted to the then present value at a rate of twelve
percent (12%) per annum; and (4) all other sums of money and damages owing by
Lessee to Lessor; or (b) enter upon and take possession of the Leased Property
without terminating this Lease and without being liable to prosecution or any
claim for damages therefor, and, if Lessor elects, relet the Leased Property on
such terms as Lessor deems advisable, in which event Lessee shall pay to Lessor
on demand the reasonable cost of repossessing the Leased Property and any
deficiency between the Rent payable hereunder (including Percentage Rent as
determined below) and the rent paid under such reletting; provided, however,
that Lessee shall not be entitled to any excess payments received by Lessor from
such reletting. Lessor's failure to relet the Leased Property shall not release
or affect Lessee's liability for Rent or for damages; or (c) enter the Leased
Property without terminating this Lease and without being liable for prosecution
or any claim for damages therefor and maintain the Leased Property and repair or
replace any damage thereto or do anything for which Lessee is responsible
hereunder. Lessee shall reimburse Lessor immediately upon demand for any expense
which Lessor incurs in thus effecting Lessee's compliance under this Lease, and
Lessor shall not be liable to Lessee for any damages with respect thereto.
Notwithstanding anything herein to the contrary, Lessee shall not be liable to
Lessor for consequential, punitive or exemplary damages.
The rights granted to Lessor in this Section 16.2 shall be
cumulative of every other right or remedy provided in this Lease or which Lessor
may otherwise have at law or in equity or by statute, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies or constitute a forfeiture or
waiver of Rent or damages accruing to Lessor by reason of any Event of Default
under this Lease.
Percentage Rent for the purposes of this Section 16.2 shall be
a sum equal to (i) the average of the annual amounts of the Percentage Rent for
the three full Lease Years immediately preceding the Lease Year in which the
termination, re-entry or repossession takes place, or (ii) if three full Lease
Years shall not have elapsed, the average of the Percentage Rent during the
preceding full Lease Years during which the Lease was in effect,
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or (iii) if one full Lease Year has not elapsed, the amount derived by
annualizing the Percentage Rent from the effective date of this Lease.
16.3. Waiver.
Each party waives, to the extent permitted by applicable law,
any right to a trial by jury in any proceedings brought by either party to
enforce the provisions of this Lease, including, without limitation, proceedings
to enforce the remedies set forth in this Article 16, and Lessee waives the
benefit of any laws now or hereafter in force exempting property from liability
for rent or for debt. Lessor waives any right to "pierce the corporate veil" of
Lessee other than to the extent funds shall have been paid to any Affiliate of
Lessee following a default leading to any Event of Default, and then only to the
extent of such payments.
16.4. Application of Funds.
Any payments received by Lessor under any of the provisions of
this Lease during the existence or continuance of any Event of Default shall be
applied to Lessee's obligations in the order that Lessor may determine or as may
be prescribed by the laws of the State.
ARTICLE
17
17.1. Lessor's Right to Cure Lessee's Default.
If Lessee fails to make any payment or to perform any act
required to be made or performed under this Lease including, without limitation,
Lessee's failure to comply with the terms of any Franchise Agreement, and fails
to cure the same within the relevant time periods provided in Section 16.1,
Lessor, without waiving or releasing any obligation of Lessee, and without
waiving or releasing any obligation or default, may (but shall be under no
obligation to) at any time thereafter upon Notice to Lessee make such payment or
perform such act for the account and at the expense of Lessee, and may, to the
extent permitted by law, enter upon the Leased Property for such purpose and,
subject to Section 16.2, take all such action thereon as, in Lessor's opinion,
may be necessary or appropriate therefor. No such entry shall be deemed an
eviction of Lessee. All sums so paid by Lessor and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, in each
case to the extent permitted by law) so incurred, together with a late charge
thereon (to the extent permitted by law) at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by
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Lessor, shall be paid by Lessee to Lessor on demand. The obligations of Lessee
and rights of Lessor contained in this Article shall survive the expiration or
earlier termination of this Lease.
ARTICLE
18
18.1. Personal Property Limitation.
(a) Anything contained in this Lease to the contrary
notwithstanding, the average of the adjusted tax bases of the items of Lessor's
personal property that are leased to Lessee under this Lease at the beginning
and at the end of any Lease Year shall not exceed 15% of the average of the
aggregate adjusted tax bases of the real and personal property contained in the
Leased Property at the beginning and at the end of such Lease Year (the
"Personal Property Limitation"). If Lessor reasonably anticipates that the
Personal Property Limitation will be exceeded with respect to the Leased
Property for any Lease Year, Lessor shall notify Lessee, and Lessee shall
purchase items of personal property anticipated by Lessor to be in excess of the
Personal Property Limitation ("Excess Personal Property Items") either from
Lessor or a third party. If the Excess Personal Property Items are purchased
from Lessor, the purchase prices of such Excess Personal Property Items shall be
equal to the adjusted tax bases of such Excess Personal Property Items in the
hands of Lessor as of the closing of the purchase.
(b) If Lessee purchases Excess Personal Property Items, the
Rent shall be reduced for the Accounting Period in which such purchase occurs
and each of sixty-four (64) succeeding Accounting Periods by an amount each
Accounting Period equal to two percent (2%) of the aggregate purchase prices of
such Excess Personal Property Items.
(c) If Lessee purchases Excess Personal Property Items, the
amount required by Lessor to be deposited in the Capital Expenditure Reserve
pursuant to Article 38 hereof shall be reduced for the Lease Year during which
such purchase occurs by an amount equal to the aggregate purchase prices of such
Excess Personal Property Items.
18.2. Sublease Rent Limitation.
Anything contained in this Lease to the contrary
notwithstanding, Lessee shall not sublet the Leased Property or enter into any
similar arrangement on any basis such that the rental or other amounts to be
paid by the sublessee thereunder would be based, in whole or in part, on either
(a) the net income
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or profits derived by the business activities of the sublessee, or (b)any other
formula such that any portion of the Rent would fail to qualify as "rents from
real property" within the meaning of Section 856(d) of the Code, or any similar
or successor provision thereto.
18.3. Sublease Lessee Limitation.
Anything contained in this Lease to the contrary
notwithstanding, Lessee shall not sublease the Leased Property to, or enter into
any similar arrangement with, any Person in which the Company owns, directly or
indirectly, a 10% or greater interest, within the meaning of Section
856(d)(2)(B) of the Code, or any similar or successor provisions thereto.
18.4. Lessee Ownership Limitation.
Anything contained in this Lease to the contrary
notwithstanding, neither party shall take, or permit to take, any action that
would cause the Company to own, directly or indirectly, a 10% or greater
interest in the Lessee within the meaning of Section 856(d)(2)(B) of the Code,
or any similar or successor provision thereto.
18.5. Director, Officer and Employee Limitation.
Anything contained in this Lease to the contrary
notwithstanding, Lessor and Lessee shall cooperate to ensure that (i) no
officers or employees of Lessor or the Company shall be officers or employees
of, or own any ownership interest in, Lessee or any Affiliate thereof (or any
Person who furnishes or renders services to the tenants of the Leased Property,
or manages or operates the Leased Property), and (ii) no officers or employees
of Lessee or any Affiliate thereof (or of any Person who furnishes or renders
services to the tenants of the Leased Property, or manages or operates the
Leased Property) shall be officers or employees of Lessor or the Company.
Furthermore, if a Person serves as both (a) a director or trustee of Lessor, the
Company or any other Affiliate of Lessor and (b) a director and officer (or
employee) of the 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 (excluding reimbursement for expenses)
for serving as a trustee of the Lessor, the Company or the other Affiliate of
Lessor.
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ARTICLE
19
19.1. Holding Over.
If Lessee for any reason remains in possession of the Leased
Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each Accounting Period two times the aggregate of (a) one-thirteenth
of the aggregate Base Rent and Percentage Rent payable with respect to the last
Lease Year of the Term, (b)all Additional Charges accruing during the applicable
month and (c) all other sums, if any, payable by Lessee under this Lease with
respect to the Leased Property. During such period, Lessee shall be obligated to
perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given by
law to tenancies at sufferance, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.
ARTICLE
20
20.1. Indemnification.
Subject to the last sentence of Section 13.4, Lessee will
protect, indemnify, hold harmless and defend Lessor Indemnified Parties from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses), to the extent permitted by law, including those resulting
from a Lessor Indemnified Party's own negligence but excluding those resulting
from a Lessor Indemnified Party's gross negligence or willful misconduct,
imposed upon or incurred by or asserted against Lessor Indemnified Parties by
reason of: (a) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Leased Property or adjoining sidewalks,
including without limitation any claims under liquor liability, "dram shop" or
similar laws, (b) any past, present or future use, misuse, non-use, condition,
management, maintenance or repair by Lessee or any of its agents, employees or
invitees of the Leased Property or Lessee's Personal Property or any litigation,
proceeding or claim by governmental entities or other third parties to which a
Lessor Indemnified Party is made a party or participant related to such use,
misuse, non-use, condition, management, maintenance, or repair thereof by Lessee
or any of its agents, employees or invitees, including any failure of
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Lessee or any of its agents, employees or invitees to perform any obligations
under this Lease or imposed by applicable law (other than arising out of
Condemnation proceedings), (c) any Impositions, other than any portion of Real
Estate Taxes that the Lessor is obligated to pay under this Lease, (d) any
failure on the part of Lessee to perform or comply with any of the terms of this
Lease, and (e) the nonperformance of any of the terms and provisions of any and
all existing and future subleases of the Leased Property to be performed by the
landlord thereunder.
Subject to the last sentence of Section 13.4, Lessor shall
indemnify, save harmless and defend Lessee Indemnified Parties from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and expenses imposed upon or incurred by or asserted against Lessee
Indemnified Parties as a result of (a) the gross negligence or willful
misconduct of Lessor arising in connection with this Lease or (b) any failure on
the part of Lessor to perform or comply with any of the terms of this Lease.
Any amounts that become payable by an Indemnifying Party under
this Section shall be paid within ten days after liability therefor on the part
of the Indemnifying Party is determined by litigation or otherwise, and if not
timely paid, shall bear a late charge (to the extent permitted by law) at the
Overdue Rate from the date of such determination to the date of payment. Any
such amounts shall be reduced by insurance proceeds received and any other
recovery (net of costs) obtained by the Indemnified Party. An Indemnifying
Party, at its expense, shall contest, resist and defend any such claim, action
or proceeding asserted or instituted against the Indemnified Party. The
Indemnified Party, at its expense, shall be entitled to participate in any such
claim, action, or proceeding, and the Indemnifying Party may not compromise or
otherwise dispose of the same without the consent of the Indemnified Party,
which may not be unreasonably withheld. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own grossly negligent acts
or omissions or willful misconduct.
Lessee's or Lessor's liability for a breach of the provisions
of this Article shall survive any termination of this Lease.
ARTICLE
21
21.1. Subletting and Assignment.
In addition to the provisions of Article 18 and Sections 21.2,
21.3 and any other express consents, conditions,
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limitations or other provisions set forth herein and in the Lease Master
Agreement, Lessee shall not assign this Lease or hereafter sublease all or any
part of the Leased Property without first obtaining the written consent of
Lessor. In the case of a permitted subletting, the sublessee shall comply with
the provisions of Section 21.2 and 21.3, and in the case of a permitted
assignment, the assignee shall assume in writing and agree to keep and perform
all of the terms of this Lease on the part of Lessee to be kept and performed
and shall be, and become, jointly and severally liable with Lessee for the
performance thereof. In case of either an assignment or subletting made during
the Term, Lessee shall remain primarily liable, as principal rather than as
surety, for the prompt payment of the Rent and for the performance and
observance of all of the covenants and conditions to be performed by Lessee
hereunder. An original counterpart of each such sublease and assignment and
assumption, duly executed by Lessee and such sublessee or assignee, as the case
may be, in form and substance satisfactory to Lessor, shall be delivered
promptly to Lessor.
21.2. Attornment.
Lessee shall insert in each future sublease permitted under
Section 21.1 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (b) if this Lease terminates before the expiration of such
sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor
and waive any right the sublessee may have to terminate the sublease or to
surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a written Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
21.3. Management Agreement.
Lessor shall have the right to approve any management or
agency agreement relating to the management or operation of the Facility
(collectively, the "Management Agreement"), any modifications to the Management
Agreement affecting the fees, costs or expenses payable or collectible
thereunder, and any other material modification to the Management Agreement.
Lessor's approval shall not be unreasonably withheld. The Management Agreement
shall provide, among other things, that (i)
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upon termination of this Lease or termination of Lessee's right to possession of
the Leased Property for any reason whatsoever, the Management Agreement may be
terminated by Lessor without liability for any payment due or to become due to
the manager of the Facility (the "Manager"), and (ii) all fees and other amounts
payable by Lessee to the Manager shall be subordinate on a month to month basis
to Rent and other amounts payable by Lessee to Lessor hereunder prior to the
existence of an Event of Default, and shall be at all times subordinate to Rent
and such other amounts after the occurrence of an Event of Default. Lessor
consents to Summerfield Suites Management Company, L.P., a Kansas limited
partnership, as the initial Manager of the Facility.
ARTICLE
22
22.1. Officer's Certificates; Financial Statements; Lessor's Estoppel
Certificates and Covenants.
(a) At any time and from time to time upon not less than 10
days Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, whether to the
knowledge of Lessee there is any existing default or Event of Default hereunder
by Lessor or Lessee, and such other information as may be reasonably requested
by Lessor. Any such certificate furnished pursuant to this Section may be relied
upon by Lessor, any lender, any underwriter and any prospective purchaser of the
Leased Property.
(b) Lessee will furnish, at Lessee's cost and expense except
as noted below, the following statements and operating information to Lessor,
each in a form satisfactory to Lessor:
(i) Consolidated Financials of Lessee for each Accounting
Period of each Lease Year, and for each Accounting Period in the Lease
Year-to-date, within 20 days after the end of such Accounting Period;
(ii) Consolidated Financials of Lessee and each Affiliate
of Lessee, if any, that leases hotel properties from Lessor or its
Affiliates, for each Accounting Period of each Lease Year, and for each
Accounting Period in the Lease Year to date, within 20 days after the
end of such Accounting Period;
(iii) audited Consolidated Financials of Lessee for each
Lease Year, including the auditor's report thereon,
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within 60 days after the end of such year. The fees and expenses of the
auditor incurred in connection with conducting such audits and
delivering such reports shall be paid by Lessor;
(iv) audited Consolidated Financials of Lessee and each
Affiliate of Lessee that leases hotel properties from Lessor or its
Affiliates, if any, for each Lease Year, including the auditor's report
thereon, within 60 days after the end of such year. The fees and
expenses of the auditor incurred in connection with conducting such
audits and delivering such reports shall be paid by Lessor;
(v) with reasonable promptness, such other information
respecting the financial condition and affairs of Lessee (A) as Lessor
or the Company may require or may deem desirable in its discretion to
file with or provide to the SEC or any other governmental agency or any
other Person, all in the form, and either audited or unaudited, as
Lessor may request in Lessor's reasonable discretion, and (B) as may be
reasonably necessary to confirm compliance by Lessee and its Affiliates
with the requirements of this Lease;
(vi) each Monday, a statement showing the Rooms Revenue,
occupancy and revenue per available room for (a) the Facility and (b)
the Facility and any other hotel property leased by Lessee or its
Affiliates from Lessor or its Affiliates, for both (i)each day in the
seven day period ended the immediately preceding Friday and (ii) such
seven day period in the aggregate.
(vii) on or before the 20th day of each Accounting Period,
a balance sheet, and detailed profit and loss and cash flow statements
showing the financial position of the Facility as at the end of the
preceding Accounting Period, the results of operation of the Facility
for such preceding Accounting Period and the Lease Year-to-date and the
average daily rate, occupancy and revenue-per-available room of the
Facility in such preceding Accounting Period (including a comparison to
the Operating Budget as approved);
(viii) on or before the 20th day of each Accounting Period,
the general manager's written critique of the financial report
submitted pursuant to subsection (vii) immediately above, setting forth
in narrative form any variations during the preceding Accounting Period
from the Annual Budget and including a preview of the Facility's
financial operations during the current Accounting Period;
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(ix) on or before the 15th day of each April, July and
October during the Term, an updated estimate for each calendar quarter
remaining in the Lease Year of the information required by Sections
3.5(a) and (e) hereof;
(x) monthly STR Reports within five (5) days of Lessee's
receipt thereof;
(xi) within five (5) days of Lessee's receipt thereof, any
inspection reports received from the franchisor under the Franchise
Agreement; and
(xii) such other information as Lessor may reasonably
request and that Lessee can provide without unreasonable expense.
(c) At any time and from time to time upon not less than 10
days notice by Lessee, Lessor will furnish to Lessee or to any person designated
by Lessee an estoppel certificate certifying that this Lease is unmodified and
in full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the date to which Rent has been
paid, whether to the knowledge of Lessor there is any existing default or Event
of Default on Lessee's part hereunder, and such other information as may be
reasonably requested by Lessee. Any such certificate furnished pursuant to this
Section may be relied upon by Lessee, any lender, any underwriter and any
purchaser of the assets of Lessee.
(d) If Company or Lessor proposes to include in any submission
or filing with its lender, stock exchange or the SEC, Consolidated Financials of
Lessee delivered or required to be delivered hereunder and the consent of
Lessee's auditor is required for such inclusion, Lessee shall use commercially
reasonable efforts to cause its auditor to deliver promptly to Lessor the
auditor's consent, in the form required, to the inclusion in the submission or
filing of the Consolidated Financials (including the report of the auditor, if
the Consolidated Financials to be included are audited). Lessee shall reasonably
cooperate with Lessor regarding Lessee's auditor's compliance with such requests
with the purpose of minimizing costs and delays. Lessee shall reasonably
cooperate with all requests made by its auditor, Lessor or the SEC to promptly
provide to the auditor, Lessor or SEC such information or documents, including
consents and representation letters, as may be necessary or desirable in
connection with the preparation, delivery, audit or inclusion in SEC filings,
submissions or other public documents, of information, including financial
information, related to the Leased Property, the operation and financial results
of the Leased Property, and the financial
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results and condition of the Lessee. Without limiting the foregoing, the
information shall be sufficient to permit the preparation of a Management's
Discussion and Analysis of Results of Operations and Financial Condition with
respect to the Lessee as may be required to be included in reports and documents
filed by the Company with the SEC. Lessee shall not be obligated to incur
material additional expense to prepare any reports or information not
specifically provided for herein that Lessor or Company may be required or elect
to file with the SEC, and such material additional third-party costs shall be
paid or reimbursed by Lessor.
ARTICLE
23
23.1. Regular Meetings; Lessor's Right to Inspect.
(a) Lessee agrees that the regional manager, the general
manager, the director of marketing/sales, and the chief engineer for the
Facility will meet with Lessor and its representatives on a monthly basis at the
Facility throughout each Lease Year in order to discuss all aspects of the
management, maintenance and operation of the Facility. If agreed upon by Lessor
and Lessee, such meetings may be held by conference call.
(b) Lessee shall permit Lessor and its authorized
representatives, which may include auditors, underwriters and rating agencies,
as frequently as reasonably requested by Lessor to (i) inspect the Leased
Property and Lessee's accounts and records pertaining thereto, including general
accounting records, corporate records and agreements relating to the operations
of the Leased Property and Lessee's financial condition, and make copies
thereof, and (ii) conduct audits, all during usual business hours upon
reasonable advance notice, subject only to any business confidentiality
requirements reasonably requested by Lessee. In conducting such inspections
Lessor shall not unreasonably interfere with the conduct of Lessee's business at
the Leased Property.
(c) Lessee will, on a space available basis, provide customary
gratuitous accommodations to Lessor and its representatives in connection with
all such meetings and inspections.
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ARTICLE
24
24.1. No Waiver.
No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
ARTICLE
25
25.1. Remedies Cumulative.
To the extent permitted by law but subject to Article 39 and
any other provisions of this Lease expressly limiting the rights, powers and
remedies of either Lessor or Lessee, each legal, equitable or contractual right,
power and remedy of Lessor or Lessee now or hereafter provided either in this
Lease or by statute or otherwise shall be cumulative and concurrent and shall be
in addition to every other right, power and remedy, and the exercise or
beginning of the exercise by Lessor or Lessee of any one or more of such rights,
powers and remedies shall not preclude the simultaneous or subsequent exercise
by Lessor or Lessee of any or all of such other rights, powers and remedies.
ARTICLE
26
26.1. Acceptance of Surrender.
No surrender to Lessor of this Lease or of the Leased Property
or any part thereof, or of any interest therein, shall be valid or effective
unless agreed to and accepted in writing by Lessor and no act by Lessor or any
representative or agent of Lessor, other than such a written acceptance by
Lessor, shall constitute an acceptance of any such surrender.
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ARTICLE
27
27.1. No Merger of Title.
There shall be no merger of this Lease or of the leasehold
estate created hereby by reason of the fact that the same person or entity may
acquire, own or hold, directly or indirectly: (a) this Lease or the leasehold
estate created hereby or any interest in this Lease or such leasehold estate and
(b) the fee estate in the Leased Property.
ARTICLE
28
28.1. Conveyance by Lessor.
Lessor shall have the unrestricted right to mortgage or
otherwise convey the Leased Property to a Holder. If Lessor conveys the Leased
Property in accordance with the terms hereof other than to a Holder, and the
grantee or transferee of the Leased Property expressly assumes in writing all
obligations of Lessor hereunder arising or accruing from and after the date of
such conveyance or transfer, Lessor shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owner. If Lessee is not reasonably satisfied that the new
owner is a capable, reliable and qualified Person of good reputation and
character, Lessee may terminate this Lease upon sixty (60) days' Notice to
Lessor given within thirty (30) days after Lessee receives Notice of such
conveyance.
28.2. Lessor May Grant Liens.
(a) Subject to Section 7.2, without the consent of Lessee,
Lessor may from time to time, directly or indirectly, create or otherwise cause
to exist any lien, encumbrance or title retention agreement upon the Leased
Property, or any portion thereof or interest therein, or upon Lessor's interest
in this Lease, whether to secure any borrowing or other means of financing or
refinancing. This Lease and Lessee's interest hereunder shall at all times be
subject and subordinate to the lien and security title of any deeds to secure
debt, deeds of trust, mortgages, or other interests heretofore or hereafter
granted by Lessor or which otherwise encumber or affect the Leased Property and
to any and all advances to be made thereunder and to all renewals,
modifications, consolidations, replacements, substitutions, and extensions
thereof (all of which are herein
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called the "Mortgage"), provided that the Mortgage and all security agreements
delivered by Lessor in connection therewith shall be subject to Lessee's rights
under this Lease to receive all Gross Revenues of the Facility prior to the
earlier of the occurrence of an Event of Default or the date that this Lease is
terminated by the Holder of the Mortgage in the exercise of its remedies
thereunder. In confirmation of such subordination, Lessee shall, at Lessor's
request, promptly execute, acknowledge and deliver any instrument which may be
required to evidence subordination to any Mortgage and attornment to the Holder
thereof and its successors and assigns, provided Lessee receives customary and
reasonable non-disturbance protection while it is not in default hereunder. The
Lessee shall comply with any material covenants with respect to the Lessee
contained in such instrument of subordination. In the event of Lessee's failure
to deliver such subordination and if the Mortgage does not change any term of
the Lease, Lessor may, in addition to any other remedies for breach of covenant
hereunder, execute, acknowledge, and deliver the instrument as the agent or
attorney-in-fact of Lessee, and Lessee hereby irrevocably constitutes Lessor its
attorney-in-fact for such purpose, Lessee acknowledging that the appointment is
coupled with an interest and is irrevocable.
(b) Lessee shall, upon the request of Lessor or any existing
or future Holder, (i) provide Holder with copies of all licenses, permits,
occupancy agreements, operating agreements, leases, contracts and similar
agreements reasonably requested in connection with any existing or proposed
financing of the Leased Property, and (ii) execute, or cause the Manager or any
relevant Affiliate to execute, such estoppel agreements and collateral
assignments with respect to the Facility's liquor license and any of the other
aforementioned agreements as Holder may reasonably request in connection with
any such financing, provided that no such estoppel agreement or collateral
assignment shall in any way affect the Term or affect adversely in any material
respect any rights of Lessee under this Lease.
(c) No act or failure to act on the part of Lessor which would
entitle Lessee under the terms of this Lease, or by law, to be relieved of any
of Lessee's obligations hereunder (including, without limitation, its obligation
to pay Rent) or to terminate this Lease, shall result in a release or
termination of such obligations of Lessee or a termination of this Lease unless:
(i) Lessee shall have first given written notice of Lessor's act or failure to
act to the Holder, specifying the act or failure to act on the part of Lessor
which would give basis to Lessee's rights; and (ii) the Holder, after receipt of
such notice, shall have failed or refused to correct or cure the condition
complained of within a reasonable time thereafter (in no event less than sixty
(60) days), which shall include a reasonable time
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for such Holder to obtain possession of the Leased Property, if possession is
reasonably necessary for the Holder to correct or cure the condition, or to
foreclose such Mortgage, and if the Holder notifies the Lessee of its intention
to take possession of the Leased Property or to foreclosure such Mortgage, and
correct or cure such condition. If such Holder is prohibited by any process or
injunction issued by any court or by reason of any action by any court having
jurisdiction or any bankruptcy, debtor rehabilitation or insolvency proceedings
involving Lessor from commencing or prosecuting foreclosure or other appropriate
proceedings in the nature thereof, provided, however, that the Lease shall
continue to be in full force and effect, the times for commencing or prosecuting
such foreclosure or other proceedings shall be extended for the period of such
prohibition.
(d) Lessee shall deliver by notice delivered in the manner
provided in Article 30 to any Holder who gives Lessee written notice of its
status as a Holder, at such Holder's address stated in the Holder's written
notice or at such other address as the Holder may designate by later written
notice to Lessee, a duplicate copy of any and all notices regarding any default
which Lessee may from time to time give or serve upon Lessor pursuant to the
provisions of this Lease. Copies of such notices given by Lessee to Lessor shall
be delivered to such Holder simultaneously with delivery to Lessor. No such
notice by Lessee to Lessor hereunder shall be deemed to have been given unless
and until a copy thereof has been mailed to such Holder.
(e) At any time, and from time to time, upon not less than ten
(10) days' notice by a Holder to Lessee, Lessee shall deliver to such Holder an
estoppel certificate certifying as to the information required in paragraph (c)
of Article 22, and such other information as may be reasonably requested by such
Holder. Any such certificate may be relied upon by such Holder.
(f) Lessee shall cooperate in all reasonable respects, and as
generally described in Section 33.2 of this Lease, with any transfer of the
Leased Property to a Holder that succeeds to the interest of Lessor in the
Leased Property (including, without limitation, in connection with the transfer
of any franchise, license, lease, permit, contract, agreement, or similar item
to such Holder or such Holder's designee necessary or appropriate to operate the
Leased Property). Lessor and Lessee shall cooperate in (i) including in this
Lease by suitable amendment from time to time any provision which may be
requested by any proposed Holder, or may otherwise be reasonably necessary, to
implement the provisions of this Article and (ii) entering into any further
agreement with or at the request of any Holder which may be reasonably requested
or required by such Holder in furtherance or confirmation of the provisions of
this Article; provided,
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however, that any such amendment or agreement shall not in any way affect the
Term nor affect adversely in any material respect any rights of Lessor or Lessee
under this Lease.
ARTICLE
29
29.1. Quiet Enjoyment.
So long as Lessee pays all Rent as the same becomes due and
complies with all of the terms of this Lease and performs its obligations
hereunder, in each case within the applicable grace and/or cure periods, if any,
Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for
the Term hereof, free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor and not claiming by, through or under Lessee, but
subject to all liens and encumbrances subject to which the Leased Property was
conveyed to Lessor or hereafter consented to by Lessee in writing or provided
for herein. Lessee shall have the right by separate and independent action to
pursue any claim it may have against Lessor as a result of a breach by Lessor of
the covenant of quiet enjoyment contained in this Section.
ARTICLE
30
30.1. Notices.
All notices, demands, requests, consents, approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served or mailed (by express or overnight mail, courier, or
registered or certified mail, return receipt requested and postage prepaid), (i)
if to Lessor at 306 Royal Poinciana Way, Palm Beach, Florida 33480, Attention:
Mr. Jeffrey H. Fisher, and (ii) if to Lessee at 8100 E. 22nd Street North,
Building 500, Wichita, Kansas 67226, Attention: Mr. B. Anthony Isaac, or to such
other address or addresses as either party may hereafter designate. Personally
delivered Notices shall be effective upon receipt, and Notice given by mail
shall be complete at the time of deposit in the U.S. Mail system or with a
recognized overnight mail courier, but any prescribed period of Notice and any
right or duty to do any act or make any response within any prescribed period or
on a date certain after the service of such Notice given by mail shall be
extended five days.
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ARTICLE
31
31.1. Appraisers.
If it becomes necessary to determine the fair market value or
fair market rental of the Leased Property for any purpose of this Lease, then,
except as otherwise expressly provided in this Lease, the party required or
permitted to give Notice of such required determination shall include in the
Notice the name of a person selected to act as appraiser on its behalf. Within
10 days after Notice, Lessor (or Lessee, as the case may be) shall by Notice to
Lessee (or Lessor, as the case may be) appoint a second person as appraiser on
its behalf. The appraisers thus appointed, each of whom must be a member of the
American Institute of Real Estate Appraisers (or any successor organization
thereto) with at least five years experience in the State appraising property
similar to the Leased Property, shall, within 10 days after the date of the
Notice appointing the second appraiser, proceed to appraise the Leased Property
to determine the fair market value or fair market rental thereof as of the
relevant date (giving effect to the impact, if any, of inflation from the date
of their decision to the relevant date); provided, however, that if only one
appraiser shall have been so appointed, then the determination of such appraiser
shall be final and binding upon the parties. If two appraisers are appointed and
if the difference between the amounts so determined does not exceed 5% of the
lesser of such amounts, then the fair market value or fair market rental shall
be an amount equal to 50% of the sum of the amounts so determined. If the
difference between the amounts so determined exceeds 5% of the lesser of such
amounts, then such two appraisers shall have 10 days to appoint a third
appraiser. If no such appraiser shall have been appointed within such 10 days or
within 60 days of the original request for a determination of fair market value
or fair market rental, whichever is earlier, either Lessor or Lessee may apply
to any court having jurisdiction to have such appointment made by such court.
Any appraiser appointed by the original appraisers or by such court shall be
instructed to determine the fair market value or fair market rental within 30
days after appointment of such appraiser. The determination of the appraiser
which differs most in terms of dollar amount from the determinations of the
other two appraisers shall be excluded, and 50% of the sum of the remaining two
determinations shall be final and binding upon Lessor and Lessee as the fair
market value or fair market rental of the Leased Property, as the case may be.
This provision for determining by appraisal shall be specifically enforceable to
the extent such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law. Lessor
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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
32
32.1. Lessee's Right to Cure.
Subject to the provisions of Article 39, if Lessor breaches
any covenant to be performed by it under this Lease, Lessee, after Notice to and
demand upon Lessor as provided in Article 39, without waiving or releasing any
obligation hereunder, may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the account and at the
expense of Lessor. All sums so paid by Lessee and all costs and expenses
(including, without limitation, reasonable attorneys' fees) so incurred,
together with interest thereon at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to
Lessee on demand. The rights of Lessee hereunder to cure and to secure payment
from Lessor in accordance with this Article 32 shall survive the termination of
this Lease with respect to the Leased Property.
ARTICLE
33
33.1. Miscellaneous.
Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease is
based upon a rate in excess of the maximum rate permitted by applicable law, the
parties agree that such charges shall be fixed at and limited to the maximum
permissible rate. Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by a written instrument in recordable
form signed by Lessor and Lessee. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The headings in this Lease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Lease shall be governed by and construed in
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accordance with the laws of the State, but not including its conflicts of laws
rules.
33.2. Transition Procedures.
Upon any expiration or termination of the Term, Lessor and
Lessee shall do the following and, in general, shall cooperate in good faith to
effect an orderly transition of the management or lease of the Facility. The
provisions of this Section 33.2 shall survive the expiration or termination of
this Lease until they have been fully performed. Nothing contained herein shall
limit Lessor's rights and remedies under this Lease if such termination occurs
as the result of an Event of Default.
(a) Transfer of Franchise Agreement. The Franchise Agreement
shall be assigned, at Lessor's option, effective on the termination date,
without fee, cost, or penalty, and without the imposition of a product
improvement (or similar) plan, to (i) Lessor, (ii) JF Hotel, Inc. or an
Affiliate of JF Hotel, Inc., or (iii) another designee of Lessor of good
reputation and with experience in operating hotels.
(b) Transfer of Licenses. Upon the expiration or earlier
termination of the Term, Lessee shall use its best efforts (i) to transfer to
Lessor or Lessor's nominee all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities, that may be necessary for the
operation of the Facility (collectively, "Licenses"), or (ii) if such transfer
is prohibited by law or Lessor otherwise elects, to cooperate with Lessor or
Lessor's nominee in connection with the processing by Lessor or Lessor's nominee
of any applications for all Licenses, including Lessee (or its Affiliate)
continuing to operate the liquor operations under its licenses with Lessor
agreeing to indemnify and hold Lessee (or its Affiliate) harmless as a result
thereof except for the gross negligence or willful misconduct of Lessee;
provided, in either case, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Lessor or Lessor's
nominee.
(c) Leases and Concessions. Lessee shall assign to Lessor or
Lessor's nominee simultaneously with the termination of this Agreement, and the
assignee shall assume, all leases, contracts, concession agreements and
agreements in effect with respect to the Facility then in Lessee's name which
are designated by Lessor.
(d) Books and Records. To the extent that Lessor has not
already received copies thereof, all books and records (including computer and
computer-generated records) for the
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Facility kept by Lessee pursuant to Section 3.6 (or copies thereof) shall be
delivered simultaneously with the termination of this Agreement to Lessor or
Lessor's nominee.
(e) Receivables and Payables, etc. Lessee shall be entitled to
retain all cash, bank accounts and house banks, and to collect all Gross
Revenues and accounts receivable accrued through the termination date. Lessee
shall be responsible for the payment of Rent, all operating expenses of the
Facility and all other obligations of Lessee accrued under this Lease as of the
termination date, and Lessor shall be responsible for all operating expenses of
the Facility accruing after the termination date.
(f) Final Accounting. Lessee shall, within forty five (45)
days after the expiration or termination of the Term, prepare and deliver to
Lessor a final accounting statement, dated as of the date of the expiration or
termination, as more particularly described in Article 22, along with a
statement of any sums due from Lessee to Lessor pursuant hereto and payment of
such funds.
(g) Inventory. Lessee shall insure that the Leased Property,
at the date of such termination or expiration, has Inventory of a substantially
equivalent nature and amount as exists at the Leased Property on the
Commencement Date, and Lessor shall acquire such Inventory from Lessee by paying
Lessee the fair market value thereof, calculated on the same basis as the
parties determined the fair market value of the Inventory purchased by Lessee on
the Commencement Date.
(i) Option to Purchase Lessee's Personal Property. Upon the
expiration or termination of the Term, Lessor shall have the option to purchase
Lessee's Personal Property related to the Leased Property at fair market value.
(h) Surrender. Lessee shall peacefully and immediately vacate
and surrender the Leased Property to Lessor or Lessor's designee, shall turn
over all keys to Lessor and Lessor's designee and shall not interfere with
Lessor or any new Lessee or Manager.
33.3. Waiver of Presentment, etc.
Lessee waives all presentments, demands for payment and for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance and waives all notices of the existence,
creation, or incurring of new or additional obligations, except as expressly
granted herein.
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33.4. Standard of Discretion.
In any provision of this Lease requiring or permitting the
exercise by Lessor or Lessee of such party's approval, election, decision,
consent, judgment, determination or words of similar import (collectively, an
"Approval"), such Approval may, unless otherwise expressly specified in such
provision, be given or withheld in such party's sole, absolute and unreviewable
discretion. Any Approval which by the terms of this Lease may not be
unreasonably withheld shall also not be unreasonably delayed.
33.5. Action for Damages.
In any suit or other claim brought by either party seeking
damages against the other party for breach of its obligations under this Lease,
the party against whom such claim is made shall be liable to the other party
only for actual damages and not for consequential, punitive or exemplary
damages.
33.6. Lease Assumption in Bankruptcy Proceeding.
If an Event of Default occurs and Lessee has filed or has had
filed against it a petition in bankruptcy or for reorganization or other relief
pursuant to the federal bankruptcy code, Lessee shall promptly move the court
presiding over the proceeding to assume the Lease pursuant to 11 U.S.C. ss.365,
without seeking an extension of the time to file said motion.
33.7. Intra-Family Transfers.
Lessee acknowledges that Lessor may transfer legal title to
the Leased Property one or more times to Affiliates of the Lessor in which
Innkeepers USA Limited Partnership or the Company owns a majority interest
(each, an "Affiliated Lessor"). Lessee hereby consents to such transfers
provided that, in each case, this Lease is assumed by the Affiliated Lessor in
its entirety and without modification, except to the extent that Lessor, or the
Affiliated Lessor that then owns the Leased Property, specifically retains any
obligations accrued through the date of transfer hereunder. Lessee covenants
that in connection with such transfers, Lessee will execute and deliver to
Lessor, the Affiliated Lessor and/or their representatives appropriate estoppels
and other documentation requested by them, including an amendment to this Lease,
for the purposes of reflecting and acknowledging the Affiliated Lessor's
interests as lessor hereunder.
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ARTICLE
34
34.1. Memorandum of Lease.
Lessor and Lessee shall promptly upon the request of either
enter into a short form memorandum of this Lease, in form suitable for recording
under the laws of the State in which reference to this Lease, and all options
contained herein, shall be made. Lessee shall pay all costs and expenses of
recording such memorandum of this Lease.
ARTICLE
35
(Intentionally Omitted)
ARTICLE
36
36.1. Lessor's Option to Terminate Lease; Lessee's Limited Rights of
First Offer.
(a) In the event Lessor enters into a bona fide contract to
sell the Leased Property to a non-Affiliate other than Lessee or an Affiliate of
Lessee, or in the event of a Tax Law Change resulting in Lessor's determination
to terminate this Lease and the Other Leases, then in either such event Lessor
may terminate the Lease by giving not less than sixty (60) days prior Notice to
Lessee of Lessor's election to terminate the Lease upon the closing under such
contract or upon a date specified by Lessor which is on or after the effective
date of the Tax Law Change. Effective upon such date, this Lease shall terminate
and be of no further force and effect except as to any obligations of the
parties existing as of such date that survive termination of this Lease and all
Rent including Percentage Rent and Additional Charges shall be adjusted as of
the termination date.
(b) As compensation for the early termination of its leasehold
estate under this Article 36 because of a sale of the Leased Property, Lessor
shall not more than one (1) year prior to the anticipated termination date of
the Lease and in any event within ninety (90) days of the closing of such sale,
either (i) pay to Lessee the "Termination Fee" (as defined below) or (ii) offer
to lease to Lessee one or more substitute suite hotel facilities pursuant to one
or more leases that would create for the Lessee leasehold estates that have an
aggregate fair market value of no less than the fair market value of the
original leasehold estate (a "Comparable Lease"), such value to be
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determined as of the closing of the sale of the Leased Property. Lessee's
acceptance of the Comparable Lease shall not be unreasonably withheld. If Lessee
rejects the Comparable Lease, Lessor shall pay the Termination Fee to Lessee. In
the event Lessor and Lessee are unable to agree upon the fair market value of an
original or replacement leasehold estate, it shall be determined by appraisal
using the appraisal procedure set forth in Article 31.
(c) As compensation for the early termination of its leasehold
estate under this Article 36 because of a Tax Law Change, (i) Lessor shall, not
more than one (1) year prior to the anticipated termination date of the Lease
and in any event within ninety (90) days of such termination, pay to Lessee the
Termination Fee and (ii) prior to the anticipated termination date and effective
on the date thereof, Lessor and Lessee (or an Affiliate of Lessee) shall enter
into a new management agreement for the Facility for a term equal to the
remaining term of the Lease and a management fee equal to three percent (3%) of
gross revenues, and containing other terms consistent with those for comparable
hotels. The fair market value of such new management agreement shall be credited
against the payment made by Lessor to Lessee pursuant to clause (i) of the
immediately preceding sentence. In calculating such fair market value, fees
payable under the new management agreement shall be projected for the remaining
term of the Lease on the basis which is most reasonable under the circumstances.
In the event Lessor and Lessee are unable to agree on any provisions of the new
management agreement, the matter shall be referred to arbitration as provided
for in Article 40 hereof.
(d) (i) For the purposes of this Section, fair market
value of the leasehold estate means, as applicable, an amount equal to the price
that a willing buyer not compelled to buy would pay a willing seller not
compelled to sell for Lessee's leasehold estate under this Lease or an offered
replacement leasehold estate. In computing fair market value of a leasehold
estate and a new management agreement, the appraiser shall discount all future
income and fees to the then present value at a rate equal to the Prime Rate plus
2% per annum.
(ii) The Termination Fee shall equal the "Net Present
Value" (as defined below) of the "Lessee Leakage" (as defined below) for (a) the
remaining Lease Years of the Term or, (b) if the termination occurs less than
five Lease Years from the end of the Term, the remaining Lease Years in the Term
plus one year (the "Determination Period"). "Lessee Leakage" for any Lease Year
is defined as the net operating income of the Facility, determined in accordance
with GAAP and as if no Management Agreement existed, less Rent paid and payable
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hereunder. The "Net Present Value" of the Lessee Leakage for the Determination
Period shall be determined by (A) averaging the Lessee Leakage actually realized
by Lessee for the three most recently ended Lease Years (or all full Lease Years
if less than three full Lease Years have elapsed since the Commencement Date)
(the "Valuation Period"), (B) averaging the CPI determined under Section 3.1(e)
for each Lease Year in the Valuation Period (the "Average CPI Increase"), (C)
assuming that Lessee Leakage in the first Lease Year of the Determination Period
is the average Lessee Leakage (as determined under subsection (A) above) plus
the Average CPI Increase and that the Lessee Leakage in each subsequent Lease
Year in the Determination Period is the deemed Lessee Leakage for the previous
Lease Year increased by the Average CPI Increase, (D) discounting the deemed
Lessee Leakage in each Lease Year of the Determination Period to then-present
value at a rate of twelve percent (12%) per annum and (E) aggregating the sum of
such present values.
(e) In the event that Lessor terminates this Lease upon less
than sixty (60) days written notice pursuant to the provisions of this Article
36 or pursuant to any other provisions of this Lease except for the provisions
allowing Lessor to terminate this Lease under Articles 14 or 15 or upon the
occurrence of an Event of Default, the parties agree that on and after the
effective date of such termination, hotel personnel employed by Lessee
immediately prior to the effective date of termination will either be employed
by Lessor or its designee, or Lessor or its designee will take such other action
with respect to their employment, which may include notification of the
prospective termination of their employment, so as, in any case, to insure that
Lessee does not incur any liability pursuant to the WARN Act. In that event,
Lessor hereby agrees to defend, indemnify and hold harmless Lessee from and
against any and all manner of claims, actions, liabilities, costs and expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
relating to or arising from Lessor's breach of this covenant, including, without
limitation, any liability, costs and expenses arising out of asserted or actual
violation of the requirements of the WARN Act. Further, Lessor or its designee
shall assume all COBRA liabilities and COBRA obligations to the Facility's
personnel, which Lessee shall or may incur in connection with such termination
of this Lease, and Lessor hereby agrees to defend, indemnify and hold harmless
Lessee from and against any and all manner of claims, actions, liabilities,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements) relating to or resulting from Lessor's breach of the
foregoing covenant with respect to COBRA matters, including, without limitation,
any liability, costs and expenses arising out of any asserted or actual
violation of the requirements of the COBRA any legislation. Upon Lessor's
written
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request to Lessee, Lessee shall take all action that is reasonable to notify,
advise and cooperate with Lessor in order to assist Lessor in complying with the
WARN Act or COBRA legislation and to mitigate Lessor's expense or liability with
respect to the WARN Act and COBRA legislation.
(f) If Lessor determines to sell the Facility, Lessee shall
first offer to negotiate Lessee's purchase of the Facility by providing written
notice (the "Offer Notice") of its intention to sell the Facility. If Lessee
responds in writing within ten (10) days of receipt of the Offer Notice that it
wishes to pursue negotiations for the purchase of the Facility, Lessee and
Lessor shall, in the forty (40) day period after Lessee's receipt of the Offer
Notice (the "Negotiation Period"), negotiate the price and other terms of a sale
of the Facility to Lessee and enter into definitive documentation with respect
thereto. Such documentation shall provide for a closing no later than three (3)
months after Lessee's receipt of the Offer Notice and shall contain such other
terms and conditions as are acceptable to both the Lessee and the Lessor. If
Lessee does not respond to the Offer Notice within ten (10) days, or if Lessee
and Lessor have not entered into definitive documentation with respect to a sale
within the Negotiation Period, Lessor shall be free to offer the Facility for
sale to any other party and, subject to Section (a), (b) and (d) above, close
any such sale. Notwithstanding the foregoing, Lessor shall not be obligated to
comply with this Subsection (e) if (i) the sale contemplated by the Lessor
includes ten (10) or more of the hotels leased by Lessee or its Affiliates
pursuant to this Lease or Other Leases with Lessor or its Affiliates or (ii) an
Event of Default shall have occurred and, if curable hereunder, shall not have
been cured.
ARTICLE
37
37.1. Compliance with Franchise Agreement.
To the extent any of the provisions of the Franchise Agreement
impose a greater obligation on Lessee than the corresponding provisions of the
Lease, then Lessee shall be obligated to comply with, and to take all reasonable
actions necessary to prevent breaches or defaults under, the provisions of the
Franchise Agreement, except to the extent that Lessee is prevented from
complying with the Franchise Agreement because of Lessor's breach of its
obligations to comply with Article 38. It is the intent of the parties hereto
that Lessee shall comply in every respect with the provisions of the Franchise
Agreement so as to avoid any default thereunder during the Term. Lessee shall
not terminate or enter into any modification of the Franchise Agreement without
in each instance first obtaining Lessor's
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written consent. Lessor and Lessee agree to cooperate fully with each other in
the event it becomes necessary to obtain a franchise extension or modification
or a new franchise for the Leased Property, and in any transfer of the Franchise
Agreement to Lessor or any designee thereof or any other successor to Lessee
upon the termination of this Lease.
ARTICLE
38
38.1. Capital Expenditures.
(a) Lessor shall be obligated to make available to Lessee an
amount equal to 4% of Room Revenues from the Facility during each Lease Year
("Capital Expenditures Allowance"). Upon written request by Lessee to Lessor
stating the specific use to be made and subject to the approval thereof by
Lessor, which approval shall not be unreasonably withheld, such funds shall be
made available by Lessor for Capital Expenditures set forth in the Capital
Budget; provided, however, that no Capital Expenditures shall be made to
purchase property (other than "real property" within the meaning of Treasury
Regulations Section 1.856-3(d)), to the extent that doing so would cause the
Lessor to recognize income other than "rents from real property" as defined in
Section 856(d) of the Code. Lessor's obligation shall be cumulative, but not
compounded, and any amounts that have accrued hereunder shall be payable in
future periods for such uses and in accordance with the procedure set forth
herein. Lessee shall have no interest in any accrued obligation of Lessor
hereunder after the termination of this Lease. All Capital Improvements shall be
owned by Lessor subject to the provisions of this Lease.
(b) Lessor's obligation with respect to Capital Expenditures
shall be limited to amounts available in the Capital Expenditures Reserve. No
arbitration resulting from the failure of Lessor and Lessee to agree on the
Capital Budget shall increase Lessor's obligation for Capital Expenditures
beyond the amount set forth in the immediately preceding sentence.
(c) Unless the Lessor and Lessee otherwise agree in writing,
Lessee shall complete the Capital Improvements set forth on Schedule 9.1(b) by
the dates and in the manner described on Schedule 9.1(b).
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ARTICLE
39
39.1. Lessor's Default.
It shall be a breach of this Lease if Lessor fails to observe
or perform any term, covenant or condition of this Lease on its part to be
performed and such failure continues for a period of 30 days after Notice
thereof from Lessee, unless such failure cannot with due diligence be cured
within a period of 30 days, in which case such failure shall not be deemed a
breach if Lessor proceeds within such 30-day period, with due diligence, to cure
the failure and thereafter diligently completes the curing thereof. The time
within which Lessor shall be obligated to cure any such failure also shall be
subject to extension of time due to the occurrence of any Unavoidable Delay. If
Lessor does not cure any such failure within the applicable time period as
aforesaid, Lessee may declare the existence of a "Lessor Default" by a second
Notice to Lessor. Thereafter, Lessee may forthwith cure the same in accordance
with the provisions of Article 32, subject to the provisions of the following
paragraph. Lessee shall have no right to terminate this Lease for any Lessor
Default and no right, for any such Lessor Default, to offset or counterclaim
against any Rent or other charges due hereunder.
If Lessor shall in good faith dispute the occurrence of any
Lessor Default and Lessor, before the expiration of the applicable cure period,
shall give Notice thereof to Lessee, setting forth, in reasonable detail, the
basis therefor, no Lessor Default shall be deemed to have occurred and Lessor
shall have no obligation with respect thereto until final adverse determination
thereof, whether through arbitration or otherwise; provided, however, that in
the event of any such adverse determination, Lessor shall pay to Lessee interest
on any disputed funds at the Base Rate, from the date demand for such funds was
made by Lessee until the date of final adverse determination and, thereafter, at
the Overdue Rate until paid. If Lessee and Lessor shall fail, in good faith, to
resolve any such dispute within ten (10) days after Lessor's Notice of dispute,
either may submit the matter for determination by arbitration, but only if such
matter is required to be submitted to arbitration pursuant to any provision of
this Lease, or otherwise by a court of competent jurisdiction.
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ARTICLE
40
40.1. Arbitration.
Except as set forth in Section 40.2, in each case specified in
this Lease in which it shall become necessary to resort to arbitration, such
arbitration shall be determined as provided in this Section 40.1. The party
desiring such arbitration shall give Notice to that effect to the other party,
and an arbitrator shall be selected by mutual agreement of the parties, or if
they cannot agree within 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.
40.2. Alternative Arbitration.
In each case specified in this Lease for a matter to be
submitted to arbitration pursuant to the provisions of this Section 40.2, Lessor
shall be entitled to designate any nationally recognized accounting firm with a
hospitality division of which Lessor or an Affiliate of Lessor is not a
significant client to serve as arbitrator of such dispute within fifteen (15)
days after written demand for arbitration is received or sent by Lessor. 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 a 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 Lessor fails to timely make such designation. In the event no
nationally recognized accounting firm satisfying such qualifications is
available and willing to serve as arbitrator, the arbitration shall instead be
administered as set forth in Section 40.1.
40.3. Arbitration Procedures.
In any arbitration commenced pursuant to Sections 40.1 or
40.2, a single arbitrator shall be designated and shall resolve the dispute. The
arbitrator's decision shall be binding on all parties and shall not be subject
to further review or appeal except as otherwise allowed by applicable law. Upon
the failure of either party (the "non-complying party") to comply with his
decision, the arbitrator shall be empowered, at the request of the other party,
to order such compliance by the non-complying party and to supervise or arrange
for the supervision of the non-complying party's obligation to comply with the
arbitrator's decision, all at the expense of the non-complying
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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 the filing of such
dispute. The fees and expenses of the arbitrator shall be shared equally by
Lessor and Lessee except as otherwise specified above in this Section 40.3.
Unless otherwise agreed in writing by the parties or required by the arbitrator
or AAA, if applicable, arbitration proceedings hereunder shall be conducted in
the State. Notwithstanding formal rules of evidence, each party may submit such
evidence as each party deems appropriate to support its position and the
arbitrator shall have access to and right to examine all books and records of
Lessee and Lessor regarding the Facility during the arbitration.
[Signature Page follows]
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IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized representatives as of the date first above written.
LESSOR:
-------
INNKEEPERS SUMMERFIELD GENERAL, L.P., a
Virginia limited partnership
By: Innkeepers Financial Corporation IV,
a Virginia corporation, its General
Partner
By:
-------------------------------------
Jeffrey H. Fisher
President
LESSEE:
-------
SUMMERFIELD SUITES LEASE COMPANY, L.P.,
a Kansas limited partnership
By: Summerfield Suites Lease
Corporation, a Kansas corporation,
its General Partner
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
86
<PAGE> 1
EXHIBIT 10.3.
AGREEMENT ON MANAGEMENT AND FRANCHISE-RELATED MATTERS
AGREEMENT dated June 20, 1997 among Summerfield Suites Management
Company, L.P., a Kansas limited partnership ("Franchisor'), Summerfield Suites
Lease Company, L.P., a Kansas limited partnership ("Franchisee"), and
Innkeepers USA Limited Partnership, a Virginia limited partnership
(collectively, the "Partnership").
W I T N E S S E T H
WHEREAS, the partnership is controlled by Innkeepers USA Trust, a
Maryland real estate investment trust (the "REIT"); and
WHEREAS, the Partnership or its designee proposes to acquire pursuant
to Contribution Agreements dated June 2, 1997 (each, a "Contribution Agreement"
and collectively, the "Contribution Agreements") the Summerfield Suites, Sierra
Suites and Sunrise Suites hotel properties described in Exhibit A hereto from
partnerships affiliated with Franchisor and Franchisee (the "Contributing
Partnerships"); and
WHEREAS, the Partnership or its affiliates may in the future acquire
and lease to Franchisee or affiliates of Franchisee additional Summerfield
Suites and Sierra Suites hotels (collectively with the hotels acquired from the
Contributing Partnerships, the "Hotels"); and
WHEREAS, Franchisor holds all rights necessary to franchise the use of
the name and concept for "Summerfield Suites" and "Sierra Suites" hotel
franchise brands; and
WHEREAS, Franchisor has entered into franchise agreements with
Franchisee dated June 20, 1997, in the form attached hereto as Exhibit B and
may enter into franchise agreements with respect to Hotels acquired by the
Partnership or its affiliates in the future (each, a "Franchise Agreement" and
collectively, the "Franchise Agreements"); and
WHEREAS, upon the Partnership's (or its designee's) acquisition of the
Hotels, the Partnership (or its designee) ("Lessor") proposes to lease the
Hotels to Franchisee (or an affiliate of Franchisee ("Lessee") pursuant to
lease agreements (collectively, the "Leases") which give Franchisee or an
affiliate of Franchisee the right to lease and operate the Hotels; and
WHEREAS, Franchisee will enter into management contracts with
Franchisor; and
WHEREAS, it is a condition to the Partnership's (or its designee's)
agreement to acquire the Hotels from the Contributing Partnerships and lease
the Hotels to Franchisee pursuant to the
<PAGE> 2
Leases and a Lease Master Agreement (the "Lease Master Agreement") that the
parties shall have entered into this Agreement; and
WHEREAS, Franchisor and Franchisee will obtain material benefits from
the Partnership's acquisition of the Hotels from affiliates of Franchisor and
Franchisee pursuant to the Contribution Agreements and lease of the Hotels to
Franchisee pursuant to the Leases; and
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Franchise Agreement. Franchisor and Franchisee represent and
warrant to the Partnership that (i) Exhibit B is a true, correct and complete
form of each of the Franchise Agreements, (ii) Franchisee has all rights and
duties as franchisee/licensee under each Franchise Agreement and is not in
default under any Franchise Agreement and there is no event or state of facts
that with the passage of time or notice of default would constitute a default
under the Franchise Agreement or a violation of Franchisor's standards manual,
and (iii) there are no agreements or undertakings, oral or otherwise, between
Franchisor and Franchisee with regard to the franchises created by the
Franchise Agreement. During the term of the Leases, Franchisor and Franchisee
will not amend, modify or terminate any Franchise Agreement related to a Hotel
subject to a Lease (except in the event of a default by Franchisee under a
Franchise Agreement) without the prior written consent of the Partnership. To
the extent that any provision of the Lease is inconsistent with any terms or
provisions of this Agreement, the terms and provisions of this Agreement shall
control.
2. Boards. For so long as the Partnership and its affiliates
collectively own at least 10% of the hotels open and operating within the
Summerfield Suites and Sierra Suites franchise brands (in each case, a
"Controlled Brand") and during the term of the Leases (and for so long as the
Franchise Agreements remain in full force and effect), a designee of the
Partnership shall be a member of Franchisor's marketing association board and
franchisee association board for such Controlled Brands.
3. Comfort Letters. Upon the request of the Partnership from
time to time, Franchisor and Franchisee promptly will provide customary
assurances and comfort letters to the Partnership's or the REIT's lenders,
underwriters or similar parties and their counsel with respect to the Franchise
Agreements being in full force and effect, there being no default under the
Franchise Agreements, the existence and binding effect of this Agreement, and
such other matters as the Partnership may reasonably request.
4. Changes to Franchise. For so long as the Partnership owns at
least 75% of the hotels open and operating within a Controlled Brand,
Franchisor shall not make any material changes to the form, terms or provisions
of the franchise agreement for such Controlled Brand or materially change the
Controlled Brand concept or standards without the prior written consent of the
Partnership. Without limiting the generality of the foregoing, the Partnership
shall have the right to approve any change to the prominent trade name of
"Summerfield Suites" or "Sierra
-2-
<PAGE> 3
Suites" (other than the addition of a "tag line"). Any change to the prominent
trade name shall be without cost to the Partnership and Franchisor agrees to
pay or to reimburse the Partnership, upon request, for any third-party costs or
expenses in connection with any such change, including, without limitation,
costs associated with any signage or logo changes and other capital
improvements not currently contemplated by the Franchise Agreements.
5. Capital Improvements. Unless the Partnership and the
Franchisee otherwise agree in writing, Franchisor and Franchisee agree with the
Partnership that the capital improvements schedule set forth on Exhibit C
hereto (the "5/10/15 Year Re-Do Schedule") shall be imposed on Franchisee as a
part of Franchisee's obligations pursuant to the Franchise Agreements for the
Hotels and Franchisee agrees with Franchisor and the Partnership to cause the
items set forth on the 5/10/15 Year Re-Do Schedule to be performed at the
Hotels by the dates and in the manner described in the 5/10/15 Year Re-Do
Schedule.
6. Relationship with Franchise. Franchisor hereby agrees with
the Partnership that Franchisor will enforce the terms of the Franchise
Agreements against Franchisee in good faith and on an arms'-length basis.
7. Transfer. Franchisor represents that on the Closing Date, the
owners of Franchisor are as described in Exhibit D ("Owners"). For so long as
the Partnership owns at least 75% of the open and operating hotels of a
Controlled Brand, Franchisor shall not permit any merger, sale of its stock or
sale, transfer or conveyance of all or substantially all of the assets of
Franchisor, or the sale, transfer of conveyance of the Franchise Agreements (a
"Transfer"), if, as a result thereof, Franchisor or the surviving entity would
cease to be controlled by the Owners without (i) at least 30 days' prior
written notice to the Partnership describing in reasonable detail the proposed
transaction and (ii) the Partnership's prior written consent. Notwithstanding
the foregoing, the Partnership shall consent to the Transfer if (i) the party
proposed to acquire control of Franchisor or its assets (the "Transferee")
assumes, pursuant to an assumption document reasonably satisfactory to the
Partnership, all of the obligations and covenants of Franchisor pursuant to
this Agreement, (ii) the Transferee (A) is an established national hotel
franchise or management company which has a good reputation in the industry as
reasonably determined by the Partnership; (B) is operating and/or franchising
prior to such acquisition at least fifty (50) fully operating hotels in the
United States containing an aggregate of not less than seven thousand five
hundred (7,500) keys and (C) has a Net Worth, as determined by generally
accepted accounting principles consistently applied, of not less than
$25,000,000 and (iii) the Transfer includes the transfer of not less than all
of the Franchise Agreements of such Controlled Brand to the Transferee. In no
event may Franchisor transfer or assign less than all of the Franchise
Agreements of such Controlled Brand without the Partnership's prior written
consent.
8. Termination of Leases. In the event (i) the Partnership
terminates one or more of the Leases, or (ii) Franchisee defaults under a
Franchise Agreement and any applicable cure periods have expired without the
default having been cured, Franchisor and Franchisee agree that upon written
notice from the Partnership, the Franchise Agreement will be transferred and
-3-
<PAGE> 4
assigned to the Partnership or an affiliate or designee of the Partnership.
Such transfer and assignment shall be without cost to the Partnership or its
affiliate or designee, including without limitation, any product improvement
plan ("PIP") costs, franchise or other transfer application fee or any other
cost, fee or expense (excluding, however, the Partnership's legal and
accounting costs and overhead), and shall not be conditioned upon the
Partnership or its affiliate or designee taking any action or incurring any
obligation other than execution of the Franchise Agreement or an assignment
thereof or a new franchise agreement with (a) a term equal to the unexpired
term of the franchise agreement and (b) other terms which are identical to the
terms of the Franchise Agreement.
9. Non-Compete. Throughout the term of the Leases, neither
Franchisor nor any Affiliate of Franchisor shall develop, build, own, lease,
operate, manage, franchise or have any interest in (i) any Summerfield Suites
hotel that is located within a five (5) mile radius of any Hotel that is a
Summerfield Suites hotel or (ii) any Sierra Suites hotel that is located within
a five (5) mile radius of any Hotel that is a Sierra Suites hotel, other than
pursuant to a Percentage Lease. Franchisor agrees to notify the Partnership,
from time to time at the request of the Partnership, of the location of any
hotel or motel property Franchisor or any affiliate owns, leases, operates,
manages or has an interest in. The Partnership agrees to notify Franchisor,
from time to time at the request of Franchisor, of the location of any hotel or
motel property in which the Partnership or an affiliate of the Partnership has
an interest.
10. Right of First Offer. During the term of the Franchise
Agreements, the Partnership (or its designee) shall have a right of first offer
(the "Right of First Offer") to acquire from Franchisor or any affiliate of
Franchisor any hotel acquired or developed by Franchisor or any affiliate of
Franchisor within a five (5) mile radius of any Hotel (a "Right of First Offer
Hotel"). Before entering into a binding contract to sell any Right of First
Offer Hotel, Franchisor or its affiliate shall first offer to sell the Right of
First Offer Hotel to the Partnership. The terms of the Right of First Offer
shall be substantially equivalent to the terms set forth in Section 36.1(f) of
the Leases, as modified appropriately to reflect that the Franchisor or an
affiliate is the offeror and the Partnership or its designee is the offeree.
11. Subordination. Franchisor and Franchisee hereby agree with
the Partnership that the payment of all franchise fees and costs by Franchisee
to Franchisor, pursuant to Franchise Agreements or otherwise, shall be
subordinated to all Rent (as defined in the Leases) payments due and owing to
the Partnership from Franchisee pursuant to the Leases for so long as
Franchisor and Franchisee are affiliates.
12. Sale. It shall be a condition of the sale of all or
substantially all of Franchisor's assets, or Franchisor's rights with respect
to the "Summerfield Suites" and "Sierra Suites" brands, that any proposed
transferee or assignee of such assets or rights execute and deliver to the
Partnership an assumption agreement and acknowledgement that the terms of this
Agreement remain in full force and effect.
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<PAGE> 5
13. Successor or Assigns. This Agreement shall inure to the
benefit of the Partnership and other affiliates of the REIT and shall be
binding upon Franchisor and Franchisee and their respective successors and
assigns.
14. Rights to Cure Franchisee Default. Prior to terminating any
Franchise Agreement following a default by Franchisee thereunder, Franchisor
shall (a) give notice of the default to Partnership, (b) permit Partnership to
cure such default within (i) ten (10) days after such notice is received, if
the default is a monetary default, (ii) thirty (30) days after such notice is
received, if the default is a non-monetary default, or (iii) if such default is
not capable of cure within thirty (30) days after such notice is received,
within such time as is reasonably required to cure such default if such cure is
commenced promptly and pursued diligently until completion and, (c) upon
Partnership's termination of the Lease relating to the Hotel subject to such
Franchise Agreement and notice to Franchisor, comply with Section 8 above.
15. Amendment. This Agreement may not be amended or modified in
any respect except by the written agreement of the parties hereto.
16. Notices. (a) Franchisor agrees to send the Partnership a copy
of any notice or statement of any breach, default or non-compliance or alleged
breach, default or non-compliance under any Franchise Agreement.
(b) All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission or sent prepaid by international courier at the
addresses as designated below. Any notice, request, demand or other
communication delivered or sent in the manner aforesaid shall be deemed given
or made (as the case may be) when delivered by hand or confirmed by facsimile
transmission or, in the case of delivery by courier, when actually delivered to
the address of the intended recipient.
If to the Partnership: INNKEEPERS USA LIMITED
PARTNERSHIP
306 Royal Poinciana Way
Palm Beach, Florida 33480
Fax: (561) 835-0457
Attn: Mark A. Murphy
If to Franchisor or Franchise: SUMMERFIELD SUITES LEASE
COMPANY, L.P.
or
SUMMERFIELD SUITES MANAGEMENT
COMPANY, L.P.
8100 East 22nd Street, Building 500
Wichita, Kansas 67226
Fax: (316) 681-0905
Attn: General Partner
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<PAGE> 6
17. Affiliate. Any currently existing or future affiliate of the
Partnership ("Affiliate") that is or may be a lessor under a Lease shall become
a party to this Agreement, entitled to the same rights, benefits and remedies
hereunder to which the Partnership is entitled hereunder by execution of an
addendum to this Agreement in the form of Exhibit E hereto. Upon the request
of the Partnership, Franchisor and Franchisee, and any affiliate of Franchisee
which may be a lessee under a Lease, agree to execute any documents,
instruments or amendments hereto reasonably requested by the Partnership to
further evidence any such Affiliate's rights, benefits and remedies hereunder;
provided, however, that at such time as the Affiliate or the Hotel properties
of which it is the owner cease to be owned, directly or indirectly, 100% by the
Partnership, then this Agreement shall be amended and modified solely as to
such property or such Affiliate, as the case may be, by the following
provisions:
(a) The rights, benefits, and remedies of this Agreement
may be extended to a transferee of a Hotel (a
"Transferee Hotel") or of an Affiliate in the limited
manner provided herein; the transferee consents to
the terms of and any agreements or documents
(including the Franchise Agreement and Lease Master
Agreement) to which the transferor and the Franchisor
were parties relating to the Hotel; and the
transferee executes an Adoption and Addendum
Agreement (a "Permitted Transferee").
(b) By executing the Adoption and Addendum Agreement, the
Permitted Transferee shall become a party to this
Agreement for the limited purpose of enforcing the
provisions of Sections 3, 5, 6, 8 (as modified by
subsection (c) below), 9 (as modified by subsection
(d) below), 10, 11, 12, 13, 14, 15, 16, 18 (as
modified by subsection (e) below) and 19 solely with
respect to each Transferee Hotel owned or controlled
by the Permitted Transferee and for no other purpose.
All other rights granted the Partnership under this
Agreement are expressly retained by the Partnership
and may not be exercised by the Permitted Transferee.
(c) With respect to the provisions of Section 8, any
Franchisee/designee of a permitted Transferee
thereunder shall be subject to the approval of
Franchisor, which approval shall not be unreasonably
withheld. In connection with any such approval,
Franchisor agrees to subject any such designee to the
same Franchisee qualification criteria and standards,
to which it subjects other Franchisee candidates,
generally.
(d) With respect to the provisions of Section 9, the
5-mile radius for the non-competition provisions
shall be reduced to 3 miles.
(e) Paragraph 18 shall be modified to provide that it
shall not apply to the Permitted Transferee in the
exercise of the rights granted in B above, as to the
Transferee Hotel.
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<PAGE> 7
18. Joint Exercise. This Agreement provides the Partnership and
its Affiliates certain rights, benefits and remedies. These rights, benefits,
and remedies, may be exercised, availed of, or otherwise performed jointly by
the Partnership and any Affiliates who subsequently become a party hereto, and
not singly or separately by any one or more but less than all of them. The
REIT is hereby designated and appointed the representative of the Partnership,
each of its Affiliates, and any permitted transferees, and the Franchisor and
Franchisee shall be permitted to rely upon any written or oral communication or
notification from the Partnership, as being from all of the REIT, its
affiliates, and permitted transferees, acting jointly. Any notice required to
be given hereunder shall be given to the Partnership as representative for all
of the Partnership, its affiliates and permitted transferees.
19. Management Fees. Franchisor shall act as manager of the
Hotels pursuant to a Management Agreement with Franchisee. Franchisor agrees
that upon termination of the Lease or termination of Lessee's right to
possession of the Hotel for any reason whatsoever, the Management Agreement may
be terminated by Lessor without liability for any payment due or to become due
to the manager of the Hotel, and that all fees and other amounts payable by
Lessee to the manager shall be subordinate on a month-to-month basis to rent
and other amounts payable by Lessee to Lessor prior to the existence of an
Event of Default under the Lease Agreement and shall be at all times
subordinate to rent and such other amounts after the occurrence of an Event of
Default under the Lease Agreement. Franchisor, as Manager, consents to such
provisions as if contained in the executed Management Agreement. This Section
19 shall be binding upon the Franchisee and Franchisor, as manager, any of
their respective successors and assigns.
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<PAGE> 8
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year first above written.
INNKEEPERS USA LIMITED PARTNERSHIP
By: INNKEEPERS FINANCIAL
CORPORATION, its general partner
By: /s/ Mark Murphy
------------------------------------
Name: Mark A. Murphy
-----------------------------
Title: Vice President
----------------------------
FRANCHISOR:
SUMMERFIELD SUITES MANAGEMENT
COMPANY, L.P.
By: Summerfield Suites Management
Corporation, a Delaware corporation,
its general partner
By: /s/ John Morse
------------------------------
Name: John R. Morse
-----------------------------
Title: Senior Vice President & General Counsel
----------------------------------------
FRANCHISEE:
SUMMERFIELD SUITES LEASE
COMPANY, L.P.
By: Summerfield Suites Lease Corporation,
a Kansas corporation, its general
partner
By: /s/ John Morse
-------------------------------
Name: John R. Morse
-----------------------------
Title:Senior Vice President and General Counsel
-----------------------------------------
[Agreement on Management and Franchise-Related Matters]
<PAGE> 1
EXHIBIT 10.4.
LEASE MASTER AGREEMENT
THIS LEASE MASTER AGREEMENT (the "AGREEMENT") is made as of this 20th day
of June, 1997, by and among Innkeepers Summerfield General, L.P., a Virginia
limited partnership ("General"), Innkeepers Summerfield Mt. Laurel, L.P., a
Virginia limited partnership, and Innkeepers Sunrise Tinton Falls, L.P., a
Virginia limited partnership (collectively, the "Partnerships"), and Summerfield
Suites Lease Company, L.P., a Kansas limited partnership ("Lessee"), recites and
provides as follows:
A. The Partnerships have acquired interests in the hotels identified
on Exhibit A (the "INITIAL HOTELS").
B. Simultaneously with the execution of this Agreement, the
Partnerships have leased the Initial Hotels to the Lessee pursuant to separate
Percentage Leases (defined herein) and, hereafter, the Partnerships or their
Affiliates may from time to time lease additional hotels to the Lessee or its
Affiliates (defined herein). It is a condition to the execution and delivery of
the Percentage Leases for the Initial Hotels and the Additional Hotels that the
parties have entered into this Agreement.
C. The parties hereto desire to enter into this Agreement to set
forth certain agreements relating to the matters set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms have the meanings set forth in this Section or in the Section indicated.
Unless the context otherwise requires, (a) all capitalized terms not otherwise
defined herein shall have the meanings set forth in the Percentage Leases (as
defined in Section 2), (b) references to the singular shall include the plural
and vice versa, (c) references to gender shall include all genders, (d)
references to designated "Sections" or other subdivisions are references to the
designated Sections or other subdivisions of this Agreement, (e) all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
accordance with GAAP (as defined below) and (f) the words "herein," "hereof,"
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Section or other subdivision.
"ADDITIONAL HOTELS" - shall mean the hotels (if any) other than the
Initial Hotels that have been or, as of any pertinent date, are then-currently
leased by the Partnerships or their Affiliates to the Lessee or its Affiliates
pursuant to Percentage Leases.
"AFFILIATE" - shall mean (a) any person that, directly or indirectly,
controls or is controlled by or is under common control with such person, (b)
any other person that owns, beneficially, directly or indirectly, ten percent or
more of the outstanding capital stock, shares or equity interests of such
person, or (c) any officer, director, employee, partner or trustee of such
person
<PAGE> 2
or any person controlling, controlled by or under common control with such
person (excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such person). The term "person" means and includes
individuals, corporations, general and limited partnerships, limited liability
companies, stock companies or associations, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts, or
other legal entities and governments and agencies and political subdivisions
thereof. 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.
"APPROVED FINANCIAL INSTITUTION" - shall mean (a) any U.S. commercial
bank which is FDIC insured and has a consolidated new worth, as of any pertinent
date under the terms of this Agreement of not less than $250,000,000 and is
otherwise reasonably satisfactory to the Partnerships or (b) another substantial
U.S. financial institution that is satisfactory to the Partnerships.
"CASH" - shall mean cash or other immediately available funds.
"CASH EQUIVALENTS" - shall mean (a) any debt instrument with a term of up
to 12 months that is issued by, or backed by the full faith and credit of, the
United States, (b) any certificate of deposit with a term of up to 12 months
that is issued by an issuer that, on the date of issuance and on each date of
any renewal or reissuance thereof, is an Approved Financial Institution, and
which instrument and any applicable assignment thereof is in form and substance
satisfactory to the Partnerships, (c) any irrevocable, "clean" letter of credit
issued by an issuer that, on the date of issuance and on each date of any
renewal of issuance thereof, is an Approved Financial Institution, and which
instrument is in form and substance satisfactory to the Partnerships and (iv) a
repurchase agreement with a term of up to 90 days that is binding upon an
Approved Financial Institution, and which agreement is in form and substance
satisfactory to the Partnerships.
"COMMON SHARES" - means the common shares of beneficial interest, $.01
par value per share, of the REIT.
"CURRENT MARKET VALUE" - shall mean, as of any pertinent date: (a) as to
Cash and Cash Equivalents, the face amount thereof; (b) as to a Unit, the
closing price, as set forth below, of the Common Shares, and as to Common
Shares, the closing price of such shares, as reported in The Wall Street Journal
for the trade date next preceding such pertinent date; and (c) as to Other
Marketable Securities, the closing price of such securities, as reported in The
Wall Street Journal for the trade date next preceding such pertinent date.
Notwithstanding the foregoing, in no event shall the Current Market Value of a
Unit be less than $15.00.
2
<PAGE> 3
"DETERMINATION" - shall mean a written determination of the Net Worth of
the Lessee), such determination to be made by the Lessee when required hereunder
or at any other such times as the Lessee may elect, accompanied by a certificate
of an officer of the Lessee, delivered to the Partnerships and not objected to
by the Partnerships in writing within five business days of its receipt thereof.
The Lessee shall deliver a proposed Determination to the Partnerships (1) on
(and as of) the date on which the Lessee proposes to make any distribution or
payment; (2) within 45 days following the end of each calendar quarter with
respect to the preceding calendar quarter and (3) within ten business days of
any written request to do so from the Partnerships, which request may be made at
any time, but not more frequently than once in any 30-day period and in no event
sooner than 30 days following the most recent Determination by the Lessee.
"FORM PERCENTAGE LEASE" -- shall have the meaning set forth in Section 2.
"FRANCHISOR" means Summerfield Suites Management Company, L.P.
"GAAP" - shall mean, as of any pertinent date, those generally accepted
United States accounting principles and practices which are recognized as such
by the American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which are
consistently applied for all periods so as to fairly present the financial
condition, results of operations and changes in financial position of any
person. The term "consistently applied," as used in connection therewith, means
that the accounting principles applied are consistent in all material respects
to those applied at prior dates or for prior periods.
"HOTELS" - shall mean, as of any pertinent date or for any pertinent
period, those Initial Hotels and those Additional Hotels, if any, which are then
currently leased by the Partnerships or any Affiliate to the Lessee or an
affiliate of the Lessee.
"INITIAL HOTELS" - shall have the meaning set forth in the Recitals.
"LESSEE" - shall have the meaning set forth in the Preamble.
"LESSEE CAPITAL" - shall have the meaning set forth in Section 4(b).
"LESSOR" - shall have the meaning set forth in the Preamble.
"MANAGER" - shall mean Summerfield Suites Management Company, L.P., a
Kansas limited partnership.
"MANAGEMENT AGREEMENTS" - shall mean those agreements between the Lessee
and Manager in connection with the day-to-day operation of the Hotels.
3
<PAGE> 4
"MINIMUM DISTRIBUTION THRESHOLD" - shall mean, (i) for 1997, Net Worth
equal to $2,561,000, (ii) as of any pertinent date after 1997, Net Worth equal
to 17.5% of the aggregate Rent paid under the Percentage Leases during the
preceding calendar year (but not to exceed $5 million), and (iii) as of any
pertinent date on or after the consummation of a Transfer (as defined in Section
9), Net Worth of a Transferee shall not be less than the amount set forth in
Section 9(a)(iii)(D).
"NET WORTH" - shall mean the excess of total assets over total
liabilities, total assets and total liabilities each to be determined in
accordance with GAAP, excluding, however, from the determination of total
assets: (a) goodwill, organizational expenses, research and development
expenses, trademarks, trade names, copyrights, patents, patent applications, and
other items treated as intangibles in accordance with GAAP; (b) all deferred
charges that are not required to be capitalized in accordance with GAAP or
unamortized debt discounts and expense; (c) treasury stock; (d) securities which
are not readily marketable (other than Units); (e) any write-up in the book
value of any asset resulting from a revaluation thereof, other than as
recognized pursuant to the terms of this Agreement; and (f) the Percentage
Leases. All Units and Other Marketable Securities will be valued at their
Current Market Value and the Current Market Value thereof will be adjusted only
on the date of a Determination.
"OBLIGATIONS" - shall have the meaning set forth in Section 4(a).
"OTHER MARKETABLE SECURITIES" - shall mean Cash Equivalents and
securities (including, without limitation, Common Shares) listed on the New York
Stock Exchange or the American Stock Exchange or quoted on the NASDAQ Stock
Market's National Market System.
"PERCENTAGE LEASE" - shall have the meaning set forth in Section 2.
"PARTNER" - shall mean each person who owns an interest in the profits,
losses and distributions from the Lessee.
"PLEDGE AGREEMENT" - shall have the meaning set forth in Section 4(a).
"REIT" - shall mean Innkeepers USA Trust, a Maryland real estate
investment trust.
"UNITS" - shall mean common units of limited partnership interest in the
Partnerships.
"UNIT COLLATERAL" - shall have the meaning set forth in Section 4(a).
2. Leasing of the Hotels. Simultaneously with entering into this
Agreement, the Partnerships and the Lessee have entered into individual leases
each substantially in the form attached hereto as Exhibit B (the "Form
Percentage Lease") for each of the Initial Hotels at the
4
<PAGE> 5
Base Rent and Percentage Rent specified on Exhibit C attached hereto. The
Partnerships (or the Affiliates) and the Lessee shall also utilize the Form
Percentage Lease for any Additional Hotels leased by the Partnerships or their
Affiliates to the Lessee or an Affiliate of the Lessee and in good faith shall
negotiate the Rent payable under any such lease. Leases for the Initial Hotels
and any Additional Hotels are hereinafter referred to individually as a
"Percentage Lease" and collectively as "Percentage Leases." To the extent that
any provision of the Percentage Leases is inconsistent with the terms and
provisions of this Agreement, the terms and provisions of this Agreement shall
control.
3. COLLATERAL.
(a) To secure payment and performance of the Lessee's obligations
hereunder and under the Percentage Leases (the "Obligations"), the Lessee will
secure the Obligations, in part, pursuant to a pledge to the Partnerships of
79,051 Units (the "Unit Collateral"), pursuant to the pledge agreement (the
"Pledge Agreement") in the form attached hereto as Exhibit C.
(b) Notwithstanding the foregoing, if a Transfer (as defined in
Section 9) permitted under Section 9 or otherwise consented to by the
Partnerships occurs, as a condition to such Transfer the Transferee shall pledge
or cause to be pledged Cash, Cash Equivalents, Units or Other Marketable
Securities to secure the payment and performance of the Obligations by the
Transferee, which pledge shall be a condition to any such Transfer and shall be
pursuant to an agreement substantially similar to the Pledge Agreement except
that Units pledged by the Transferee shall not be deemed to have a minimum
value. To the extent items other than Units are pledged, the Pledge Agreement
shall be modified accordingly in a manner which provides the Partnerships with a
substantially equivalent measure of security and collateral with respect to such
items other than Units as the Pledge Agreement provides with respect to Units.
The Current Market Value of Cash, Cash Equivalents, Units, or Other Marketable
Securities at the time of such pledge shall be an amount equal to forty percent
(40%) of the aggregate Rent budgeted to be paid under all Percentage Leases then
in effect in the twelve month period following the Transfer, as reflected in
budgets prepared and delivered under such Percentage Leases. Upon a Transfer,
the Lessee will use its best efforts to cause the ultimate parent of the
Transferee, if any, to execute and deliver to the Partnerships an unconditional
guarantee, in form and substance reasonably satisfactory to the Partnership, of
the Transferee's obligations under the Percentage Leases and this Agreement.
4. MINIMUM NET WORTH REQUIREMENT; LIMITATION ON DISTRIBUTIONS AND
OTHER PAYMENTS.
(a) The Lessee shall maintain its Net Worth in an amount at least
equal to the Minimum Distribution Threshold. The Lessee shall not be obligated
to determine Net Worth other than upon the date of a Determination. If, upon a
Determination of Net Worth, the Net Worth of the Lessee is less than the Minimum
Distribution Threshold, then the Lessee shall
5
<PAGE> 6
cause the Partners to contribute to the Lessee, within 30 days after the date of
such Determination, additional Cash, Common Shares, Units or Other Marketable
Securities with a Current Market Value (as of the date of such contribution) at
least equal to such deficiency in Net Worth of the Lessee.
(b) Subject to the immediately succeeding sentence, no
distributions (other than distributions in the form of equity interests in the
Lessee) shall, for any period, be declared, paid or set apart for payment on any
equity interest in the Lessee (the "Lessee's Capital"), and no Lessee Capital
shall be redeemed, purchased or otherwise acquired by the Lessee for any
consideration (except by conversion into or exchange for other equity interests
in the Lessee), unless (i) after giving effect to such proposed distribution,
the Net Worth of the Lessee equals or exceeds the Minimum Distribution Threshold
and (ii) no uncured Event of Default exists under this Agreement or any
Percentage Lease.
(c) Except for distributions to Partners permitted under clause
(b), the Lessee shall not make, directly or indirectly, any payments (for
services or otherwise) to Affiliates of the Lessee unless after giving effect to
such proposed payment, the Net Worth of the Lessee equals or exceeds the Minimum
Distribution Threshold.
5. DEBT TO NET WORTH RATIO. The Lessee shall at all times during the
term hereof maintain a ratio of total debt to Net Worth of less than or equal to
50%, exclusive of capitalized leases.
6. NON-COMPETE. Throughout the term of the Percentage Lease, neither
Lessee nor any Affiliate of Lessee shall develop, build, own, lease, operate,
manage, franchise or have any interest in (i) any Summerfield Suites hotel that
is located within a five (5) mile radius of any Initial Hotel or Additional
Hotel that is a Summerfield Suites hotel or (ii) a Sierra Suites hotel that is
within a five (5) mile radius of any Initial Hotel or Additional Hotel that is a
Sierra Suites hotel, other than pursuant to a Percentage Lease. Lessee agrees to
notify the Partnerships, from time to time at the request of the Partnerships,
of the location of any hotel or motel property Lessee or any Affiliate owns,
leases, operates, manages or has an interest in. The Partnerships agrees to
notify Lessee, from time to time at the request of Lessee, of the location of
any hotel or motel property in which Partnerships or an Affiliate of
Partnerships has an interest.
7. DEFAULT. A default by the Lessee shall exist under this Agreement
if the Lessee shall fail to observe or perform any of its obligations under this
Agreement and such failure shall continue for a period of 20 days after notice
from the Partnerships to the Lessee.
8. FINANCINGS. Lessee agrees that if requested by the Partnerships:
(a) it will cooperate, and will cause any New Lessees (defined
below) to cooperate, in good faith to promptly form one or more new entities
which are wholly-owned by
6
<PAGE> 7
such lessee and/or the general partner and/or the parent of the general
partnership of such lessee (each, a "New Lessee"), to serve as the lessee for
one or more Hotels designated by the Partnerships, and will assign to the New
Lessee, and cause the New Lessee to assume, the Percentage Leases with respect
to such Hotels, except with respect to obligations accrued through the date of
such assignment assumption. Notwithstanding the foregoing, Lessee shall not be
obligated hereunder to form, in addition to a separate lessee for the Tinton
Falls Sunrise Suites hotel, more than two (2) New Lessees for the Initial
Hotels.
(b) Lessee and any New Lessee will (a) include in its and/or its
general partner's organizational documents, or promptly amend its and/or its
general partner's existing organizational documents to include, provisions
sufficient to qualify such entity as a single-purpose, bankruptcy-remote entity
(or a similar entity), as determined by the Partnerships' lender with reference
to rating agency requirements, (b) operate in accordance with such provisions so
as to qualify as such a single purpose, bankruptcy-remote entity and (iii)
reasonably cooperate with the Partnerships, and the Partnerships' lender in
connection with the foregoing, and with the Partnerships' counsel, including
with respect to such counsel's opinion regarding the bankruptcy- remoteness
and/or non-consolidation of the Lessee or New Lessee and/or its general partner
with any other persons or entities and other customary matters. The Partnerships
will pay Lessee's reasonable out-of-pocket costs in organizing the New Lessees.
9. TRANSFERS.
(a) Lessee represents that on the Closing Date, the owners of the
Lessee are as described on Exhibit D (the "Lessee Owners"). Lessee shall not
permit any merger, sale of its stock or sale, transfer or conveyance of all or
substantially all of the assets of the Lessee (a "Transfer") if, as a result
thereof, the Lessee or the surviving entity would cease to be controlled by the
Lessee Owners without (i) at least 30 days' prior written notice to the
Partnerships describing in reasonable detail the proposed transaction and (ii)
the Partnerships' prior written consent. Failure of the Partnerships to respond
within 30 days of receipt of notice of a proposed Transfer shall be deemed
consent to such transfer. Notwithstanding the foregoing, the Partnerships shall
consent to the Transfer if (i) the party proposed to acquire control of the
Lessee or its assets (the "Transferee") obtains the approval of the Franchisors
to serve as franchise licensee for the Hotels and, if applicable, of liquor
licensing authorities for the Hotels, (ii) the Transferee assumes, pursuant to
an assumption document reasonably satisfactory to the Partnerships, all of the
obligations and covenants of the Lessee under the Percentage Leases and this
Agreement including, without limitation, the increased pledge requirement
described in Section 4(d) and the modified rights and obligations described in
Section 3.7(g) of the Percentage Leases, (iii) the Transferee (A) is an
established national hotel management company having a good reputation in the
industry as reasonably determined by the Partnerships; (B) is operating prior to
such acquisition at least fifty (50) fully operating hotels in the United States
containing an aggregate of not less than seven thousand five hundred (7,500)
keys, (C) hires as non-temporary employees in similar positions substantially of
all of the corporate sales and
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<PAGE> 8
marketing personnel, regional managers, general managers and other hotel level
employees of the Lessee and/or Summerfield Suites Management Company, L.P. and
their Affiliates after its acquisition of such assets or interest, and (D) has a
Net Worth of not less than $25,000,000, and (iv) the proposed Transfer includes
the transfer of not less than all of the Percentage Leases to the Transferee and
prior to any transaction otherwise permissible under the preceding sentence, the
Lessee and the Transferee shall acknowledge and agree in writing with the
Partnerships with respect to the restrictions on transfer set forth herein and
shall agree that no further Transfer may be made by such Transferee except
pursuant to the provisions of this Section.
(b) On the Closing Date, the owners of Manager are as described on
Exhibit E hereto (the "Manager Owners"). Anything herein or in the Percentage
Leases to the contrary notwithstanding, so long as any Management Agreement is
in effect, Lessee shall not permit any merger, sale of all of the stock of
Manager or sale, transfer or conveyance of all or substantially all of the
assets of Manager which, as a result thereof, Manager would cease to be
controlled by the Manager Owners, or any assignment or transfer of any
Management agreement (a "Manager Transfer") without the prior written consent of
the Partnerships. Notwithstanding the foregoing, the Partnerships shall consent
to the Manager Transfer if the party proposed to acquire control of Manager or
its assets meets the requirements described in Section 9(a)(i)-(iii) above (as
they would relate to the Manager and the Management Agreements) and the proposed
Manager Transfer includes the transfer of not less than all of the Management
Agreements. Failure of the Partnerships to respond to a request for consent
within 30 days of such request shall be deemed an affirmative consent to the
transfer.
10. SIERRA SUITES.
(a) For so long as there are twenty-five (25) or fewer Sierra
Suites hotels open and operating, if (i) Franchisor sells the Sierra Suites
brand to a third-party and such third-party proposes to change the trade name
"Sierra Suites" or (ii) a "Transfer" or "Manager Transfer" as defined in
Sections 9(a) and 9(b) occurs, the Partnerships may terminate the Percentage
Leases for all (but not less than all) of the Sierra Suites hotels then-owned by
the Partnerships (the "Sierra Suites Hotels") without fee, cost or penalty to
the Partnerships. Such right shall continue to apply when there are more than
twenty-five (25) Sierra Suites hotels open and operating if the Partnerships
have not received cumulative lease payments under the Percentage Leases for the
Sierra Suites Hotels equal to a cumulative annual rate of twelve percent (12%)
of the sum of the aggregate purchase prices paid by the Partnerships for the
Sierra Suites Hotels plus amounts expended with respect to such Sierra Suites
Hotels under Article XXXVIII of such Percentage Leases, until such time as the
Partnerships have received such a 12% cumulative annual return. Franchisor shall
provide the Partnerships with written notice of the intended transfer not less
than 45 days prior to the proposed closing and shall promptly respond to any
inquiry of a Partnership. The Partnerships shall have 30 days to affirmatively
elect to terminate the Percentage Leases, by
8
<PAGE> 9
written notice thereof. Failure to send a notice of termination shall constitute
a waiver of such right.
(b) If the Partnerships elect to terminate the Percentage Leases
for the Sierra Suites Hotels pursuant to Section 10(a), Lessee shall have the
right to purchase all but not less than all the Sierra Suites Hotels from the
Partnerships for a purchase price equal to the greater of (i) an amount
determined for each Sierra Suites Hotel by dividing (A) the budgeted operating
income of the hotel, less an assumed 3% management fee but without deduction for
(1) reserves or (2) payments of rent under the Percentage Lease, as set forth in
the annual operating budget prepared pursuant to the Percentage Lease for the
twelve month period following the date of purchase and sale by (b) .12, or (ii)
the sum of (A) the purchase price paid by the Partnerships for such Sierra
Suites Hotel plus (B) amounts expended under the Capital Budgets under the
Percentage Lease plus (C) an annual return of 12% on the sum of (A) and (B)
above (pro rated for any partial period) which return includes any rent payments
received by the Partnerships pursuant to the Percentage Lease for the Sierra
Suites Hotel.
11. OTHER BUSINESS ACTIVITIES. During the terms of the Percentage
Leases, the Lessee shall not engage in or incur any expenses or liabilities
related to any business or activity, other than leasing hotels owned by the
Partnerships, their Affiliates, or any permitted transferee of the Hotels.
12. LOCK BOX.
(a) The Partnerships shall establish an account with an
administrative agent (the "Lock-Box Account") into which (i) Lessee shall
deposit each month one-twelfth (1/12) of the annual amount budgeted in the
Annual Budget (as defined in the Lease for insurance premiums payable under the
insurance policies required by the Lease payable in any Lease Year and (ii) the
Partnerships shall deposit each month the amounts required to be made available
by the Partnerships pursuant to Article XXXVIII of the Lease.
(b) Amounts required to be deposited into the Lock-Box Account (I)
in the month prior to the month in which any such expenses are payable to pay
such costs (including any lump-sum payments due in respect of insurance
premiums) and (ii) to cover the amounts required to be on deposit for the
ensuing month. The Lessee shall, on or before the 20th day of each month,
deliver to the administrative agent the bills relating to insurance which are to
be paid in the next succeeding month. Lessee shall, promptly after receiving
notice from the administrative agent, deposit an amount equal to the shortfall
if the amounts in the Lock-Box Account (insurance subaccount) are not sufficient
to pay the total of the insurance bills.
(c) The Partnerships and Lessee shall enter into an agreement (the
"Lock-Box Agreement") with an agent to administer the account in a form usual
and customary for such accounts, including normal and customary for such
accounts, including normal and customary
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<PAGE> 10
indemnity and exculpation provisions for the benefit of the administrative
agent. The administrative agent shall have the sole right to make withdrawals
from the Lock-Box Account. The parties shall agree on the investments into which
the administrative agent may direct the funds in the Lock-Box Account, which
shall be normal and customary liquid investments as further defined in the
Lock-Box Agreement. Lessee shall grant to the Lessor a possessory lien upon and
security interest in all of the Lessee's rights in and to the Lock-Box Account,
including earnings from permitted investments, to secure Lessee's obligations
under the Lease. The administrative agent shall disburse the funds on deposit in
the Carrying Cost Sub Account on or before any applicable penalty or termination
date.
(d) The parties agree to modify the provisions of this Section 12
or enter into additional or different customary lock-box arrangement as
reasonably required by any lender to the Partnerships or its Affiliates.
13. LESSEE'S REPRESENTATIONS AND WARRANTIES. The Lessee hereby makes
the following representations, warranties and covenants to the Partnership:
(a) Organization and Power. The Lessee is a limited partnership
duly formed, validly existing and in good standing under the laws of the State
of Kansas and has all requisite power and all governmental licenses,
authorizations, consents and approvals, except where the failure to have such
governmental licenses, authorizations, consents and approvals would not have a
material adverse effect on the business or financial condition of Lessee, to
carry on its business as now conducted and to enter into and perform its
obligations hereunder and under the Percentage Leases.
(b) Authorization and Execution. Each of this Agreement, the
Percentage Leases, the Agreement on Franchise Related Matters of even date
herewith (the "Agreement on Franchise Related Matters") among the Partnerships,
Lessee and Summerfield Suites Management Company, L.P. and the Pledge Agreement
has been duly authorized by all necessary action on the part of the Lessee, has
been duly executed and delivered by the Lessee, constitutes the valid and
binding agreement of the Lessee and is enforceable in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws and equitable principles affecting creditors'
rights generally. There is no other person or entity whose consent is required
in connection with the Lessee's performance of its obligations hereunder or
under the Percentage Leases.
(c) Noncontravention. The execution and delivery of, and the
performance by the Lessee of its obligations under, this Agreement, the
Percentage Leases, the Agreement on Franchise Related Matters and the Pledge
Agreement do not and will not contravene, or constitute a default under, any
provision of applicable law or regulation, the organizational documents of the
Lessee or any agreement, judgment, injunction, order, decree or other
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<PAGE> 11
instrument binding upon the Lessee or result in the creation or any lien or
other encumbrance on any asset of Lessee.
(d) Compliance with Laws. The Lessee possesses all authorizations
necessary to conduct its business as contemplated by this Agreement or the
Percentage Leases, except where the failure to have such authorizations would
not have a material adverse effect on the business or assets of Lessee and each
such authorization is valid and in full force and effect.
(e) Litigation. There is no action, suit or proceeding pending or
known to be threatened against or affecting the Lessee in any court, before any
arbitrator or before or by any governmental agency which (a) in any manner
raises any question affecting the validity or enforceability of this Agreement,
the Percentage Leases, the Agreement on Franchise Related Matters or the Pledge
Agreement or any other material agreement or instrument to which the Lessee is a
party or by which it is bound and that is or is to be used in connection with,
or is contemplated by, this Agreement, (b) could materially and adversely affect
the business, financial position or results of operations of the Lessee, or (c)
could materially and adversely affect the ability of the Lessee to perform its
obligations hereunder or under the Percentage Leases, or under any document to
be delivered pursuant hereto.
(f) Labor Disputes and Agreements. There are no labor disputes
pending or, to Lessee's knowledge, threatened as to the operation or maintenance
of the Hotels or any part thereof. Neither Lessee nor any agent of Lessee is a
party to any union or other collective bargaining agreement with employees
employed in connection with the ownership, operation or maintenance of the
Hotels.
14. MISCELLANEOUS.
(a) Modification, Amendments and Waivers. No modification,
amendment or waiver of any provisions of this Agreement shall be effective
unless the same is in writing signed by all parties to this Agreement.
(b) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and delivered as provided in the Form Percentage
Lease.
(c) Assignment. This Agreement may not be assigned by the Lessee
except pursuant to the terms hereof.
(d) Successors and Assigns. The provisions of this Agreement shall
be binding upon the parties hereto and all of their permitted successors and
assigns and inure to the benefit of the parties hereto and their permitted
successors and assigns.
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<PAGE> 12
(e) Termination. This Agreement shall terminate at such time as
all of the Percentage Leases have terminated ; provided, however, that at such
time as the Affiliate or the Hotel properties of which it is the owner cease to
be owned, directly or indirectly, 100% by Innkeepers USA Limited Partnership,
then this Agreement shall be amended and modified solely as to such property or
such Affiliate, as the case may be, by the following provisions:
1. The rights, benefits, and remedies of this Agreement may be
extended to a transferee of a Hotel, or of an Affiliate in
the limited manner provided herein if the Hotel is leased
or remains leased to Lessee or an Affiliate of Lessee (a
"Transferee Hotel"); the transferee consents to the terms
of the Lease for the Hotel and any related Agreements or
documents (including the Franchise Agreement and Lease
Master Agreement to which the transferor and (a) Franchisee
or (b) Franchisor were parties relating to the Hotel; and
the transferee executes an Adoption and Addendum Agreement
(a "Permitted Transferee").
2. By executing the Adoption and Addendum Agreement, the
Permitted Transferee shall become a party to this Agreement
for the limited purpose of enforcing the provisions of
Sections 4, 5, 6 (as modified by subsection (D) below), 7,
8, 11 and 14(l) (as modified by subsection (E) below)
solely with respect to each Transferee Hotel owned or
controlled by the Permitted Transferee and for no other
purpose. All other rights granted the Partnerships under
this Agreement are expressly retained by the Partnerships
and may not be exercised by the Permitted Transferee.
3. With respect to the provisions of Sections 4 and 5, not
withstanding that a Permitted Transferee is granted the
rights therein, the provisions related to Net Worth,
Limitations on Distributions and Debt to Net Worth Ratio
shall be determined on an aggregate basis for all Lessors
collectively; and Lessee shall not be obligated to
establish separate or segregated assets, liabilities or net
worth for the benefit of any single Lessor or group of
Lessors.
4. With respect to the provisions of Section 6, the 5-mile
radius for the non- competition provisions shall be reduced
to 3 miles.
5. Paragraph 14 (l) shall be modified to provide that it shall
not apply to the Permitted Transferee in the exercise of
the rights granted in B above, as to the Transferee Hotel.
6. The representations contained in Section 13 shall be made
to the Permitted Transferee, as of the date of this
Agreement.
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<PAGE> 13
(f) Governing Law. This Agreement shall be governed by the laws of
the Commonwealth of Virginia, without regard to conflicts of laws.
(g) Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be an original, with the same force and effect
as if the signatures thereto and hereto were upon the same instrument.
(h) Affiliates of the Partnerships. Any currently existing or
future Affiliate of the Partnerships that is or in the future may be a lessor
under a Percentage Lease shall become a party to this Agreement, entitled to the
same rights, benefits and remedies to which the Partnerships are entitled
hereunder by execution of an addendum to this Agreement in the form of Annex A
hereto. Upon the request of the Partnerships, Lessee agrees to execute any
documents, instruments or amendments hereto reasonably requested by the
Partnerships to further evidence any such Affiliate's rights, benefits and
remedies hereunder.
(i) Entire Agreement. This Agreement (including exhibits hereto)
constitutes the entire agreement by and among the parties hereto and thereto and
there are no agreements or commitments by or among the parties except as
expressly set forth herein.
(j) Further Assurances. From time to time, as when requested by a
party hereto, the other parties will execute and deliver, or cause to be
executed and delivered, all such documents and instruments as may be reasonably
necessary to further or better evidence the agreements herein.
(k) Interpretation. No provision of this Agreement will be
interpreted in favor of, or against, any of the parties hereto by reason of the
extent to which any such party or its counsel participated in the drafting
hereof or by reason of the extent to which any such provision is inconsistent
with any prior draft hereof .
(l) Joint Exercise. This Agreement provides the Partnerships
certain rights, benefits and remedies. These rights, benefits, and remedies, may
be exercised, availed of, or otherwise performed jointly by the Partnerships and
any Affiliates who subsequently become a party hereto, and not singly or
separately by any one or more but less than all of them. The REIT is hereby
designated and appointed the representative of the Partnerships, each of their
Affiliates, and any permitted transferees, and the Lessee shall be permitted to
rely upon any written or oral communication or notification from the REIT, as
being from all of the Partnerships, Affiliates, and permitted transferees acting
jointly. Any notice required to be given hereunder shall be given to the REIT as
representative for all of the Partnerships, Affiliates and permitted
transferees.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PARTNERSHIPS:
INNKEEPERS SUMMERFIELD GENERAL,
L.P., a Virginia limited partnership
By: Innkeepers Financial Corporation IV, a
Virginia corporation, its general partner
By: /s/ Mark Murphy
---------------------------------------
Name: Mark A. Murphy
----------------------------------
Title: Vice President
---------------------------------
INNKEEPERS SUMMERFIELD MT.
LAUREL, L.P., a Virginia limited partnership
By: Innkeepers Financial Corporation IV, a
Virginia corporation, its general partner
By: /s/ Mark Murphy
---------------------------------------
Name: Mark A. Murphy
----------------------------------
Title: Vice President
---------------------------------
INNKEEPERS SUNRISE TINTON FALLS,
L.P., a Virginia limited partnership
By: Innkeepers Financial Corporation IV, a
Virginia corporation, its general partner
By: /s/ Mark Murphy
---------------------------------------
Name: Mark A. Murphy
----------------------------------
Title: President
---------------------------------
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LESSEE:
SUMMERFIELD SUITES LEASE COMPANY,
L.P., a Kansas limited partnership
By: Summerfield Suites Lease Corporation, a
Kansas corporation, its general partner
By: /s/ John Morse
----------------------------------------
Name: John R. Morse
-----------------------------------
Title: Senior Vice President &
General Counsel
----------------------------------
15
<PAGE> 1
EXHIBIT 10.5
VOTING AGREEMENT
THIS VOTING AGREEMENT, made this the 20th day of June, 1997, by and
among each of the partnerships noted on Exhibit A hereto (each a "Contributing
Partnership" and collectively, the "Contributing Partnerships") and each of the
persons and entities listed on Exhibit A hereto (each a "Beneficial Holder" and
collectively, the "Beneficial Holders"), Jeffrey H. Fisher ("Fisher"),
Innkeepers USA Trust, a Maryland real estate investment trust (the "REIT"),
Innkeepers USA Limited Partnership, a Virginia limited partnership (the "REIT
Partnership") and Rolf E. Ruhfus, as representative of the Beneficial Holders
(the "Holder Representative"):
WITNESSETH
WHEREAS, pursuant to separate Contribution Agreements dated
(collectively, the "Contribution Agreements") among Innkeepers USA Limited
Partnership (the "REIT Partnership") and each of the Contributing Partnerships,
the REIT Partnership will issue as of the date hereof, or will in the future
issue, to the Contributing Partnerships cash and units of limited partnership
interest ("Units") of the REIT Partnership in exchange for certain hotel
properties, all as described in the Contribution Agreements; and
WHEREAS, the Beneficial Holders are partners of the Contributing
Partnerships and may receive Units distributed by the Contributing Partnerships
to their respective partners; and
WHEREAS, the execution and delivery of this Voting Agreement by the
parties hereto is a condition to the closing of the transactions contemplated by
the respective Contribution Agreements; and
WHEREAS, pursuant to the terms of one or more Redemption and Registration
Rights Agreements between the REIT and the Contributing Partnerships
(collectively, the "Registration Rights Agreement"), the Contributing
Partnerships and/or the Beneficial Holders shall have the right to cause the
REIT Partnership to redeem the Units; and
WHEREAS, pursuant to the Registration Rights Agreement, the REIT has the
right to satisfy the Partnership's redemption obligations with respect to the
Units through the issuance to the redeeming party of common shares of beneficial
interest, $.01 par value, of the REIT ("Common Shares"); and
<PAGE> 2
WHEREAS, the REIT's agreement to issue Common Shares to the Contributing
Partnership and/or Beneficial Holders upon redemption of Units is conditioned
upon the execution and delivery of this Voting Agreement by the parties hereto;
and
WHEREAS, the REIT is the sole shareholder of the sole general partner of
the REIT Partnership; and
WHEREAS, Fisher is the Chairman of the Board, President and Chief
Executive Officer of the REIT; and
WHEREAS, the parties desire to assure the continuity and stability of
policy and management of the REIT and the REIT Partnership, and to this end the
Contributing Partnerships and the Beneficial Holders desire to set forth herein
their agreements with respect to voting on any matters which may be submitted to
a vote of security holders of the REIT or the REIT Partnership during the term
of this Voting Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Term. This Voting Agreement shall terminate upon the earliest to occur
of: (i) the tenth (10th) anniversary of the date of this Voting Agreement, (ii)
the agreement by all of the parties hereto in writing to terminate this Voting
Agreement, or (iii) the date on which Fisher is no longer chief executive
officer of the REIT.
2. Voting.
a. Subject Shares and Subject Units. The Units issued to the
Contributing Partnerships pursuant to the Contribution Agreements, together
with any voting securities of the REIT Partnership issued in exchange for
or on account of such Units, are herein referred to as the "Subject Units."
The total number of Common Shares issuable upon redemption of the Subject
Units, together with any voting securities of the REIT issued in exchange
for or on account of such Common Shares, whether by way of stock split,
stock dividend, distribution or otherwise, are herein referred to as the
"Subject Shares." The number of Subject Shares shall not be reduced during
the term of this Voting Agreement by any subsequent sale or other
disposition by the Contributing Partnerships or any Beneficial Holder of
any Common Shares received upon redemption of Subject Units.
Notwithstanding anything herein to the contrary, this Voting Agreement
shall not apply to any interests in the REIT Partnership or Common Shares
issuable upon redemption thereof acquired or received by a Contributing
Partnership or Beneficial Holder pursuant to Contribution Agreements dated
September 16, 1996 among the REIT Partnership and the DeBoer Affiliated
Partnerships, as defined in
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<PAGE> 3
such agreements (the "DeBoer Units"); provided however, that the terms
of this Voting Agreement shall apply to such number of Common Shares
acquired by a Contributing Partnership or a Beneficial Holder other
than through redemption of the Subject Units or the DeBoer Units
which, when taken together with any Common Shares received upon
redemption of Subject Units, does not exceed the number of Subject
Shares.
b. Voting of Subject Shares and Subject Units. During the term of
this Voting Agreement, each Contributing Partnership and each
Beneficial Holder agrees to vote, or to cause to be voted, in
accordance with the terms of this Voting Agreement, all the Subject
Shares and Subject Units held directly or indirectly by such
Contributing Partnership or Beneficial Holder or its Affiliates with
respect to all matters submitted to a vote of security holders of the
REIT or the REIT Partnership, respectively.
3. Voting Instructions. Not less than 10 business days prior to the date
fixed for voting with respect to any matter submitted to a vote of security
holders of the REIT or the REIT Partnership, Fisher shall deliver to the Holder
Representative at the address set forth in Section 7, written instructions as to
voting with respect to each matter submitted to a vote of such security holders.
Each Contributing Partnership and each Beneficial Holder on behalf of itself and
any Affiliate (as defined in Section 11) hereby agrees to either (i) deliver to
Fisher, prior to the vote on such matter, an irrevocable proxy giving Fisher the
sole right to vote all Subject Shares and/or Subject Units held directly or
indirectly by such Contributing Partnership or Beneficial Holder or its
Affiliates on all matters submitted to the vote of security holders or (ii)
attend the meeting of security holders and complete and sign a ballot in
accordance with Fisher's written voting instructions. Notwithstanding the
foregoing, (a) each Contributing Partnership and Beneficial Holder may vote in
favor of the election of Rolf E. Ruhfus as a trustee of the REIT, if he is
nominated by the Board of Trustees of the REIT pursuant to the terms of the
Contribution Agreements, or if he is not nominated by the Board of Trustees of
the REIT in violation of the terms of the Contribution Agreements, regardless of
Fisher's written instructions, and (b) if Fisher fails to deliver voting
instructions to the Holder Representative at least 10 days prior to any date
fixed for voting, as set forth in the first sentence of this Section 3, each
Contributing Partnership and each Beneficial Owner shall be free to vote the
Subject Shares or Subject Units on such date in their discretion, but only as to
the matters voted upon by security holders on such date. In the event of the
death or incapacity of the Holder Representative, the successor Holder
Representative shall be designated in writing to the REIT by the Contributing
Partnerships or Beneficial Holders then owning a majority of the Subject Units
and Subject Shares. If no substitute Holder Representative is so designated
within five (5) business days following the date of such death or incapacity,
the Contributing Partnership or Beneficial Holder then owning the largest number
of Subject Shares or Subject Units, as then reflected on the books and records
of the REIT Partnership or the transfer agent for the Common Shares, as the case
may be, shall be the successor Holder Representative. The REIT and the REIT
Partnership shall be entitled to rely on any Holder Representative and all
voting
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<PAGE> 4
instructions delivered to any Holder Representative hereunder shall be binding
upon the Contributing Partnerships and Beneficial Holders.
4. Agreement Not to Engage in Certain Activities. Each Contributing
Partnership and each Beneficial Holder agrees that during the term of this
Voting Agreement, without the prior written consent of the REIT, such
Contributing Partnership and Beneficial Holder will not, and will cause such
Contributing Partnership's and Beneficial Holder's Affiliates (as defined in
Section 11) not to:
a. form, join or in any way participate in a "group" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 with
respect to Common Shares or Units, other than pursuant to this Voting
Agreement;
b. "solicit" proxies with respect to Common Shares or Units under
any circumstance; or become a "participant" by taking a position contrary
to that of the Board of Trustees of the REIT or the general partner of the
REIT Partnership in any contest relating to the election of trustees of the
REIT or any other matters submitted to security holders of the REIT or the
REIT Partnership at any meeting or in connection with any written consent
in lieu of a meeting; a Contributing Partnership or Beneficial Holder shall
be deemed to "solicit" or to be such a "participant" if he counsels or
advises or otherwise provides assistance to any person who undertakes or
makes such a "solicitation" or is such a "participant;"
c. deposit any Subject Shares or Subject Units in a voting trust, or
subject any Subject Shares or Subject Units to a voting or similar
agreement, other than this Voting Agreement or any amendment hereto agreed
to by the parties;
d. directly or indirectly offer, sell, transfer, pledge or otherwise
dispose of or encumber any Subject Shares or Subject Units other than:
(1) in accordance with the Registration Rights Agreement, sales
of Subject Shares pursuant to an underwritten distribution to the
public registered under applicable securities laws;
(2) sales of Common Shares to non-Affiliates pursuant to
brokers' transactions as defined in Rule 144 of the General Rules
and Regulations under the Securities Act of 1933 as amended;
(3) in accordance with the Contribution Agreements and the
Second Amended and Restated Agreement of Limited Partnership of the
REIT Partnership (the "REIT Partnership Agreement"), bona fide
pledges of, or the granting of security interests in, Subject Units
or Subject Shares to institutional lenders to secure bona fide loans
or guarantees, provided that the lenders acknowledge in writing
receipt of a copy of this Voting Agreement and agree in writing that
any Subject Units or Subject Shares
4
<PAGE> 5
acquired by such lenders upon foreclosure or otherwise shall remain
subject to the terms of this Voting Agreement;
(4) transfers with a bona fide donative intent to a
non-Affiliate charitable or educational institution, and, in the
case of Subject Units, in accordance with the terms of the REIT
Partnership Agreement;
(5) in accordance with the Partnership Agreement (with respect
to Subject Units), gifts to member of a Beneficial Owner's immediate
family or contributions to trusts for the benefit of members of a
Beneficial Owner's immediate family or to a living trust or grantor
trust where the settlor is trustee, the donee provided that, in each
case, the trustee and any other parties reasonably requested by the
REIT or the REIT Partnership have taken all steps and executed all
documents reasonably requested by the REIT or the REIT Partnership
to evidence that any Subject Shares or Subject Units given or
contributed shall remain subject to the terms of this Voting
Agreement; or
(6) sales of Subject Shares in a block trade or similar
transaction to any person, group or entity approved by the REIT.
e. initiate, commence or propose, or induce or attempt to induce or
give encouragement to any other person to initiate, commence or propose,
any tender or exchange offer for any Subject Shares or any "business
combination" or acquisition of "Control Shares" (as those terms are defined
in Section 3-601 and 3-701, respectively, of the Maryland General
Corporation Law, as in effect on the date of this Agreement, and as
applicable to Maryland real estate investment trusts.
5. Certificate Legend. Each certificate representing any securities subject
to this Voting Agreement may contain a legend in substantially the following
form, provided however, that the failure of any certificate to contain the
following legend shall not in any way affect the rights and obligations of the
parties hereunder:
"The securities represented or reflected by this
certificate are subject to a Voting Agreement dated
__________, 1997, as it may be amended from time to
time, a copy of which is on file at the principal
office of the issuer of this certificate."
6. Binding Effect. The terms of this Voting Agreement shall continue to
apply to any Subject Shares or Subject Units transferred by any Contributing
Partnership to any Beneficial Holder or transferred by any Beneficial Holder to
any Affiliate of any Beneficial Holder or to an officer, director, employee,
partner, member or shareholder of such an Affiliate.
5
<PAGE> 6
7. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission or sent prepaid by international courier at the addresses
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when delivered by hand or confirmed by facsimile transmission or,
in the case of delivery by courier, when actually delivered to the address of
the intended recipient.
If to the Contributing Partnerships, to the respective
addresses set forth opposite their names on Exhibit A.
If to the Beneficial Holders, to the respective addresses set
forth opposite their names on Exhibit A.
If to the Holder Representative, to the address set forth
opposite his name on Exhibit A.
If to the REIT:
INNKEEPERS USA TRUST
306 Royal Poinciana Way
Palm Beach, FL 33480
Attn: Mark A. Murphy
Fax: (561) 835-0457
If to the REIT Partnership:
INNKEEPERS USA LIMITED PARTNERSHIP
306 Royal Poinciana Way
Palm Beach, FL 33480
Attn: Mark A. Murphy
Fax: (561) 835-0457
If to Fisher:
Mr. Jeffrey H. Fisher
c/o Innkeepers USA Trust
306 Royal Poinciana Way
Palm Beach, FL 33480
Fax: (561) 835-0457
or to such other address as the intended recipient may have specified in
a notice to the other parties. Any party hereto may change its address
or designate different or other persons or entities to receive copies by
notifying the other parties in a manner described in this paragraph.
6
<PAGE> 7
8. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Maryland as it relates to the Subject Shares and the laws
of the Commonwealth of Virginia as it relates to the Subject Units.
9. Notification of Ownership. If requested by the REIT or the REIT
Partnership, each Contributing Partnership and Beneficial Holder hereby agrees
to notify the REIT in writing within three (3) business days after the date of
such request of the number of Common Shares and Units held by such Contributing
Partnership or Beneficial Holder or any Affiliate of such Contributing
Partnership or Beneficial Holder as of such date. Each Contributing Partnership
and Beneficial Holder, on behalf of itself and any Affiliate, hereby agrees with
the REIT and the REIT Partnership that it shall be a "non-objecting" beneficial
owner of Common Shares and Units and hereby irrevocably consents to the
disclosure to the REIT and the REIT Partnership by any broker or other
intermediary of the number of Common Shares and Units held by such broker or
intermediary as nominee for such Contributing Partnership or Beneficial Holder
or any Affiliate. Each Contributing Partnership and Beneficial Holder further
agrees upon request of the REIT or the REIT Partnership to execute such
documents from time to time as may be necessary or desirable to further evidence
such Contributing Partnership's or Beneficial Holder's status as a non-objecting
beneficial owner and consent to disclosure to the REIT and the REIT Partnership
of such party's or such party's Affiliates' beneficial ownership of Common
Shares or Units.
10. Specific Performance. The parties hereto agree that irreparable damage
would occur in the event any of the provisions of this Voting Agreement were not
performed in accordance with the terms hereof and that money damages will not be
an adequate remedy for breach of the terms of this Voting Agreement and agrees
that Fisher, the REIT and the REIT Partnership shall be entitled to specific
performance of the terms hereof, in addition to any other remedy any such party
may have at law or equity.
11. Definition of Affiliate. For purposes of this Voting Agreement, the
term "Affiliate" 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, five percent
(5%) or more of the outstanding capital shares, shares or equity interests of
such person, or (c) any officer, director, partner or trustee of such person or
any person controlling, controlled by or under common control with such person
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such person). The term "person" means and includes
individuals, corporations, general and limited partnerships, limited liability
companies, limited liability partnerships, share companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts, or other entities and governments and agencies and
political subdivisions thereof. For the purposes of 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
7
<PAGE> 8
securities, partnership interests or other equity interests or by contract,
other legal relationship or otherwise.
12. Other Agreements. Except as specifically set forth herein, this Voting
Agreement shall not affect the rights and obligations of the parties pursuant to
the Contribution Agreements and the Registration Rights Agreement.
13. Counterparts. This Voting Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Voting Agreement.
14. Further Assurances. Subject to the other provisions of this Voting
Agreement, the parties hereto shall use their good faith efforts to perform
their respective obligations hereunder and to take, or cause to be taken or do,
or cause to be done, all things necessary to satisfy all obligations of the
parties under this Voting Agreement, including the execution and delivery of
such additional documents or instruments as any party may reasonably request to
further evidence the agreement of the parties hereunder.
15. Severability. In the event that any court of competent jurisdiction
shall determine that any provision of this Voting Agreement is invalid, such
determination shall not affect the validity of any other provision of this
Voting Agreement, which shall remain in full force and effect and which shall be
construed as valid under applicable law.
16. Waiver. No waiver by any party of such party's rights or any breach by
any other party of any term herein shall be deemed or construed as a further or
continuing waiver of such rights or of any other breach hereunder.
17. Authority, Binding Effect. Each party hereto represents and warrants to
the other parties hereto that it has the full legal right, power and authority
to execute this Voting Agreement, that this Voting Agreement has been duly
authorized, executed and delivered on behalf of such party and constitutes a
valid and binding agreement of such party enforceable in accordance with its
terms.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Voting Agreement as of
the date set forth above.
/s/ Jeffrey Fisher
----------------------------------
Jeffrey H. Fisher
INNKEEPERS USA TRUST, a
Maryland real estate investment trust
By: /s/ Mark Murphy
-------------------------------
Name: Mark A. Murphy
-----------------------------
Title: Secretary
----------------------------
INNKEEPERS USA LIMITED
PARTNERSHIP
By: INNKEEPERS FINANCIAL
CORPORATION, its general partner
By: /s/ Mark Murphy
-------------------------------
Name: Mark A. Murphy
-----------------------------
Title: Vice President
----------------------------
9
<PAGE> 10
CONTRIBUTING PARTNERSHIPS:
ADDISON SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Investment
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: C.F.O.
----------------------------
ATLANTA CUMBERLAND SIERRA ASSOCIATES,
L.P.
By: Sierra Suites Hotel Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
BELMONT SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Holding
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
EL SEGUNDO SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Holding
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
LAS COLINAS SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Holding
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
10
<PAGE> 11
MOUNT LAUREL SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Realty
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
PHOENIX CAMELBACK SIERRA ASSOCIATES, L.P.
By: Sierra Suites Hotel
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
TINTON FALLS HOTEL ASSOCIATES, L.P.
By: Summerfield Suites Holding
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
WEST HOLLYWOOD SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Holding
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
SUMMERFIELD SUITES LEASE COMPANY, L.P.
By: Summerfield Suites Lease
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
11
<PAGE> 12
BANC ONE CAPITAL PARTNERS III, LTD.
By: BOCP Holdings Corporation, its
Manager
By: /s/ Ronald L. Callenone
-------------------------------
Name: Ronald L. Callenone
-----------------------------
Title: Authorized Signer
----------------------------
BENEFICIAL HOLDERS:
Consolidated Equities Trust
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
Title: Trustee
Aquarina Developments, Inc.
By: /s/ Jurgen Lieberwirth
-------------------------------
Name: Jurgen Lieberwirth
Title: President
/s/ Tina Gunderson
----------------------------------
Tina Gunderson
----------------------------------
Ernst-Wilhelm Contzen
----------------------------------
Paul Cremer
B. Anthony B. Isaac Revocable Trust
By: /s/ Anthony Isaac
-------------------------------
Name: B. Anthony Isaac
-----------------------------
Title: Trustee
----------------------------
12
<PAGE> 13
/s/ Don Marvin
----------------------------------
Don R. Marvin
/s/ John Morse
----------------------------------
John R. Morse
/s/ Robert Mossburg
----------------------------------
Robert Mossburg
Rolf E. Ruhfus Revocable Trust
By: /s/ Rolf Ruhfus
------------------------------
Name: Rolf E. Ruhfus
Title: Trustee
SIERRA SUITES HOTEL CORPORATION
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
/s/ Edmund Socha
----------------------------------
Edmund Socha
SUMMERFIELD SUITES HOLDING CORPORATION
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
13
<PAGE> 14
SUMMERFIELD SUITES REALTY CORPORATION
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
SF HOTEL COMPANY, L.P.
By: Summerfield Hotel Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
SUMMERFIELD SUITES MANAGEMENT
COMPANY, L.P.
By: Summerfield Suites Management
Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
SUMMERFIELD SUITES INVESTMENT
CORPORATION
By: /s/ Roy R. Baker
-------------------------------
Name: Roy R. Baker
-----------------------------
Title: CFO
----------------------------
HOLDER REPRESENTATIVE:
/s/ Rolf Ruhfus
----------------------------------
Rolf E. Ruhfus, as Holder
Representative
/s/ Roy R. Baker
----------------------------------
Roy R. Baker, as successor Holder
Representative
Each of the undersigned beneficiaries of the above signed trusts hereby
agrees that any Subject Shares or Subject Units distributed by the trusts to
the undersigned shall be subject to all of the terms and provisions of this
Voting Agreement.
14
<PAGE> 15
/s/ Rolf E. Ruhfus
------------------------------------
Rolf E. Ruhfus, sole beneficiary
of the Rolf E. Ruhfus Revocable Trust
/s/ B. Anthony Isaac
------------------------------------
B. Anthony Isaac, sole beneficiary
of the B. Anthony Isaac Revocable
Trust
/s/ Roy R. Baker
------------------------------------
Roy R. Baker, sole beneficiary of
Consolidated Equities Trust
15
<PAGE> 1
EXHIBIT 10.6.
REDEMPTION AND REGISTRATION RIGHTS AGREEMENT
This REDEMPTION AND REGISTRATION RIGHTS AGREEMENT ("Agreement") is
entered into as of the 20th day of June, 1997 by and among INNKEEPERS USA
LIMITED PARTNERSHIP, a Virginia limited partnership (the "REIT Partnership"),
INNKEEPERS FINANCIAL CORPORATION, a Virginia corporation and sole general
partner of the REIT Partnership (the "General Partner"), INNKEEPERS USA TRUST, a
Maryland real estate investment trust (the "REIT"), the partnerships listed on
Exhibit A (the "Contributing Partnerships"), the partners of the Contributing
Partnerships listed on Exhibit A hereto (the "Summerfield Limited Partners") and
Rolf E. Ruhfus as representative of the Summerfield Limited Partners for the
limited purposes described herein (the "Summerfield Limited Partner
Representative"). Capitalized terms not otherwise defined when first used herein
shall have the meanings set forth in Article I.
RECITALS
WHEREAS, pursuant to separate Contribution Agreements among the REIT
Partnership and the Contributing Partnerships (the "Contribution Agreements"),
the Contributing Partnerships have contributed to the REIT Partnership certain
hotel properties in exchange for common units of limited partnership interest in
the REIT Partnership (the "Partnership Units") as set forth on Exhibit A hereto,
cash and assumption of certain debt, all as set forth in the Contribution
Agreements; and
WHEREAS, the Contributing Partnerships may in the future distribute
some or all of the Partnership Units received from the REIT Partnership pursuant
to the Contribution Agreements to the Summerfield Limited Partners in the
amounts set forth in Exhibit A; and
WHEREAS, the General Partner, the other limited partners of the REIT
Partnership and the Contributing Partnerships have executed, and upon receipt of
Partnership Units, the Summerfield Limited Partners will execute, the Second
Amended and Restated Agreement of Limited Partnership dated November 1, 1996 of
the REIT Partnership (the "REIT Partnership Agreement"); and
WHEREAS, the parties hereto desire to set forth certain rights of the
Contributing Partnerships and the Summerfield Limited Partners as holders of the
Partnership Units;
NOW, THEREFORE, for and in consideration of the mutual promises and
agreements contained in this Agreement, the parties hereto mutually agree as
follows:
<PAGE> 2
AGREEMENT
ARTICLE I
DEFINITIONS
"AFFILIATE" means (i) any Person that, directly or indirectly, controls
or is controlled by or is under common control with such Person, (ii) any other
Person that beneficially owns, directly or indirectly, 5% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise
Affiliates 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.
"AGREEMENT" means this Redemption and Registration Rights Agreement, as
the same shall be amended, modified, or supplemented from time to time.
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount (a) with respect to a redemption of Partnership
Units pursuant to a Notice of Redemption, on the date of receipt by the General
Partner of a Notice of Redemption and (b) with respect to the REIT's purchase of
Redemption Shares pursuant to Section 4.4(h) or Section 5.3(f), on the date of
the REIT's receipt of notice from the Summerfield Limited Partner Representative
pursuant to Section 4.1 and Section 5.1(a), respectively. The value of the REIT
Shares Amount shall be based on the average of the daily "Market Price" of REIT
Shares for the ten consecutive trading days immediately preceding the date of
such valuation. The market price for each such trading day shall be: (i) if the
REIT Shares are listed or admitted to trading on any securities exchange or the
NASDAQ Stock Market, the last sale price, regular way, on such day, or if no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, on such day, (ii) if the REIT Shares are not listed or
admitted to trading on any securities exchange or the NASDAQ Stock Market, the
last reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or (iii) if the
REIT Shares are not listed or admitted to trading on any securities exchange or
the NASDAQ Stock Market and no such last reported sale price or closing bid and
asked prices are available, the average of the reported high bid and low asked
prices on such day, as reported by a reliable quotation source designated by the
General Partner, or if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most recent
day (not more than 10 days prior to the date in question) for which prices have
been so reported; provided that if there are no bid and asked prices reported
during the ten days prior to the date in question, the value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event the REIT Shares Amount includes rights that
a holder of REIT Shares would be entitled to receive, then the value of such
rights shall be determined by the General Partner acting in good faith on
2
<PAGE> 3
the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision of the Code as of the date hereof and any
succeeding provision of the Code.
"COMMON PARTNERSHIP UNIT" means a fractional, undivided common share of
the ownership interests in the REIT Partnership issued under the REIT
Partnership Agreement.
"CONTRIBUTION AGREEMENTS" has the meaning provided in the preamble.
"CONTRIBUTING PARTNERSHIPS" has the meaning provided in the preamble.
"CONVERSION FACTOR" means one (1), provided that in the event that the
REIT (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on such date. Any adjustment to the Conversion Factor
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
"DECLARATION OF TRUST" means the Amended and Restated Declaration of
Trust of the REIT filed with the Secretary of State of Maryland, as amended or
restated from time to time.
"GENERAL PARTNER" has the meaning provided in the preamble.
"NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit B hereto.
"ONE YEAR LOCK-UP UNITS" means the number of Partnership Units issuable
to Summerfield Limited Partners listed in Exhibit A as "One Year Lock Up Units".
"PARTNERSHIP UNITS" means the Common Partnership Units of the REIT
Partnership issued to the Contributing Partnerships pursuant to the Contribution
Agreements.
"PERSON" means a natural person, a corporation, a partnership, a trust,
a joint venture, any regulatory authority, or any other entity or organization.
"REDEEMING PARTNER" has the meaning provided in Section 2.1(a) hereof.
"REDEMPTION AMOUNT" means either the Cash Amount or the REIT Shares
Amount, as selected by the General Partner in its sole discretion pursuant to
Section 2.1(c) hereof.
3
<PAGE> 4
"REDEMPTION RIGHT" has the meaning provided in Section 2.1(a) hereof.
"REDEMPTION SHARES" means the REIT Shares which are to be issued to a
Summerfield Limited Partner upon exercise of the Redemption Right pursuant to
Section 2.1 hereof.
"REIT" has the meaning provided in the preamble.
"REIT PARTNERSHIP" has the meaning provided in the preamble.
"REIT PARTNERSHIP AGREEMENT" has the meaning provided in the preamble.
"REIT SHARE" means a common share of beneficial interest of the REIT,
par value $0.01 per share.
"REIT SHARES AMOUNT" means a number of REIT Shares equal to the product
of the number of Partnership Units tendered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor; provided that in the event the
REIT issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights"), then the REIT Shares Amount shall also include such rights that a
holder of that number of REIT Shares would be entitled to receive.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHELF REGISTRATION" means the registration of the Redemption Shares by
the REIT effected pursuant to Section 3.1 hereof.
"SHELF REGISTRATION PERIOD" means the period of time the REIT is
required to make and maintain the Shelf Registration as defined in Section 3.1
hereof.
"SPECIFIED REDEMPTION DATE" means the first business day of the
calendar quarter that is at least 10 business days after the receipt by the
General Partner of the Notice of Redemption.
"SUMMERFIELD LIMITED PARTNER REPRESENTATIVE" has the meaning provided
in the preamble.
"SUMMERFIELD LIMITED PARTNERS" has the meaning provided in the
preamble.
"TWO YEAR LOCK-UP UNITS" means the number of Partnership Units
issuable to the Rolf E. Ruhfus Revocable Trust and the B. Anthony Isaac
Revocable Trust listed in Exhibit A as "Two Year Lock Up Units."
4
<PAGE> 5
ARTICLE II
REDEMPTION RIGHT
2.1. Redemption Right.
(a) Subject to Section 2.1(c), (i) on or after the date that
is two (2) years after the date of this Agreement, each Contributing Partnership
and each Summerfield Limited Partner who holds "Two Year Lock-up Units" and (ii)
on or after the date that is one year after the date of this Agreement each
Summerfield Limited Partner who holds "One Year Lock-up Units" shall have the
right (the "Redemption Right") to tender to the REIT Partnership for redemption
on a Specified Redemption Date all or a portion of the Partnership Units held by
such Contributing Partnership or Summerfield Limited Partner at a redemption
price equal to and in the form of the Redemption Amount by submitting to the
REIT Partnership a Notice of Redemption; provided, however, that the number of
Partnership Units tendered for redemption by all Contributing Partnerships and
Summerfield Limited Partners on any Specified Redemption Date shall not exceed
three percent (3%) of the total number of Common Partnership Units and preferred
partnership units of the REIT Partnership outstanding on such Specified
Redemption Date. The Redemption Right shall be exercised pursuant to a Notice of
Redemption delivered to the General Partner by the Contributing Partnership or
Summerfield Limited Partner who is exercising the Redemption Right (the
"Redeeming Partner"); provided, however, that no Contributing Partnership or
Summerfield Limited Partner may deliver to the General Partner more than one (1)
Notice of Redemption during each calendar quarter. If more than one Contributing
Partnership or Summerfield Limited Partner exercises the Redemption Right (each,
a "Redeeming Partner") to the effect that the number of Partnership Units
tendered for redemption on a Specified Redemption Date exceeds the percentage of
Partnership Units specified in the preceding sentence, the number of Partnership
Units that may be tendered for redemption by each Redeeming Partner shall be
reduced proportionally based on the ratio the number of Partnership Units
tendered for redemption by each Redeeming Partner bears to the total number of
Partnership Units tendered for redemption on such Specified Redemption Date. A
Summerfield Limited Partner may not exercise the Redemption Right for less than
one thousand (1,000) Partnership Units or, if such Summerfield Limited Partner
holds less than one thousand (1,000) Partnership Units, all of the Partnership
Units held by such Summerfield Limited Partner. Notwithstanding the foregoing
limitations on the exercise of the Redemption Right, if a Summerfield Limited
Partner, as permitted by the Contribution Agreement or consented to by the
General Partner in accordance with the REIT Partnership Agreement, pledges his
Partnership Units to a third-party lender in accordance with the terms of the
Contribution Agreements and such lender forecloses on such Partnership Units,
such lender shall be entitled to exercise the Redemption Right with respect to
such Partnership Units, as secured party on behalf of the Summerfield Limited
Partner and without becoming a limited partner of the REIT Partnership, subject
to the General Partner's prior receipt of such documentation as the General
Partner shall reasonably request evidencing the pledge and the lender's rights
to exercise the Redemption Right with respect to the Partnership Units. Except
as may be otherwise provided in Section 5.2(a) of the REIT Partnership
Agreement, the Redeeming Partner shall not be entitled, with respect to any
Partnership Units so redeemed, to receive any distribution paid with respect to
Partnership Units pursuant to the REIT Partnership Agreement if the record date
for such distribution is on or after the Specified Redemption Date, unless the
redemption is made for the Cash Amount and the Cash Amount is not paid on the
Specified Redemption Date as permitted by Section 2.1(c). In that
5
<PAGE> 6
event, the Redeeming Partner shall be entitled to such a distribution if the
record date for the distribution is on or before the date that the Cash Amount
is paid.
(b) Notwithstanding the provisions of Section 2.1(a), the
General Partner may, in its sole and absolute discretion, assume directly and
satisfy a Redemption Right by paying to the Redeeming Partner the Redemption
Amount on the Specified Redemption Date, whereupon the General Partner shall
acquire the Partnership Units offered for redemption by the Redeeming Partner
and shall be treated for all purposes of the REIT Partnership Agreement as the
owner of such Partnership Units. In the event the General Partner shall exercise
its right to satisfy the Redemption Right in the manner described in the
preceding sentence, the REIT Partnership shall have no obligation to pay any
amount to the Redeeming Partner with respect to such Redeeming Partner's
exercise of the Redemption Right, and each of the Redeeming Partner, the REIT
Partnership, and the General Partner shall treat the transaction between the
General Partner and the Redeeming Partner as a sale of the Redeeming Partner's
Partnership Units to the General Partner for federal income tax purposes. Each
Redeeming Partner agrees to execute such documents as the REIT may reasonably
require in connection with the issuance of REIT Shares upon exercise of the
Redemption Right.
(c) The REIT Partnership or the General Partner, as the case
may be, shall pay the Cash Amount to a Redeeming Partner as the Redemption
Amount for such partner if (i) the acquisition of REIT Shares by such Redeeming
Partner on the Specified Redemption Date would (A) result in such partner or any
other person owning, directly or indirectly, REIT Shares in excess of the
"Ownership Limit," as defined in the Declaration of Trust and calculated in
accordance therewith, except as provided in the Declaration of Trust, (B) result
in REIT Shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), except as provided in the Declaration of
Trust, (C) result in the REIT being "closely held" within the meaning of Section
856(h) of the Code, (D) cause the REIT to own, actually or constructively, 10%
or more of the ownership interests in a tenant of the REIT's or the REIT
Partnership's real property, within the meaning of Section 856(d)(2)(B) of the
Code, or (E) cause the acquisition of REIT Shares by such Partner to be
"integrated" with any other distribution of REIT Shares for purposes of
complying with the registration provisions of the Securities Act or (ii) the
REIT Partnership or the General Partner, as the case may be, so elects in its
sole discretion. Any Cash Amount to be paid to a Redeeming Partner pursuant to
this Section 2.1 shall be paid within sixty (60) days after the initial date of
receipt by the General Partner of the Notice of Redemption relating to the
Partnership Units to be redeemed, which date may extend beyond the Specified
Redemption Date. Notwithstanding the foregoing, the General Partner and the REIT
Partnership agree to use their best efforts to cause the closing of the
redemption of Partnership Units hereunder to occur as quickly as reasonably
possible.
(d) Each certificate, if any, evidencing REIT Shares that may
be issued upon redemption of Partnership Units shall be issued as of the
Specified Redemption Date and under this Section 2.1 may bear a restrictive
legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities law. No transfer of the shares
represented by this certificate shall be valid or effective
unless (A) such transfer is made pursuant to an
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effective registration statement under the Act or (B) the
holder of the securities proposed to be transferred shall have
delivered to the REIT either a no-action letter from the
Securities and Exchange Commission or an opinion of counsel
(who may be an employee of such holder) experienced in
securities matters to the effect that such proposed transfer
is exempt from the registration requirements of the Act which
opinion shall be reasonably satisfactory to the REIT."
(e) Notwithstanding that the Contributing Partnerships are,
and the Summerfield Limited Partners will become upon receipt of Partnership
Units from the Contributing Partners, limited partners of the REIT Partnership,
each Contributing Partnership and each Summerfield Limited Partner agrees with
the REIT Partnership, the General Partner and the REIT that the provision of
this Article II supersede and supplant the rights of such parties as limited
partners of the REIT Partnership pursuant to the provisions of Sections 8.05
through 8.08 of the REIT Partnership Agreement with respect to redemption of the
Partnership Units.
ARTICLE III
SHELF REGISTRATION
3.1. Shelf Registration. The REIT agrees to file with the SEC a
shelf registration statement pursuant to Rule 415 of the Securities Act, or
similar rule that may be adopted by the SEC (a "Shelf Registration"), at a time
and in a manner reasonably designed to cause the Shelf Registration to be
declared effective by the SEC on or about the first anniversary of the date of
this Agreement, with respect to the issuance by the REIT of at least the number
of Redemption Shares issuable upon redemption of the One Year Lock-up Units. The
REIT agrees to file with the SEC, no later than the second anniversary of the
date of this Agreement, a Shelf Registration with respect to at least the number
of Redemption Shares issuable upon redemption of the Two Year Lock-up Units. If
applicable at the time of filing, the Shelf Registration shall also cover
re-sales of Redemption Shares by a Contributing Partnership or Summerfield
Limited Partner who is an Affiliate of the REIT and who under applicable rules
and regulations of the SEC may be required to deliver a prospectus in connection
with the resale of Redemption Shares. The REIT will use its reasonable best
efforts to cause each Shelf Registration to be declared effective under the
Securities Act as soon as reasonably possible after filing. Prior to the filing
of the Shelf Registration, the Summerfield Limited Partner Representative shall
notify the REIT of the method or methods of disposition that may be utilized by
the holders in disposing of such Redemption Shares (which shall be limited to
customary methods of sale or distribution, including broker's transactions and
block trades) and such information shall be included in the prospectus included
in such Shelf Registration to the extent such methods are permitted by
applicable law. The REIT will use its best efforts to keep each Shelf
Registration continuously effective until the earlier of (a) the date when all
of the Redemption Shares covered thereby are issued or sold thereunder or (b)
the date on which all Contributing Partnerships and Summerfield Limited Partners
then holding Partnership Units agree to the withdrawal of the Registration
Statement (the "Shelf Registration Period"). The REIT further agrees to
supplement or make amendments to the Shelf Registrations, if required by the
rules, regulations, or instructions applicable to the registration form utilized
by the REIT or by the Securities Act or rules and regulations thereunder for the
Shelf
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Registrations. No provision of this Agreement shall require the REIT to
file a registration statement on any form other than Form S-3 or a successor
form thereto.
3.2. Registration and Qualification Procedures. The REIT will:
(a) Use its reasonable best efforts to cause each Shelf
Registration to be declared effective by the SEC as soon after filing as
reasonably possible;
(b) Use its reasonable best efforts to keep each Shelf
Registration effective and the related prospectus current throughout the Shelf
Registration Period;
(c) Furnish to each Contributing Partnership or Summerfield
Limited Partner such numbers of copies of the relevant prospectuses, and
supplements or amendments thereto, and such other documents as such party
reasonably requests;
(d) Register or qualify the securities covered by each
Shelf Registration under applicable state securities or blue sky laws; provided,
however, that the REIT shall not be required to (i) qualify as a foreign
corporation or consent to a general and unlimited service of process in any
jurisdictions in which it would not otherwise be required to be qualified or so
consent or (ii) qualify as a dealer in securities.
3.3. Allocation of Expenses. The REIT Partnership or the REIT shall pay
all expenses in connection with each Shelf Registration, including, without
limitation (a) SEC registration fees, (b) printing expenses, (c) accounting and
legal fees and expenses for the REIT and the REIT Partnership, but not the fees
and expenses of an accountant or attorney engaged by any Contributing
Partnership or Summerfield Limited Partner, (d) expenses of complying with
applicable securities or blue sky laws in connection with the Shelf
Registration; provided, however, neither the REIT Partnership nor the REIT shall
be liable for (i) any underwriting discounts or commissions to any broker
attributable to any sale of Redemption Shares, or (ii) any fees or expenses
incurred by holders of Redemption Shares in connection with such registration
which, according to the written instructions of any regulatory authority, the
REIT Partnership or the REIT is not permitted to pay.
3.4. Indemnification. In connection with the Shelf Registrations, the
REIT, the General Partner, and the REIT Partnership agree to indemnify holders
of Partnership Units and Redemption Shares in accordance with the provisions of
Article VI hereof.
3.5. Listing on Securities Exchange. If the REIT shall list or maintain
the listing of any REIT Shares on any securities exchange or national market
system, it will at its expense and as necessary to permit the registration and
sale of the Redemption Shares registered pursuant to this Article III, list and
maintain the listing of the Redemption Shares registered pursuant to this
Article III thereon.
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ARTICLE IV
REQUESTED REGISTRATION
4.1. Request for Registration. Subject to the provisions of this
Article IV, at any time after the first anniversary of the date of this
Agreement, upon the written request of the Summerfield Limited Partner
Representative, the REIT agrees to file with the SEC a registration statement on
Form S-3 under Rule 415 of the Securities Act, or any similar rule that may be
adopted by the SEC, with respect to not less than __% of the Redemption Shares.
The number of Redemption Shares requested to be registered pursuant to the
registration statement shall be set forth in the written request of the
Summerfield Limited Partner Representative. Prior to the filing of the
registration statement, the Summerfield Limited Partner Representative shall
provide the REIT with information regarding the intended disposition of such
Redemption Shares and other information required to enable the REIT to effect
the appropriate registration. In effecting any registration pursuant to this
Section 4.1, the REIT may include, in addition to any Redemption Shares
requested to be so registered, securities of other shareholders of the REIT as
well as additional securities of the REIT on the appropriate registration form.
4.2. Timing. Notwithstanding anything to the contrary contained in this
Article IV, (i) the REIT shall not be obligated to file or effect a registration
pursuant to this Article IV during the period starting with the date 45 days
prior to the REIT's estimated date of filing of, and ending on a date 90 days
following the effective date of, a registration statement pertaining to an
underwritten public offering of securities for the account of the REIT, provided
that the REIT is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that the REIT's
estimate of the date of filing such registration statement is made in good
faith; and provided however, that if the registration relates to REIT Shares,
the REIT shall have given to the Summerfield Limited Partner Representative the
notice required by Section 5.1 with respect to such registration; and (ii) if
the REIT shall furnish to the Summerfield Limited Partner Representative a
certificate signed by the President of the REIT stating that in the good faith
judgment of the Board of Trustees it would be seriously detrimental to the REIT
or its shareholders for a registration statement to be filed in the near future,
then the REIT's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed six months.
4.3. One Time Registration. The REIT shall be obligated to effect only
one registration pursuant to this Article IV. Any request for registration under
this Article IV must be for a firmly underwritten public offering to be managed
by an underwriter or underwriters of recognized national standing approved by
the REIT, in its sole discretion.
4.4. Registration and Qualification Procedures. If and whenever the
REIT is required to effect the registration as provided in this Article IV, the
REIT will:
(a) as expeditiously as possible prepare and file with the SEC
the appropriate registration statement, as set forth in Section 4.1, including
any amendments or supplements to such registration statement that may be
required by the rules, regulations or instructions applicable to the
registration form utilized by the REIT or by the Securities Act or rules and
regulations thereunder for such registration statement; provided, however; that
no provision of this Agreement shall require the
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REIT to file a registration statement on any form other than Form S-3 and in no
event will the REIT's obligations under this Article IV extend to any Redemption
Shares previously registered under a Shelf Registration pursuant to Article III
hereof that was declared effective by the SEC, and that remains effective;
(b) use its best efforts to cause such registration
statement to be declared effective by the SEC under the Securities Act as soon
as practicable;
(c) furnish to the Summerfield Limited Partners or their
managing underwriter such number of copies of each preliminary prospectus and
final prospectus and amendment or supplement thereto as the Summerfield Limited
Partners may reasonably request in order to effect the sale of the Redemption
Shares to be offered and sold by the Summerfield Limited Partners pursuant to
such registration statement;
(d) use its best efforts to qualify the offering under
applicable blue sky or other securities laws of such jurisdictions as may be
specified by the managing underwriters of the offering; provided, however, that
the REIT shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified or
to file any general consent to service of process;
(e) use its reasonable efforts (including, without
limitation, preparation of necessary post-effective amendments and supplements)
to cause the registration statement to remain current for ninety (90) calendar
days following its effective date or such lesser period as the Summerfield
Limited Partners' managing underwriter may accept;
(f) afford the managing underwriters of the offering and
their counsel the opportunity to make such reasonable examination and inquiry
into the financial condition and business of the REIT and its Affiliates as the
managing underwriters of the offering and their counsel may deem necessary or
prudent in connection with the preparation of the registration statement or any
other materials to be used in connection with the offering.
(g) subject to paragraph (h) below, the General Partner
will elect to satisfy with REIT Shares the Redemption Rights related to
Partnership Units properly tendered for redemption by the Contributing
Partnership and the Summerfield Limited Partners in order to receive Redemption
Shares to include in such offering; provided however, that the REIT has
determined that the issuance of Redemption Shares will not jeopardize the REIT's
status as a real estate investment trust for federal income tax purposes.
(h) not be required to register Redemption Shares pursuant
to Section 4.1 if, within ten (10) calendar days following receipt of the
request for registration, the REIT shall commit itself to purchase within ten
(10) business days for the Cash Amount all of the Redemption Shares requested to
be registered by the Summerfield Limited Partner Representative pursuant to
Section 4.1.
4.5. Expenses of Registration. All underwriting discounts and
commissions and other out-of-pocket fees and expenses of the REIT or the REIT
Partnership attributable to Redemption Shares being sold by the Contributing
Partnerships or Summerfield Limited Partners pursuant to a registration
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statement filed pursuant to this Article IV shall be borne by the Summerfield
Limited Partners, provided, however, that if the REIT or other shareholders of
the REIT shall include any other securities in any registration pursuant to this
Article IV, such fees and expenses shall be apportioned among the Contributing
Partnerships or Summerfield Limited Partners and the other offerors in
accordance with the amount of securities being offered.
4.6. Representation. The Summerfield Limited Representative shall serve
as representative of the Contributing Partnerships and the Summerfield Limited
Partners pursuant to any registration under Section 4.1 and the REIT, the REIT
Partnership and their Affiliates shall be entitled to rely upon the instructions
of the Summerfield Limited Partner Representative with respect to all matters
relating to any registration pursuant to Section 4.1, without independent
investigation or verification.
4.7. Listing on Securities Exchange. If the REIT shall list or maintain
the listing of any REIT Shares on any securities exchange or national market
system, it will at its expense and as necessary to permit the registration and
sale of the Redemption Shares registered pursuant to this Article IV, list and
maintain the listing of the Redemption Shares registered pursuant to this
Article IV thereon.
ARTICLE V
OTHER REGISTRATIONS
5.1. Participation in Other Registrations.
(a) If at any time on or after the date that is (i) one (1) year
after the date of this Agreement, with respect to Redemption Shares issuable
upon redemption of One Year Lock-up Units, and (ii) two (2) years after the date
of this Agreement, with respect to Redemption Shares issuable upon redemption of
Two Year Lock-up Units, the REIT shall propose the registration under the
Securities Act of a public offering of REIT Shares (other than as set forth
below), the REIT shall give written notice of such proposed registration as
promptly as practicable to the Summerfield Limited Partner Representative and
if, within fifteen (15) days after the giving of such notice, the Summerfield
Limited Partner Representative requests the REIT in writing to include in such
registration any Redemption Shares that have not previously registered under a
Shelf Registration declared effective by the SEC, the REIT shall include in the
registration such amount of such Redemption Shares as the Summerfield Limited
Partner Representative shall request; provided, however, that the REIT shall not
be required to give notice or include such Redemption Shares in any such
registration if the proposed registration relates solely to (i) debt or equity
securities to be issued by the REIT, the REIT Partnership or any Affiliate,
pursuant to Rule 415 under the Securities Act or any similar rule that may be
adopted by the SEC, (ii) securities to be offered to employees pursuant to a
stock option, stock savings, or other employee benefit plan, (iii) securities
proposed to be issued in exchange for securities or assets of, or in connection
with a merger or consolidation with, another entity, (iv) securities to be
offered by the REIT generally to any class or series of any then existing
security holders of the REIT, the REIT Partnership, the General Partner or any
Affiliate, (v) securities issuable upon the conversion of securities which are
the subject of an underwritten redemption, or (vi) securities to be offered or
issued pursuant to a combination of transactions referred to in clauses (i)
through (v). The REIT may, at its sole discretion and without the consent of the
Summerfield Limited Partners or the Summerfield
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Limited Partner Representative, withdraw such registration statement and abandon
the proposed offering.
(b) If the proposed public offering includes securities of the
same class as the Redemption Shares and is to be made pursuant to a firm
commitment underwriting, if approved by the proposed managing underwriter, the
Redemption Shares requested to be included by the Summerfield Limited Partners
shall be included in such underwriting, on the same terms and conditions as to
underwriting discounts and commissions.
(c) If the proposed public offering does not include securities
of the same class as the Redemption Shares or if, in the opinion of the proposed
managing underwriter, it is not feasible to effect such public offering in
conjunction with the offering of the Redemption Shares, the REIT may proceed
with the registration of such public offering without including the Redemption
Shares.
(d) The REIT may, at its option, require that the amount of
Redemption Shares offered for sale by the Summerfield Limited Partners be
decreased (proportionately with any other shares being offered by REIT
shareholders) if, in the opinion of the proposed managing underwriter, such
reduction is desirable in order to permit the orderly sale at a reasonable price
of the securities to be included in the proposed registered offering. If the
REIT shall require such a reduction, the Summerfield Limited Partners shall have
the right to withdraw some or all of their Redemption Shares from the proposed
offering.
5.2. Obligations of the REIT. The REIT shall undertake the following
obligations to each Summerfield Limited Partner in connection with the
registration of Redemption Shares pursuant to Section 5.1 hereof:
(a) The REIT shall use its best efforts to qualify the offering
under applicable blue sky or other securities laws of such jurisdictions as may
be specified by the managing underwriter of the offering; provided, however,
that the REIT shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified or
to file any general consent to service of process.
(b) Subject to the provisions of Section 2.1(c) hereof, the
General Partner will elect to satisfy with REIT Shares the Redemption Rights
related to Partnership Units properly tendered for redemption by the Summerfield
Limited Partners in order to receive Redemption Shares to include in such
offering; provided however, that the REIT has determined that the issuance of
Redemption Shares will not jeopardize the REIT's status as a real estate
investment trust for federal income tax purposes.
5.3. Conditions to Obligations of the REIT. The obligations of the
REIT under Section 5.1 are subject to the following conditions:
(a) In no event will the REIT's obligations or duties under this
Article V apply or extend to any Redemption Shares previously registered under a
Shelf Registration pursuant to Article III hereof that was declared by the SEC
to be, and that remains, effective.
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(b) Any request by the Summerfield Limited Partners for
registration shall specify the amount of Redemption Shares intended to be sold,
contain the undertaking of such Summerfield Limited Partners to provide all such
information as may be reasonably required in order to permit the REIT to comply
with all applicable requirements of the SEC and to obtain acceleration of the
effective date of the registration statement, and specify the proposed method of
offering and sale.
(c) The REIT may require, as a condition to fulfilling its
obligations hereunder, the indemnification agreements described in Section 5.6
from the Summerfield Limited Partners.
(d) The REIT shall not be required to register Redemption Shares
pursuant to Section 5.1 if, in the opinion of counsel for the REIT concurred in
by counsel for the Summerfield Limited Partners, registration thereof is not
necessary to permit the sale or disposition of all such Redemption Shares within
a period of not more than three (3) months pursuant to Rule 144 and Rule 145 of
the General Rules and Regulations under the Securities Act or other exemptive
rule or regulation affording a comparable exemption from registration. The
Summerfield Limited Partners shall furnish such counsel with such information as
may reasonably be requested as a basis for determining whether to furnish such
opinion.
(e) The REIT shall not be required under this Article V to
include any holder's Redemption Shares in such offering unless the holder
thereof accepts the terms of the underwriting agreement with respect to such
offering as agreed upon between the REIT and the underwriters, and then only in
such quantity as will not, in the written opinion of the underwriters,
jeopardize the success of the offering by the REIT.
(f) The REIT shall not be required to register Redemption Shares
pursuant to Section 5.1 if, within ten (10) calendar days following receipt of
the request for registration, the REIT shall commit itself to purchase within
ten (10) business days for the Cash Amount all of the Redemption Shares
requested to be registered by the Summerfield Limited Partner Representative
pursuant to Section 5.1.
(g) The Summerfield Limited Partner Representative shall serve
as representative of the Contributing Partnerships and the Summerfield Limited
Partners pursuant to any registration under Section 5.1 and the REIT, the REIT
Partnership and their Affiliates shall be entitled to rely upon the instructions
of the Summerfield Limited Partner Representative with respect to all matters
relating to any registration pursuant to Section 5.1, without independent
investigation or verification.
5.4. Expenses of Registration. All underwriting discounts and
commissions attributable to Redemption Shares being sold by the Summerfield
Limited Partners shall be borne by the Summerfield Limited Partners. As to the
other expenses of registration:
(a) In connection with any registration pursuant to Section 5.1,
the Summerfield Limited Partners shall pay or reimburse the REIT or the REIT
Partnership for the SEC registration fee, printing expenses, and the reasonable
expenses of qualifying the offering under applicable blue sky or other
securities laws; provided, however, that such fees and expenses shall be borne
by the REIT with respect to the first two (2) registrations requested by the
Summerfield Limited Partner Representative pursuant to Section 5.1 and provided,
further that if the REIT shall include any other securities of its
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issue in any registration pursuant to Section 5.1, such fees and expenses shall
be apportioned among the Summerfield Limited Partners and the other offerors in
accordance with the amount of securities being offered.
(b) Any other fees or expenses incurred by one of the parties to
a registration, including, without limitation, fees and expenses of attorneys
and accountants, shall be borne by such party.
ARTICLE VI
INDEMNIFICATION
6.1. Indemnification by the REIT, the General Partner, and the REIT
Partnership. In the case of each registration pursuant to Article III, IV or V
hereof, the REIT, the General Partner, and the REIT Partnership agree to
indemnify and hold harmless the Summerfield Limited Partners, the directors and
officers of any corporate Summerfield Limited Partner, and each Person (if any)
who controls a corporate Summerfield Limited Partner within the meaning of
Section 15 of the Securities Act, against any and all losses, claims, damages,
or liabilities to which they or any of them may become subject under the
Securities Act or any other statute or common law, including any amount paid in
settlement of any litigation, commenced or threatened, if such settlement is
effected with the written consent of the REIT, and to reimburse them for any
legal or other expenses incurred by them in connection with investigating any
claims and defending any actions, insofar as any such losses, claims, damages,
liabilities, or actions arise out of or are based upon (a) any untrue statement
or alleged untrue statement of a material fact contained in a registration
statement filed to register the sale of such Redemption Shares by the
Summerfield Limited Partners or any post-effective amendment thereto or in any
filing made in connection with the qualification of the offering under blue sky
or other securities laws of jurisdictions in which the Redemption Shares are
offered (a "Blue Sky Filing"), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or (b) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, if used prior to the
effective date of such registration statement, or contained in the final
prospectus (as amended or supplemented if the REIT shall have filed with the SEC
any amendment thereof or supplement thereto) if used within the period during
which the REIT is required to keep the registration statement to which such
prospectus relates current, or the omission or alleged omission to state therein
(if so used) a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that the indemnification agreement contained in this Section
6.1 shall not (i) apply to such losses, claims, damages, liabilities, or actions
arising out of, or based upon, any such untrue statement or alleged untrue
statement, or any such omission or alleged omission, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the REIT by the Summerfield Limited Partners or by an underwriter
specifically for use in connection with preparation of the registration
statement, any preliminary prospectus or final prospectus contained in the
registration statement, any such amendment or supplement thereto or any Blue Sky
Filing.
6.2. Indemnification by Summerfield Limited Partners. In the case of
each registration pursuant hereto, the Summerfield Limited Partners agree in the
same manner and to the same extent as
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set forth in Section 6.1 hereof to indemnify and hold harmless the Partnership,
the General Partner, the REIT, each Person (if any) who controls the REIT, the
General Partner and the REIT Partnership within the meaning of Section 15 of the
Securities Act, the directors of the REIT and the General Partner, and those
officers of the REIT who shall have signed any such registration statement, and,
if required by any underwriter, each indemnitor and each Person (if any) who
controls each underwriter within the meaning of Section 15 of the Securities
Act, with respect to any untrue statement or alleged untrue statement in, or
omission or alleged omission from, such registration statement or any
post-effective amendment thereto or any preliminary prospectus or final
prospectus (as amended or supplemented if amended or supplemented as aforesaid)
contained in such registration statement or any Blue Sky Filing, if such
statement or omission was made in reliance upon and in conformity with written
information furnished to the REIT by such indemnifying party specifically for
use in accordance with the preparation of the registration statement, any
preliminary prospectus or final prospectus contained in the registration
statement, any such amendment or supplement thereto, or any Blue Sky Filing.
6.3. Indemnification Procedures..
(a) Each indemnified party shall, with reasonable promptness
after its receipt of written notice of the commencement of any action against
such indemnified party in respect of which indemnity may be sought from an
indemnifying party on account of an indemnity agreement contained herein, notify
the indemnifying party in writing of the commencement thereof.
(b) The omission to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party unless
the failure to give notice materially adversely affects the ability of the
indemnifying party to defend a claim which is the subject of indemnification
hereunder (in which case the indemnifying party shall be relieved of its
obligation only to the extent of offsetting any loss, damage, or liability it
suffers as a consequence of the failure against its monetary obligation to the
indemnified party).
(c) In case any such action shall be brought against any
indemnified party and the indemnified party shall so notify an indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party and, after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party hereunder for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation, except as provided below.
(d) The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party agrees to pay the same, (ii) the indemnifying party fails to
assume the defense of such action with counsel reasonably satisfactory to the
indemnified party, or (iii) the named parties to any such action (including any
impleaded parties) have been advised by such counsel that representation of such
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indemnified party and the indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party). No indemnifying party shall be
liable for any settlement entered into without its consent.
(e) The indemnity agreements contained herein shall be in
addition to any liabilities which the indemnifying party may have pursuant to
law.
6.4. Contribution.
(a) If for any reason the indemnification provisions
contemplated herein are either unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, or liabilities
referred to therein, then the party that otherwise would be required to provide
indemnification or the indemnifying party (in either case, for purposes of this
section, the "Indemnifying Party") in respect of such losses, claims, damages,
or liabilities, shall contribute to the amount paid or payable by the party that
would otherwise be entitled to indemnification or the indemnified party (in
either case, for purposes of this section, the "Indemnified Party") as a result
of such losses, claims, damages, liabilities, or expense, in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact related to information supplied by the Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities, and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party. In no
event shall any holder of Redemption Shares covered by the registration be
required to contribute an amount greater than the dollar amount of the proceeds
received by such holder from the sale of Redemption Shares pursuant to the
registration giving rise to the liability.
(b) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this section were determined by pro rata
allocation (even if the holders or any underwriters or all of them were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. No person or entity determined to have committed a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
ARTICLE VII
GENERAL
7.1. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, or sent prepaid by international courier, to the
Contributing Partnerships and the Summerfield Limited Partners
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c/o Summerfield Hotel Corporation, 8100 East 22nd Street, Building 500, Wichita,
Kansas 67226 or by facsimile at (316) 681-0905. Notices to the REIT, the REIT
Partnership and the General Partner shall be delivered at or mailed to 306 Royal
Poinciana Way, Palm Beach, Florida 33480, fax (561) 835-0457. The REIT, the REIT
Partnership and the General Partner may specify a different address by written
notice to the Summerfield Limited Partner Representative. The Summerfield
Limited Partner Representative may specify a different address by written notice
to the REIT. Any notice, request, demand or other communication delivered or
sent in the manner aforesaid shall be deemed given or made (as the case may be)
when delivered by hand or confirmed by facsimile transmission, or, in the case
of delivery by courier, when actually delivered to the address of the intended
recipient.
7.2. Entire Agreement. This Agreement and exhibits attached hereto
constitute the entire agreement of the parties and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
7.3. Pronouns and Plurals. When the context in which words are used in
this Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
7.4. Headings. The article headings or sections in this Agreement are
for convenience only and shall not be used in construing the scope of this
Agreement or any particular article.
7.5. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
7.6. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
7.7. Confirmation. It shall be a condition to any Person succeeding to
the rights of a Summerfield Limited Partner as permitted herein that such
Person, if requested by the REIT, execute a counterpart to this Agreement and
become a party hereto.
7.8. Summerfield Representative. In the event of the death or
disability of Rolf E. Ruhfus, the successor Summerfield Limited Partner
Representative hereunder shall be designated in writing by the Contributing
Partnerships or Summerfield Limited Partners owning a majority of the
Partnership Units (or Redemption Shares issued in respect thereof) then
outstanding. If no successor Summerfield Limited Partner Representative is so
designated within five (5) business days following the date of such death or
incapacity, the Contributing Partnership or Summerfield Limited Partner then
owning the largest number of Partnership Units (or Redemption Shares issued in
respect thereof) as then reflected on the books and records of the REIT
Partnership or the transfer agent for the REIT shares, as the case may be, shall
be the successor Summerfield Limited Partner Representative. The REIT, the REIT
Partnership, the General Partner and their Affiliates shall be entitled to rely
upon any written instructions or information received from the Summerfield
Limited Partner Representative on behalf of the Contributing Partnerships or the
Summerfield Limited Partners with respect to all matters contemplated by this
Agreement, without independent investigation or verification.
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<PAGE> 18
7.9. Amendment. This Agreement may be amended by written agreement
executed by the REIT, the General Partner, the REIT Partnership and the
Summerfield Limited Partner Representative.
7.10 Authority; Binding Effect. Each party hereto represents and
warrants to the other parties that it has the full legal right, power and
authority to execute this Agreement, that this Agreement has been duly
authorized, executed and delivered on behalf of such party and constitutes a
valid and binding agreement of such party enforceable in accordance with its
terms.
7.11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement.
7.12. Other Units. This Agreement shall apply only to the Partnership
Units issued pursuant to the Contribution Agreements and the Redemption Shares
issuable in respect thereof and shall not apply to any Redemption Shares or
partnership interests in the REIT Partnership which any Contributing Partnership
or Summerfield Limited Partner may now own or acquire in the future.
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<PAGE> 19
IN WITNESS WHEREOF, each party has duly executed this
Agreement as of the day and year first above written.
INNKEEPERS USA TRUST, a
Maryland real estate investment trust
By: /s/ Mark Murphy
---------------------------------
Name: Mark Murphy
--------------------------------
Title: Secretary
-------------------------------
INNKEEPERS USA LIMITED
PARTNERSHIP
By: INNKEEPERS FINANCIAL
CORPORATION, its general
partner
By: /s/ Mark Murphy
---------------------------------
Name: Mark Murphy
--------------------------------
Title: Vice President
-------------------------------
19
<PAGE> 20
CONTRIBUTING PARTNERSHIPS:
ADDISON SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Investment Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
-----------------------------------
ATLANTA CUMBERLAND SIERRA ASSOCIATES,
L.P.
By: Sierra Suites Hotel Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
-----------------------------------
BELMONT SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Holding Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
-----------------------------------
EL SEGUNDO SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Holding Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
-----------------------------------
LAS COLINAS SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Holding Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
-----------------------------------
20
<PAGE> 21
MOUNT LAUREL SUMMERFIELD ASSOCIATES,
L.P.
By: Summerfield Suites Realty Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
----------------------------------
PHOENIX CAMELBACK SIERRA ASSOCIATES,
L.P.
By: Sierra Suites Hotel Corporation, general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
----------------------------------
TINTON FALLS HOTEL ASSOCIATES. L.P.
By: Summerfield Suites Holding Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
----------------------------------
WEST HOLLYWOOD SUMMERFIELD ASSOCIATES, L.P.
By: Summerfield Suites Holding Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
----------------------------------
SUMMERFIELD SUITES LEASE COMPANY, L.P.
By: Summerfield Lease Corporation,
general partner
By: /s/ Roy R. Baker
-------------------------------------
Name: Roy R. Baker
------------------------------------
Title: CFO
----------------------------------
21
<PAGE> 22
BANC ONE CAPITAL PARTNERS III, LTD.
By: BOCP Holdings Corporation, its Manager
By: /s/ Ronald Callenone
-------------------------------------
Name: Ronald L. Callenone
------------------------------------
Title: Authorized Signer
-----------------------------------
22
<PAGE> 23
BENEFICIAL HOLDERS:
Consolidated Equities Trust
By: /s/ Roy R. Baker
-----------------------------------
Name: Roy R. Baker
------------
Title:Trustee
-------
Aquarina Developments, Inc.
By: /s/ Jurgen Lieberwirth
------------------------------------
Name: Jurgen Lieberwirth
------------------
Title:President
---------
/s/ Tina Gunderson
---------------------------------------
Tina Gunderson
---------------------------------------
Ernst-Wilhelm Contzen
---------------------------------------
Paul Cremer
B. Anthony Isaac Revocable Trust
By: /s/ Anthony Isaac
-----------------------------------
Name: B. Anthony Isaac
----------------------------------
Title: Trustee
--------------------------------
/s/ Don Marvin
----------------------------------------
Don R. Marvin
/s/ John Morse
----------------------------------------
John R. Morse
/s/ Robert Mossburg
----------------------------------------
Robert E. Mossburg
23
<PAGE> 24
Rolf E. Ruhfus Revocable Trust
By: /s/ Rolf Ruhfus
------------------------------------
Name: Rolf E. Ruhfus
--------------
Title:Trustee
-------
SF HOTEL COMPANY, L.P.
By: Summerfield Hotel Corporation
By: /s/ Roy R. Baker
-----------------------------------
Name: Roy R. Baker
----------------------------------
Title: CFO
--------------------------------
SIERRA SUITES HOTEL CORPORATION
By: /s/ Roy R. Baker
-----------------------------------
Name: Roy R. Baker
----------------------------------
Title: CFO
--------------------------------
/s/ Edmund Socha
------------------------------------------
Edmund Socha
SUMMERFIELD SUITES HOLDING CORPORATION
By: /s/ Roy R. Baker
-----------------------------------
Name: Roy R. Baker
----------------------------------
Title: CFO
--------------------------------
SUMMERFIELD SUITES INVESTMENT CORPORATION
By: /s/ Roy R. Baker
-----------------------------------
Name: Roy R. Baker
----------------------------------
Title: CFO
--------------------------------
SUMMERFIELD SUITES MANAGEMENT CORPORATION
By: /s/ Roy R. Baker
-----------------------------------
Name: Roy R. Baker
----------------------------------
Title: CFO
--------------------------------
24
<PAGE> 25
SUMMERFIELD SUITES REALTY CORPORATION
By: /s/ Roy R. Baker
-----------------------------------
Name: Roy R. Baker
----------------------------------
Title: CFO
--------------------------------
25
<PAGE> 26
SUMMERFIELD LIMITED PARTNER
REPRESENTATIVE:
/s/ Rolf Ruhfus
-----------------------------------------
Rolf E. Ruhfus, as Summerfield Limited
Partner Representative
Each of the undersigned beneficiaries of the above signed trusts hereby
agrees that any Partnership Units or Redemption Shares distributed by the trusts
to the undersigned shall be subject to all of the terms and provisions of this
Agreement.
/s/ Rolf Ruhfus
-------------------------------------------
Rolf E. Ruhfus, beneficiary of the Rolf E.
Ruhfus Revocable Trust
/s/ Anthony Isaac
-------------------------------------------
B. Anthony Isaac, beneficiary of B. Anthony
Isaac Revocable Trust
/s/ Roy R. Baker
-------------------------------------------
Roy R. Baker, beneficiary of
Consolidated Equities Trust
Isaac Revocable Trust
26
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Innkeepers USA Trust on Form S-3 (file no. 333-20309), Form S-3 (file no.
333-01026) and Form S-3 (file no. 33-97932) of our report dated July 3, 1997 on
our audit of the combined financial statements of the Summerfield Acquisition
Hotels as of January 3, 1997 and the fiscal year then ended, which report is
included in this Current Report on Form 8-K.
Coopers & Lybrand L.L.P.
West Palm Beach, Florida
July 17, 1997
