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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 NO [FEE REQUIRED]
For the transition period from __________ to __________
Commission file number 0-24568
INNKEEPERS USA TRUST
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(Exact name of registrant as specified in its charter)
Maryland 65-0503831
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
306 Royal Poinciana Way, Palm Beach, Florida 33480
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 835-1800
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON SHARES, par value of $.01 per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares outstanding of the registrant's only class of common
stock, $.01 par value per share, as of March 23, 1998, was 33,113,211. The
aggregate market value of the common stock held by nonaffiliates of the
registrant as of March 23, 1998 was approximately $510,000,000.
Documents Incorporated by Reference
Portions of the 1997 Innkeepers USA Trust Annual Report to Shareholders to
be filed with the Securities and Exchange Commission are incorporated by
reference into Parts I and II hereof. Portions of the 1998 Innkeepers USA Trust
Proxy Statement to be filed with the Securities and Exchange Commission within
120 days after the year covered by this Form 10-K with respect to the Annual
Meeting of Shareholders to be held on May 6, 1998 are incorporated by reference
into Part III hereof.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO.
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PART I
<S> <C> <C>
Item 1. Business...................................................................................... 1
Item 2. Properties.................................................................................... 23
Item 3. Legal Proceedings............................................................................. 26
Item 4. Submission of Matters to a Vote of Security Holders .......................................... 26
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters....................................................................................... 26
Item 6. Selected Financial Data....................................................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................... 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................... 30
Item 8. Financial Statements and Supplementary Data................................................... 30
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.......................................................................... 45
PART III
Item 10. Directors and Executive Officers of the Registrant............................................ 45
Item 11. Executive Compensation........................................................................ 45
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 45
Item 13. Certain Relationships and Related Transactions................................................ 45
PART IV
Item 14. Exhibits, Financial Statements, Schedules
and Reports on Form 8-K....................................................................... 45
</TABLE>
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THIS REPORT CONTAINS AND INCORPORATES BY REFERENCE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND WORDS OF SIMILAR IMPORT. SUCH FORWARD-LOOKING
STATEMENTS RELATE TO FUTURE EVENTS AND THE FUTURE FINANCIAL PERFORMANCE OF THE
COMPANY, AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY
TO BE MATERIALLY DIFFERENT FROM THE RESULTS OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. ATTENTION SHOULD BE PAID TO THE VARIOUS
FACTORS IDENTIFIED OR INCORPORATED BY REFERENCE IN THIS REPORT WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER, INCLUDING BUT NOT LIMITED TO THOSE DISCUSSED IN THE
SECTIONS ENTITLED "INTERNAL GROWTH STRATEGY," "ACQUISITION STRATEGY,"
"COMPETITION", "BUSINESS RISKS,""LEVERAGE," "ENVIRONMENTAL MATTERS," "TAX
STATUS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." THE COMPANY IS NOT OBLIGATED TO UPDATE ANY SUCH FACTORS
OR TO REFLECT THE IMPACT OF ACTUAL FUTURE EVENTS OR DEVELOPMENTS ON SUCH
FORWARD-LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
(a) GENERAL
OVERVIEW
Innkeepers USA Trust ("Innkeepers") is a self-administered real estate
investment trust ("REIT"), which commenced operations on September 30, 1994.
Innkeepers initially acquired an 87.7% equity interest in Innkeepers USA Limited
Partnership (with its subsidiary partnerships, the "Partnership" and
collectively with Innkeepers, the "Company") which owned seven hotels with an
aggregate of 851 rooms. At December 31, 1997, Innkeepers owned interests in 56
hotels with an aggregate of 6,703 rooms (the "Hotels") through its 82.1%
interest in the Partnership.
The Company has implemented a strategy of utilizing multiple lessees
and hotel management companies for its hotel properties. The Company leases 47
of the Hotels to JF Hotel, Inc. (or other entities under common ownership,
collectively the "JF Lessee") and leases nine Hotels to affiliates of
Summerfield Hotel Corporation (the "Summerfield Lessee" and, together with the
JF Lessee, the "Lessee") pursuant to percentage leases (the "Percentage
Leases"). The Percentage Leases allow the Company to participate in increased
revenue from the Hotels by providing for the payment of rent based on
percentages of room revenues. The JF Lessee has entered into management
contracts with Residence Inn by Marriott, Inc., a subsidiary of Marriott
International, Inc. ("Marriott"), the largest operator of upscale extended-stay
hotels in the United States, to manage 20 of the Residence Inn Hotels and with
another third-party manager to manage two of the Hotels. The Summerfield Lessee
has entered into management contracts with another affiliate of Summerfield to
manage the nine Summerfield Hotels.
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UPSCALE EXTENDED-STAY SEGMENT
The Company's acquisition strategy focuses primarily on upscale
extended-stay hotels. Smith Travel Research ("Smith Travel") defines the upscale
extended-stay hotel segment as those extended-stay hotels having an average
daily rate ("ADR") of $85 or greater.
Upscale extended-stay hotels are distinguishable from mid-priced,
economy and budget extended-stay hotels generally as follows:
EXTENDED-STAY HOTELS
<TABLE>
<CAPTION>
MID-PRICED, ECONOMY AND BUDGET UPSCALE
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Principal Customer Base. . . Independent business Corporations for executive
travelers; government training and consulting;
workers; families project assignment; corporate
relocations.
Services/Amenities. . . . . . . Minimal meeting space; Complimentary breakfast and
limited lobby space; limited evening cocktails; meeting
on-site food; limited front space; daily linen and room
desk hours; weekly maid cleaning service; 24-hour
service and twice-weekly front desk; guest grocery
linen service services; 24-hour security and
maintenance; on-site conve-
nience store
Physical Facilities . . . . . . . Smaller rooms; fewer kitchen Larger rooms; higher quality
amenities; limited facility construction; higher level of
amenities kitchen amenities; higher
level of room furnishings;
pool; exercise facilities
</TABLE>
The Company believes the demand for upscale extended-stay rooms
substantially exceeds the available supply in its market, which the Company
expects will allow its Hotels to continue to provide attractive returns to the
Company in the near term. Over the longer term, the Company believes that new
supply will continue to be limited in its target markets by the relatively high
barriers to entry in those markets. High barriers to entry include scarcity and
high cost of land, extensive permit and approval requirements, the relatively
long lead time required to develop an upscale extended-stay hotel, particularly
in the New England and Pacific coast states, and the relatively high costs
associated with such development.
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The upscale extended-stay hotel concept was developed by Jack P. DeBoer
and Rolf E. Ruhfus, Trustees of the Company, who co-founded both the Residence
Inn and Summerfield Suites brands. The Company believes its relationships with
Marriott, Summerfield and Messrs. DeBoer and Ruhfus, affiliates of each of which
own equity interests in the Company, have provided and will provide the Company
with attractive opportunities to acquire additional upscale extended-stay
hotels.
RELATIONSHIPS
To implement its multi-lessee/operator strategy, the Company has formed
relationships with the owners and operators of two of the premier brands in the
upscale extended-stay segment, Marriott and Summerfield.
Marriott. The Company currently owns 38 Residence Inn hotels, including
20 that are managed by Marriott. Marriott's management of Company-owned Hotels
enables the Company to realize the benefits of Marriott's resources and hotel
operations experience and enhances the Company's ability to grow. The Company
believes that its relationship with Marriott has and may, in the future, provide
the Company access to Residence Inn developers and potential sellers to which it
might not otherwise have meaningful access. The Company expects that Marriott
will manage certain additional Residence Inn hotels that may be acquired in the
future, although no assurance can be given in this regard. Marriott currently
owns 298,334 Common or Preferred Units.
Summerfield. The Company currently owns nine Summerfield brand hotels
(including six Summerfield Suites hotels, two Sierra Suites hotels, and one
Sunrise Suites hotel), all of which are leased and managed by Summerfield. Mr.
Ruhfus, Chairman of the Board of Summerfield, is also a Trustee of the Company.
The Company also has a right of first refusal to acquire certain Summerfield
Suites or Sierra Suites Hotels developed in the future by Summerfield. Under
that arrangement, the Company has retained Summerfield to develop a 113 room
Sierra Suites hotel in Westborough, Massachusetts. The total estimated cost of
development of this hotel is approximately $7,900,000 and the development is
expected to be completed in the first half of 1998. Affiliates of Summerfield
currently own 1,937,947 Common Units.
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THE HOTELS
The following charts set forth certain information with respect to the
Hotels at December 31, 1997:
<TABLE>
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Number of
Franchise Affiliation Number of Hotels Rooms/Suites
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Upscale Extended-Stay
Residence Inn 32 3,649
Summerfield Suites 6 759*
Sunrise Suites 1 96
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39 4,504
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Mid-Priced Extended-Stay
Sierra Suites 2 202
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Mid-Priced
Hampton Inn 12 1,527
Comfort Inn 1 127
Holiday Inn Express 1 204
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14 1,848
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Full-Service
Sheraton Inn 1 139
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56 6,703
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</TABLE>
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* Contains a total of 1,057 bedrooms
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<TABLE>
<CAPTION>
Number Number of Percentage of
State of Hotels Suites/Rooms Suites/Rooms
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<S> <C> <C> <C>
California 10 1,472 22.0%
Florida 5 603 9.0
Texas 4 544 8.1
Michigan 4 404 6.0
Georgia 3 399 6.0
Illinois 3 368 5.5
Pennsylvania 3 357 5.3
New York 3 319 4.8
New Jersey 3 308 4.6
Massachusetts 2 304 4.5
Colorado 2 284 4.2
Connecticut 2 192 2.9
Maryland 1 176 2.6
Kentucky 2 176 2.6
Indiana 2 168 2.5
Minnesota 1 126 1.9
Arizona 1 113 1.7
North Carolina 1 88 1.3
Virginia 1 80 1.2
Ohio 1 80 1.2
Maine 1 78 1.2
Kansas 1 64 0.9
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56 6,703 100.0%
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</TABLE>
RECENT DEVELOPMENTS
On December 30, 1997, the Company purchased a portfolio of eight
Residence Inn hotels for an aggregate purchase price of $59,500,000. The hotels
purchased are as follows: Altamonte Springs, Florida (128 rooms), Ontario,
California (200 rooms), Columbus (East), Ohio (80 rooms), Fort Wayne, Indiana
(80 rooms), Indianapolis, Indiana (88 rooms), Lexington, Kentucky (80 rooms),
Louisville, Kentucky (96 rooms) and Winston-Salem, North Carolina (88 rooms).
The Company funded the purchase with available cash and the Line of Credit.
On January 11, 1998, the Company purchased a 120-room Residence Inn
hotel located in Bothell (Seattle Northeast), Washington, for a cash purchase
price of $11,750,000. The purchase price was funded through the Company's Line
of Credit.
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On January 14, 1998, the Company purchased a portfolio of five
Residence Inn hotels for an aggregate purchase price of $83,000,000. The hotels
purchased are as follows: Bellevue, Washington (120 rooms); Lynnwood, Washington
(120 rooms); Tukwila, Washington (144 rooms); Vancouver, Washington (120 rooms);
and Lake Oswego (Portland South), Oregon (112 rooms). The Company assumed
existing indebtedness of $59,320,000 and funded the balance of the purchase
price through the Line of Credit.
On February 19, 1998, the Company obtained a new line of credit (the
"Line of Credit"). The Line of Credit is uncollateralized and has a maximum
borrowing amount of $250,000,000. The interest rate on the Line of Credit is
LIBOR plus 122.5 to 162.5 basis points, a reduction from the LIBOR plus 175
basis points interest rate on the old line of credit. The old line of credit was
extinguished. The Company was amortizing loan origination fees and costs
incurred in connection with the old line of credit over its original three-year
term. When the old line of credit was extinguished and replaced with the Line of
Credit, those loan origination fees and costs were expensed immediately and
recognized as an extraordinary loss of approximately $2,750,000.
On February 19, 1998, the Company refinanced $40,000,000 of borrowings
outstanding under the Line of Credit with a new term loan (the "Third Term
Loan"), which bears interest at a 7.02% fixed annual rate. The Third Term Loan
has scheduled principal amortization over a twenty year term, with equal monthly
payments of $292,467 commencing on April 11, 2000. Interest on the outstanding
balance of the Third Term Loan will accrue at 12.02% if the outstanding
principal balance is not paid in full by March 11, 2010. The Company anticipates
repaying the remaining balance of the Third Term Loan on or before March 11,
2000. Seven Hotels collateralize the Third Term Loan.
In connection with obtaining the (uncollateralized) Line of Credit, the
Hotels securing the old line of credit were released. At February 19, 1998, 28
of the Company's hotel properties collateralized its other long-term debt,
including the Third Term Loan.
On March 4, 1998, the Company's Board of Trustees declared a first
quarter distribution of $0.28 per common share to shareholders of record on
March 27, 1998. The distribution is payable on April 21, 1998. The 1998 first
quarter distribution represents a $0.02, or 7.7%, increase over the 1997 fourth
quarter distribution.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company is in the business of acquiring equity interests in hotel
properties. See the Consolidated Financial Statements and notes thereto included
in Item 8 on this Form 10-K for certain financial information required to be
included in response to this Item 1.
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(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company is a self-administered Maryland REIT which owned equity
interests in the 56 Hotels with an aggregate of 6,703 rooms as of December 31,
1997. A wholly-owned subsidiary of Innkeepers owns an approximate 82.1% interest
in and is the sole general partner of Innkeepers USA Limited Partnership. The
Hotels are owned both by Innkeepers USA Limited Partnership directly and by
various subsidiary partnerships.
INTERNAL GROWTH STRATEGY
The Percentage Leases are designed to allow the Company to participate
in growth in room revenue at the Hotels by providing for the payment of rent
based upon percentages of room revenues ("Percentage Rent"). Under the
Percentage Leases, once room revenues at a Hotel reach a specified level (a
"Revenue Break Point"), the Company receives between 68% and 70% of incremental
room revenues. For the year ended December 31, 1997, room revenues from each of
the Hotels exceeded the Revenue Break Point for the payment of the higher tier
of Percentage Rent under the applicable Percentage Lease. Each Percentage Lease
also provides for a fixed annual base rent ("Base Rent"). The Percentage Leases
generally provide that annual Base Rent and the Revenue Break Points for the
payment of Percentage Rent will be adjusted annually based on changes in the
CPI.
For the hotels leased by the JF Lessee, the Company earned Percentage
Rent in excess of Base Rent on all of the hotels except the Residence Inn in
Atlanta, Georgia. For the hotels leased by the Summerfield Lessee, the Company
earned Percentage Rent in excess of Base Rent on the Sierra Suites hotels
located in Atlanta, Georgia and Phoenix, Arizona. The Summerfield Lessee agreed
that for 1997 and 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 Percentage
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 hotels (which excludes the Summerfield
Suites - West Hollywood, California, the Sunrise Suites - Tinton Falls, New
Jersey and the two Sierra Suites hotels) is the aggregate of the Base Rent
amounts set forth in the Percentage 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.
The Company seeks to increase Percentage Lease payments through the
following; (i) employing asset managers to work with the Lessee and operators to
direct marketing programs and sales management policies at the Hotels, (ii)
selective renovation of the Hotels, (iii) the possible
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development of new hotels on a selected basis, and (iv) the rebranding and
repositioning of existing hotels on a limited and selected basis.
Sales Management
The JF Lessee uses market-oriented sales management programs to
coordinate, direct and manage the sales activities of personnel located at each
Hotel it operates or oversees. Weekly sales reports are generated by each
salesperson through the daily input of data that identifies all sales related
activities which have taken place during the day (e.g., appointments, sales
calls, direct mailings, incoming calls) and the results of such actions (e.g.,
appointments made, literature sent, rooms reserved). Each salesperson also
inputs any comments made by prospective or existing customers, the potential for
new or continued business and the timing of the follow-up action required.
Additionally, sales reports permit management to promptly evaluate a
salesperson's productivity as measured by the quantity of sales calls, sales
call results and number of group bookings. These sales reports also allow
comparisons of the ongoing sales efforts at the applicable Hotel to the
marketing and business plan established for each Hotel and allow management to
adapt the marketing and business plan accordingly. The third-party managers,
including Marriott, use focused, well-developed sales management programs at the
Hotels operated by those managers. The JF Lessee employs six regional managers
to oversee sales and marketing efforts at the Lessee-operated Hotels, and to
review those efforts at Hotels managed by third-parties, including Marriott.
Capital Improvements, Renovation and Refurbishment
The Percentage Leases require the Lessee to maintain the Hotels in a
condition that complies with their respective Franchise Licenses and the
Marriott Management Agreements, among other requirements. In addition, the
Company may upgrade the Hotels as needed to meet competitive conditions and
preserve asset quality and will renovate Hotels when the Company believes the
investment in renovations will provide an attractive return to the Company
through increased revenue under the Percentage Leases or is otherwise in the
best interests of the Company.
This strategy is designed to enhance internal revenue growth, to
preserve and increase the value of each Hotel and to maintain or increase each
Hotel's market share. The Company will schedule renovations to the Hotels in
order to implement this strategy and as otherwise may be required by a
particular franchisor in accordance with the applicable Franchise License or by
Marriott pursuant to the Marriott Management Agreements.
The Percentage Leases obligate the Company generally to make available
to the Lessee an amount equal to 4% or 5% of room revenue, on a monthly basis,
for use by the Lessee (or Marriott, under the Marriott Management Agreements) to
repair or replace furniture and equipment at the Hotels. The Company's
obligation is cumulative and carries forward to the extent that such amounts are
not used by the Lessee (or Marriott).
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ACQUISITION STRATEGY
The Company has developed a multi-brand upscale extended-stay
acquisition focus which has positioned the Company as a leading owner of upscale
extended-stay hotels in the Company's target markets. The Company's primary
acquisition strategy includes acquiring hotels that are (i) upscale
extended-stay hotels, (ii) located in markets with relatively high barriers to
entry or strong demand characteristics and (iii) located near other hotels owned
by the Company thereby allowing the Lessee to enhance revenue by capitalizing on
local knowledge and directing overflow business to Company-owned hotels. The
Company also seeks to selectively acquire under-performing hotels to which the
Company can add value through repositioning in the market, reflagging to premium
hotel brands or renovation. The Company has increasingly emphasized the
acquisition of hotel portfolios in order to capitalize on the Company's
efficiency and experience in acquisition analysis and transaction structuring.
This emphasis has enabled the Company to more rapidly expand its hotel
portfolio.
Acquisition of Upscale Extended-Stay Hotels
The Company focuses on acquiring upscale extended-stay hotels because
of the strong performance of that segment, which has resulted primarily from
(i) the prevailing social and economic changes that are increasing the demand
for upscale extended-stay hotels, including the increasing tendency of
businesses to conduct on- and off-site training to employees, corporate
out-sourcing and the use of consultants, and the general increased mobility of
the United States workforce, (ii) the ability to generate a more consistent
revenue stream than traditional hotels due to higher average occupancies and
longer average stays, and (iii) the demand for hotel rooms by guests who stay
longer than five consecutive room nights has substantially exceeded the number
of currently existing extended-stay hotel rooms, according to industry sources.
The Company also believes that its relationships, particularly with Marriott,
will provide it with opportunities to acquire desirable hotel properties,
primarily in the upscale, extended-stay segment, through noncompetitive bid
situations on terms that may be generally more favorable than those available in
traditional brokered transactions.
Target Markets
The Company's focus is on markets that have high barriers to entry,
such as in New England and the Pacific coast states, which are characterized by
scarcity or high cost of available land, extensive permit approval requirements,
restrictive zoning, stringent local development laws, a relatively long lead
time required to develop an upscale extended-stay hotel and the high costs
associated with such development. In addition, the Company seeks out submarkets
within favorable regions that have multiple fast-growing demand generators, such
as major office or manufacturing complexes, airports, major colleges and
universities and medical centers with convenient access to major thoroughfares.
The Company believes that its focus on
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these target markets has been a major factor in the Hotels achieving occupancy,
ADR and RevPAR that exceed industry averages. Additionally, the Company seeks
Hotels in proximity to the Company's existing Hotels, where the Company may draw
upon its knowledge of local market conditions, develop certain economies of
scale and cross market among the Hotels in the cluster.
Acquisition of Under-performing Hotels
Although the primary focus of the Company is on the upscale
extended-stay segment, the Company will from time to time consider acquisition
of under-performing mid-priced and full service hotels that have the potential
for strategic repositioning in the market, reflagging to a premium franchise
brand or renovation. Generally, hotels that meet the Company's investment
criteria include (i) poorly managed hotels that have the potential for increased
performance following the introduction of a quality management team, (ii) hotels
in deteriorated physical condition that could benefit significantly from
renovations, or (iii) hotels in attractive locations that the Company believes
could benefit significantly by changing franchises to a brand the Company
believes is superior, such as Hampton Inn or Courtyard by Marriott.
Development
The Company has retained a Summerfield affiliate to develop a Sierra
Suites hotel in Westborough, Massachusetts. The Company has committed to fund
the development costs of this hotel which are estimated to be approximately
$7,900,000. The Company expects the development to be completed in the first
half of 1998. A Summerfield affiliate will lease the hotel under a Percentage
Lease with terms substantially similar to the leases for the Company's two
current Sierra Suites hotels. A Summerfield affiliate will retain an interest in
the hotel which entitles it to a payment equal to 15% of the excess of the value
of the hotel two years after it opens over its development cost. The fee is
expected to be paid in Common Units.
The Company may pursue the development and construction of additional
hotels in accordance with the Company's development and underwriting policies.
Risks associated with additional development and construction activities may
include: the abandonment of development opportunities explored by the Company;
construction costs of a hotel may exceed original estimates due to increased
materials, labor or other expenses, which could make completion of the hotel
uneconomical; operating results at a newly completed hotel are dependant on a
number of factors, including market and general economic conditions, competition
and market acceptance; financing may not be available on favorable terms for the
development of a hotel; and construction and stabilization may not be completed
on schedule, resulting in increased debt service expense and construction costs.
Development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy, and other required governmental permits and authorizations. The
occurrence of any of the events described above could adversely affect the
Company's ability to achieve its projected yields on hotels under development
and could adversely affect the Company's ability to make expected distributions.
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The Company will also seek to obtain certain of the benefits of
development without incurring certain of the risks of development, by (a)
acquiring newly-developed hotels or (b) contracting with developers to build
hotels that the Company will buy upon completion.
PROPERTY OPERATIONS
The JF Lessee
The Company believes that the quality of the on-site hotel operators is
important to the future growth in Percentage Lease revenue from the Hotels. The
JF Lessee leases 47 of the Hotels pursuant to the Percentage Leases and operates
25 of the Hotels. Marriott operates 20 Residence Inn hotels pursuant to the
Marriott Management Agreements. Marriott is the largest operator of upscale
extended-stay hotels in the U.S. The Company believes that Marriott's management
of Hotels will enable the Company to realize the benefits of Marriott's
resources and broad-based hotel operations experience in order to enhance the
Company's ability to grow.
The JF Lessee is owned by Mr. Fisher and Mr. Shaw (the Chairman and
Chief Operating Officer, respectively, of the Company) and employs currently
approximately 1,150 people. Under the Percentage Leases, the JF Lessee generally
is required to perform or provide for all operational and management functions
necessary to operate the Hotels. Such functions include accounting, periodic
reporting, ordering supplies, advertising and marketing, maid service, laundry,
and repair and maintenance. The JF Lessee employs six regional managers who
oversee the operation of all of the Hotels. The Lessee is entitled to all
revenue from the Hotels after payment of rent under the Percentage Leases and
other operating expenses, including any management fees payable to third-party
managers.
The JF Lessee-leased Hotels not operated under Marriott Management
Agreements are operated under franchise agreements and are licensed as Hampton
Inn, Residence Inn, Sheraton Inn, Comfort Inn or Holiday Inn Express hotels. The
Company has paid or will pay the cost of obtaining or transferring certain
franchise license agreements to the JF Lessee. For the hotels which do not
require a franchise transfer fee, the Company has advanced to the JF Lessee the
working capital deposit required under the JF Lessee's management agreements
with Marriott. The franchise and management agreements require the payment of
fees based on a percentage of hotel revenue. These fees are paid by the JF
Lessee. The franchisors periodically inspect their licensed hotels to confirm
adherence to their operating standards. See "Properties -- The Percentage
Leases" for further information on the Percentage Leases.
Marriott Management
The Marriott Management Agreements allow the hotels subject thereto to
be operated as Residence Inn hotels for an initial term of 13 years, provided
that the hotels maintain the standards of the Residence Inn system. The Marriott
Management Agreements may be extended by Marriott for an additional term if the
Company has achieved a specified return on its initial investment. Marriott may
terminate one or more of the Marriott Management Agreements upon the occurrence
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of certain events, including the JF Lessee's failure to make any payment or
perform other covenants under the Marriott Management Agreements or a bankruptcy
of the JF Lessee or the Company. If a Marriott Management Agreement is
terminated for any reason other than a default by Marriott, the hotel to which
the agreement relates will not be entitled to operate thereafter as a Residence
Inn. Marriott may be terminated as manager of a hotel if certain performance
criteria set forth in the relevant Marriott Management Agreement are not met in
any two consecutive years beginning with the third anniversary of the
acquisition of the hotel, subject to certain exceptions and cure rights. In that
event, the JF Lessee may enter into a then-current form of Residence Inn
franchise license and, subject to Residence Inn system requirements and to the
JF Lessee being a then-approved franchisee, continue to operate the hotel as a
Residence Inn hotel.
The JF Lessee is responsible for making all payments to Marriott under
the Marriott Management Agreements, and the Company is secondarily liable for
certain of the JF Lessee's obligations. Under each Marriott Management
Agreement, the JF Lessee is required to pay to Marriott a base management fee, a
system fee and a marketing fee equal to specified percentages of certain
revenues at the relevant Hotel, and an incentive management fee equal to a
specified percentage of the JF Lessee's annual net operating income with respect
to the Hotel, after payment of Rent under the Percentage Lease for the Hotel.
DeBoer Hotels
On November 1, 1996, the Company completed the acquisition of seven
Residence Inn hotels ("the DeBoer Hotels") from affiliates of Jack P. DeBoer
(the "DeBoer Group"). The DeBoer Hotels were acquired from the DeBoer Group for
a total purchase price of approximately $108.5 million, consisting of (i)
approximately 4,063,329 Preferred Units, with a value of $11.00 per Preferred
Unit at the time of issuance, (ii) the assumption and immediate repayment of
approximately $38.4 million of outstanding mortgage indebtedness and (iii) the
assumption of the approximately $24.9 million of assumed indebtedness.
Additionally, in connection with the acquisition of the DeBoer Hotels by the
Company, Marriott received Common Units having a deemed value of $500,000 (the
"Release Units") in exchange for releasing the existing management contracts
relating to such Hotels.
The Preferred Units are convertible at any time into Common Units on a
one-for-one basis and, beginning in November 1998, may be redeemed for an amount
of cash equal to the then-trading value of a common share or, at the option of
the Company, one common share. Assuming full redemption of all Common Units and
Preferred Units and the issuance of common shares in exchange therefor, the
DeBoer Group would own approximately 10% of the common shares currently
outstanding. Following the acquisition of the DeBoer Hotels, Jack P. DeBoer
joined the Company's Board of Trustees. Marriott has the right, on or after the
first anniversary of the issuance of the Release Units, to redeem each Release
Unit for an amount of cash equal to the then-trading value of a Common Share on
the NYSE or, at the option of the Company, one common share.
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<PAGE> 15
Annual preferred distributions of $1.10 are payable on each Preferred
Unit, which may increase to up to $1.155 for each Preferred Unit, based on
increases in dividends payable on the common shares. Due to the potential
adverse tax consequences to members of the DeBoer Group that may result from a
sale of the DeBoer Hotels, the Company has agreed with the DeBoer Group that for
a period of up to ten years following the closing of the acquisition of the
DeBoer Hotels, (i) any taxable sale of a DeBoer Hotel will require the consent
of the applicable members of the DeBoer Group and (ii) the Company will maintain
at all times outstanding indebtedness of at least approximately $40 million,
subject to reduction upon the occurrence of certain events, including certain
redemptions or taxable transfers of Preferred Units by the applicable members of
the DeBoer Group. In the event that the Company fails to maintain the required
level of indebtedness, the Company will be liable for any resulting income tax
liabilities incurred by the applicable members of the DeBoer Group.
COMPETITION
For Guests
The hotel industry, and the upscale extended-stay and mid-price
segments of the lodging market in which the Company operates, is highly
competitive. Competitive factors within the industry include room rates, quality
of accommodations, name recognition, service levels, reputation, reservation
systems, convenience of location and the supply and availability of alternative
lodging. The Hotels compete with other existing and new hotels in their
geographic markets. The extended-stay and mid-price segments of the hotel
industry have become more competitive recently, as several new competitors have
entered the market. Many of the Company's competitors have substantially greater
marketing and financial resources than the Company and the Lessee. Each of the
Hotels is located in a developed area that includes other hotels, many of which
are competitive with the Hotels in their locality. The number of competitive
hotels in a particular area could have a material adverse effect on the revenues
derived from the Hotels or hotels acquired in the future. Further, there can be
no assurance that new or existing competitors will not significantly reduce
their rates or offer greater convenience, services or amenities or significantly
expand or improve their hotels in the market in which the Company competes or
markets in which it will compete, thereby materially adversely affecting the
Company's business and results of operations.
For Acquisitions
Competition exists for investment opportunities in upscale
extended-stay and mid-price hotels from entities organized for purposes
substantially similar to the Company's objectives as well as other purchasers of
hotels. The Company may be competing for such hotel investment opportunities
with entities that have substantially greater financial resources than the
Company or better relationships with franchisors, sellers or lenders. These
entities may also generally be able to accept more risk than the Company
prudently can manage. Competition may generally reduce
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<PAGE> 16
the number of suitable hotel investment opportunities offered to the Company and
increase the bargaining power of property owners seeking to sell, thereby
increasing prices.
BUSINESS RISKS
Dependence on Payments under Percentage Leases; Lack Of Control
Certain rules relating to the qualification of a REIT prohibit a REIT
from operating hotels. Therefore, the Company leases the Hotels to the Lessee
pursuant to the Percentage Leases. The Company's primary source of revenue is
rent payments under the Percentage Leases. The Company must rely on the Lessee
and any third-party managers retained by the Lessee, such as Marriott and
Summerfield, to operate effectively the Hotels in a manner that generates
sufficient cash flow to enable the Lessee to make the rent payments under the
Percentage Leases. Ineffective operation of the Hotels may result in the Lessee
being unable to pay rent to the Company, including the higher tier percentage
rent necessary for the Company to fund its current level of distributions to
shareholders.
The Company cannot operate the Hotels or participate in the decisions
affecting the daily operations of the Hotels. Other than as set forth in the
applicable Percentage Lease, the Company does not have the authority to require
a Hotel to be operated in a particular manner, or to govern any particular
aspect of its operation (e.g., setting room rates). Thus, even if the Company's
management believes a hotel is being operated inefficiently or in a manner that
does not result in a maximization of rent to the Company, the Company cannot
require a change in the method of operation. The Company is limited to seeking
redress only if the Lessee violates the terms of the Percentage Leases, and then
only to the extent of the remedies set forth therein.
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<PAGE> 17
Risk of Rapid Growth; Dependence on Lessees and Third-Party Managers
The Company's ability to grow depends upon the ability of the Lessee
and any third-party manager retained by the Lessee, such as Marriott or
Summerfield Suites Management Company, L.P. (the "Summerfield Manager"), to
manage effectively the Hotels, as well as any additional hotels in which the
Company invests. The Lessee's or any third-party managers' ability to operate
additional hotels under Percentage Leases or management agreements, as
applicable, with current staffing levels and office locations, may diminish as
the Company acquires additional hotels. Such growth may require the Lessee or
managers to hire additional personnel, engage additional third-party managers
and operate in new geographic locations. In order to qualify as a REIT, the
Company cannot operate the Hotels or participate in decisions affecting the
daily operations of the Hotels. The Lessee has limited assets and generally the
Lessee must generate sufficient cash flow from the operation of the Hotels,
after payment of all operating expenses, to fund the Lessee's rent obligations
under the Percentage Leases. There can be no assurance that the Lessee or their
third-party managers will effectively operate the Hotels. In the event that the
Lessee and their third-party managers fail to effectively operate the Hotels,
the Company's internal growth strategy and acquisition strategy would be more
difficult to achieve and, therefore, cash available for distribution could be
adversely affected.
Availability of Capital
The ability of the Company to implement its growth strategy depends on
access to capital necessary to invest in additional hotels through the use of
borrowings, subsequent issuances of common shares or other securities or
operating cash flow. Access to capital, and in particular equity capital, may be
negatively affected by recession or negative perceptions about the performance
of or prospects for the real estate industry in general, the hotel industry
specifically and, more particularly, the Company.
Operating Costs and Capital Expenditures; Hotel Renovation
Hotels in general, including the Hotels, have an ongoing need for
renovations and other capital improvements, particularly in older structures,
including periodic replacement of furniture and equipment at the hotels. Under
the terms of the Percentage Leases, the Company is obligated to pay the cost of
certain capital expenditures at the Hotels and pay for furniture, fixtures and
equipment. If these expenses exceed the Company's estimate, the additional cost
could have an adverse effect on the cash available for distribution to
shareholders. In addition, the Company may acquire hotels in the future that
require significant renovation. Renovation of hotels involves certain risks,
including construction cost overruns and delays, uncertainties as to market
demand
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<PAGE> 18
or deterioration in market demand after commencement of renovation and the
emergence of unanticipated competition in the local geographic market.
Operating Risks
The Hotels are subject to all operating risks common to the hotel
industry. The hotel industry has experienced volatility in the past, as have the
Hotels, and there can be no assurance that such volatility will not occur in the
future. These risks include, among other things, economic recessions;
competition from other hotels; over-building in the hotel industry which has
adversely affected occupancy, ADR and RevPAR; increases in operating costs due
to inflation and other factors, which increases have not in recent years been,
and may not necessarily in the future be, offset by increased room rates;
dependence on business and commercial travelers and tourism; strikes and other
labor disturbances of hotel employees for hotels acquired by the Company in the
future; increases in energy costs and other expenses of travel; and adverse
effects of general and local economic conditions. These factors could decrease
room revenue of the Hotels and adversely affect the Lessee's ability to make
payments of rent under the Percentage Leases to the Company, including payments
at the higher tier Percentage Rent levels.
Risks of Operating Hotels under Franchise Licenses and Marriott
Management Agreements
The continuation of the franchise licenses under which certain of the
Hotels are operated is subject to specified operating standards and other terms
and conditions. The franchisors that have issued or will issue the franchise
licenses periodically inspect their licensed hotels to confirm adherence to
their operating standards. The failure of the Company or the Lessee to maintain
such standards respecting a Hotel or to adhere to such other terms and
conditions could result in the loss or cancellation of a franchise license. The
Marriott Management Agreements will allow the Hotels subject thereto to be
operated as Residence Inn hotels so long as the Company does not breach its
obligations under the Percentage Leases relating to such Hotels. Continued
operation of such Hotels as Residence Inn hotels also requires the Company to
make capital improvements as required by Marriott to maintain the hotel in
accordance with system standards. It is possible that a franchisor or Marriott,
as applicable, could condition the continuation of a franchise license or a
Marriott Management Agreement, as applicable, on the completion of capital
improvements which management or the Board of Trustees determines are too
expensive or otherwise not economically feasible in light of general economic
conditions or the operating results or prospects of the affected hotel. In that
event, the management or the Board of Trustees may elect to allow the franchise
license or Marriott Management Agreement to lapse or be terminated. In addition,
when the term of a franchise license or a Marriott Management Agreement expires,
the franchisor or Marriott has no obligation to issue a new franchise license or
management agreement, as applicable, for the hotel. The loss of a franchise
license or a Marriott Management Agreement could have a material adverse effect
upon the operations or the underlying value of the Hotel covered by the
franchise license or a Marriott Management Agreement because of the loss of
associated name recognition, marketing support and centralized reservation
systems provided by the franchisor or Marriott. The loss of a franchise license
or Marriott Management Agreement
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<PAGE> 19
for one or more of the Hotels could also have a material adverse effect on rent
under the Percentage Leases and cash available for distribution to shareholders.
Investment Concentration in Single Industry; Emphasis on Upscale
Extended-Stay Market Segment; and Emphasis on Residence Inn and Hampton
Inn Hotels
The Company's current growth strategy is to acquire operating hotels,
primarily upscale extended-stay hotels. The Company will not seek to invest in
assets selected to reduce the risks associated with an investment in the hotel
industry, and is subject to risks inherent in concentrating investments in a
single industry and in a single market segment within that industry. The Company
intends to emphasize the acquisition of Residence Inn hotels in its acquisition
strategy. The Company will be subject to risks inherent in concentrating
investments in any franchise brand, in particular the Residence Inn, Summerfield
Suites and the Hampton Inn brands, such as a reduction in business following any
adverse publicity related to a brand, which could have an adverse effect on the
Company's Rent under the Percentage Leases and cash available for distribution
to shareholders.
Concentration of Investments in California, Florida, Washington, Texas
and Michigan
Ten of the 56 Hotels are located in California, five are located in
each of Florida and Washington and four are located in each of Texas and
Michigan. The concentration of the Company's investments in California, Florida,
Washington, Texas and Michigan could result in adverse events, or conditions
which affect those areas in particular, such as economic recessions and natural
disasters, having a more significant negative effect on the operations of the
combined Hotels, and ultimately cash distributions to shareholders of the
Company, than if the Company's investments were more geographically diverse.
Ownership Limitation
In order for the Company to maintain its qualification as a REIT, not
more than 50% in value of its outstanding shares of beneficial interest may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code to include certain entities). Furthermore, if any
shareholder or group of shareholders of the Lessee owns, actually or
constructively, 10% or more of the shares of beneficial interest of the Company,
the Lessee could become a related-party tenant of the Company and the
Partnership, which likely would result in loss of REIT status for the Company.
For the purpose of preserving the Company's REIT qualification, the Company's
Declaration of Trust prohibits direct or indirect ownership (taking into account
applicable ownership provisions of the Code) of more than 9.8% of the
outstanding common shares or any other class of outstanding shares of beneficial
interest by any shareholder or group (including affiliates of Mr. Fisher)
subject to adjustment under certain circumstances (the "Ownership Limitation").
Generally, the shares of beneficial interest owned by related or affiliated
owners will be aggregated for purposes of the Ownership Limitation. Any transfer
of shares of beneficial interest that would prevent the Company from continuing
to qualify as a REIT
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under the Code will be void ab initio, the intended transferee of such shares
will be deemed never to have had an interest in such shares, and such shares
will be designated "Shares-in-Trust." Further, the Company shall be deemed to
have been offered Shares-in-Trust for purchase at the lesser of the market price
(as defined in the Declaration of Trust) on the date the Company accepts the
offer and the price per share in the transaction that created such
Shares-in-Trust (or, in the case of a gift, devise or non-transfer event (as
defined in the Declaration of Trust), the market price on the date of such gift,
devise or non-transfer event). Therefore, the record holder of shares of
beneficial interest in excess of the Ownership Limitation will experience a
financial loss when such shares are redeemed, if the market price falls between
the date of purchase and the date of redemption.
General Risks of Investing in Real Estate
The Hotels are subject to varying degrees of risk generally incident to
the ownership of real property. Income from the Hotels may be adversely affected
by adverse changes in national economic conditions, adverse changes in local
market conditions due to changes in general or local economic conditions and
neighborhood characteristics, competition from other hotels, changes in interest
rates and in the availability, cost and terms of mortgage funds, the impact of
present or future environmental legislation and compliance with environmental
laws, the ongoing need for capital improvements, particularly in older
structures, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, civil unrest, acts of
God, including earthquakes, hurricanes and other natural disasters (which may
result in uninsured losses), acts of war, adverse changes in zoning laws, and
other factors which are beyond the control of the Company.
Real estate investments are relatively illiquid. The ability of the
Company to vary its portfolio in response to changes in economic and other
conditions is limited. In particular, the Company may not sell any of the DeBoer
Hotels in a taxable transaction for a period of up to ten years following the
closing of the Offering, without the consent of the applicable members of the
DeBoer Group. Certain provisions of the Marriott Management Agreement may also
limit or delay the Company's ability to sell or refinance the Hotels subject to
such agreement.
Each Percentage Lease specifies comprehensive insurance to be
maintained on each of the Hotels, including liability, property and casualty and
extended coverage. Management of the Company believes that such specified
coverage is of the type and amount customarily obtained by owners of hotels
similar to the Hotels. Percentage Leases for subsequently acquired hotels will
contain similar provisions. However, there are certain types of losses,
generally of a catastrophic nature, such as earthquakes, floods and hurricanes,
that may be uninsurable or not economically insurable and which may impact
certain of the Hotels.
All ten of the Hotels in California are located in areas that are
subject to earthquake activity. These Hotels are located in areas of high
seismic risk and some were constructed under pre-1985 building codes. No
assurance can be given that an earthquake would not render
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<PAGE> 21
significant damage to the Hotels that have been constructed in compliance with
more recent building codes, or are in areas of lower seismic risk. Additionally,
areas in Florida where five of the Hotels are located may experience hurricane
or high-wind activity. The Company has earthquake insurance policies on the
Hotels located in California and hurricane insurance policies on the Hotels
located in Florida. The Company's management and Board of Trustees has used and
will use its discretion in determining amounts, coverage limits and
deductibility provisions for insurance, with a view to maintaining appropriate
insurance coverage on the Company's investments at a reasonable cost and on
suitable terms, and may from time to time elect not to carry earthquake or
hurricane insurance. This may result in insurance coverage that, in the event of
a substantial loss, would not be sufficient to pay the full current market value
or current replacement cost of the Company's lost investment. Inflation, changes
in building codes and ordinances, environmental considerations, and other
factors also might make it not feasible to use insurance proceeds to replace a
hotel after it has been damaged or destroyed. Under such circumstances, the
insurance proceeds received by the Company might not be adequate to restore its
economic position with respect to a Hotel.
Conflicts of Interest
Conflicts of interest exist between the Company, the JF Lessee and
Messrs. Fisher (Chairman of the Board of Trustees, Chief Executive Officer and
President of the Company and the majority shareholder of the JF Lessee) and Shaw
(Executive Vice-President and Chief Operating Officer of the Company and the
minority shareholder in the JF Lessee) with respect to the negotiation and
enforcement of the terms of the Percentage Leases with the JF Lessee. Conflicts
also exist related to possible adverse tax consequences to Mr. Fisher and his
affiliates upon a sale, refinancing or prepayment of indebtedness secured by
certain Hotels contributed to the Company by his affiliates. Additionally, the
Company relies substantially on Mr. Fisher and conflicting demands on his time
occur, which could lead to decisions which do not reflect solely the interests
of the Company's shareholders. Mr. Fisher and his affiliates may develop new
hotels, subject to certain limitations, which may materially affect the amount
of time Mr. Fisher has available to devote to the affairs of the Company. Hotels
developed by Mr. Fisher and his affiliates could compete with the Hotels or
hotels acquired in the future by the Company. Mr. Shaw also has conflicting
demands on his time, including serving as President of the JF Lessee and
spending significant time in that capacity.
Mr. DeBoer, who is one of the largest shareholders of the Company, on a
fully diluted basis, and who serves as a Trustee of the Company, and certain of
his affiliates have in the past, and continue to be, involved in the development
of hotels, including extended-stay hotels. Mr. DeBoer is the President, Chairman
of the Board and a major shareholder of Candlewood Hotel Company, Inc.
("Candlewood"), a public hotel company that is the owner, operator and
franchisor of Candlewood hotels, an economy extended-stay hotel chain founded by
Mr. DeBoer. Hotels developed by Mr. DeBoer and his affiliates, including
Candlewood hotels, may compete with the Company's hotels for guests, and other
hotel companies with which Mr. DeBoer is affiliated, including Candlewood, may
compete with the Company for acquisition opportunities.
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Accordingly, the interests of the Company and Mr. DeBoer could be different in
connection with matters relating to the Company's Hotels or proposed
acquisitions that are competitive with hotels owned or being considered for
acquisition or development by Mr. DeBoer and his Affiliates.
Due to the potential adverse tax consequences to the DeBoer Group that
may result from the sale of or refinancing or prepayment of indebtedness
associated with the DeBoer Hotels, the Company has agreed with the DeBoer Group
that, for a period of up to ten years following the closing of the acquisition
of the DeBoer Hotels, (i) any taxable sale of a DeBoer Hotel will require the
consent of the applicable members of the DeBoer Group, which may cause the
Company to be unable to sell some or all of the DeBoer Hotels in circumstances
in which it would be advantageous to do so, and (ii) the Company will maintain
the Required Indebtedness.
Messrs. Fisher and Shaw and Mr. Ruhfus are the principal equity owners
of the JF Lessee and the Summerfield Lessee, respectively. There is a conflict
of interest with respect to the enforcement, termination or extension of the
Percentage Leases and the negotiation of the terms of any future percentage
leases between the Lessee and the Company. The economic interests of Messrs.
Fisher and Shaw and Mr. Ruhfus in the Lessee may result in decisions relating to
the Company's enforcement of its rights under the Percentage Leases that do not
solely reflect the interests of the Company's shareholders.
Mr. Ruhfus is a Trustee of the Company and an equity owner of the
Summerfield Lessee and the Summerfield Manager, and certain of his affiliates
have in the past been, and continue to be, involved in the development of
hotels, including extended stay hotels. Mr. Ruhfus is Chairman of the Board and
a principal shareholder of Summerfield, which is the developer and franchisor of
Summerfield Suites and Sierra Suites hotels. Hotels developed by Mr. Ruhfus and
his affiliates, including Summerfield Suites and Sierra Suites hotels, may
compete with the Hotels for guests, and other hotel companies with which Mr.
Ruhfus is affiliated may compete with the Company for acquisition opportunities.
Accordingly, the interests of the Company, Mr. Ruhfus and Summerfield could
differ with respect to the Hotels or proposed acquisitions that are competitive
with hotels owned or being considered for acquisition or development by Mr.
Ruhfus and his affiliates.
LEVERAGE
To the extent the Company continues to incur debt, its debt service
requirements will reduce cash available for distribution to shareholders.
Variable rate debt, such as the Line of Credit, creates higher debt service
requirements if interest rates increase, which may decrease cash available for
distribution to shareholders. There can be no assurances that the Company will
be able to meet its debt service obligations. To the extent that it cannot meet
its debt service obligations, the Company risks the loss of some or all of its
assets to foreclosure or forced sale. Changes in economic
conditions could result in higher interest rates on variable rate debt,
including borrowings under the Line of Credit, reduce the availability of debt
financing generally or at rates deemed favorable to the Company, reduce cash
available for
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distribution to shareholders and increase the risk of loss upon a sale or
foreclosure. The Company also may obtain one or more forms of interest rate
protection on variable rate debt (e.g., swap agreements or interest rate cap
contracts) and will consider additional long-term fixed-rate financing to
further hedge against the possible adverse effects of interest rate
fluctuations. Adverse economic conditions could cause the terms on which
borrowings become available to be less favorable than at present. In such
circumstances, if the Company is in need of capital to repay indebtedness in
accordance with its terms or otherwise, it could be required to liquidate one or
more investments in Hotels or lose one or more Hotels to foreclosure, either of
which could result in a material financial loss to the Company.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner
or operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment of
a hazardous substance at a property owned by another may be liable for the costs
of removal or remediation of hazardous substances released into the environment
at that property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to promptly
remediate such substances, may adversely affect the owner's ability to sell real
estate or to borrow using such real estate as collateral. In connection with the
ownership and operation of the Hotels, the Company, the Partnership or the
Lessee, as the case may be, may be potentially liable for any such costs.
Phase I environmental site assessments ("ESAs") generally are obtained
on hotels acquired by the Company. The Company generally intends to obtain an
ESA on any other hotel acquired in the future. The ESAs are and were intended to
identify potential environmental contamination for which the Hotels may be
responsible. The ESAs included historical reviews of the Hotels, reviews of
certain public records, preliminary investigations of the sites and surrounding
properties, screening for the presence of hazardous substances, toxic substances
and underground storage tanks, and the preparation and issuance of a written
report. The ESAs did not include invasive procedures, such as soil sampling or
ground water analysis.
The ESAs have not revealed any environmental liability or compliance
concerns that the Company believes would have a material adverse effect on the
Company's business, assets, results of operations or liquidity, nor is the
Company aware of any such liability. Nevertheless, it is possible that these
ESAs do not reveal all environmental liabilities or that there are material
environmental liabilities or compliance concerns of which the Company is
unaware. Moreover, no assurances can be given that (i) future laws, ordinances
or regulations will not impose any material environmental liability, or (ii) the
current environmental condition of the Hotels will not be affected by the
condition of the properties in the vicinity of the Hotels (such as the presence
of
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leaking underground storage tanks) or by third parties unrelated to the
Partnership, the Lessee or the Company.
TAX STATUS
The Company has elected to be taxed as a REIT under Sections 856-860 of
the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its
short taxable year ended December 31, 1994. If the Company qualifies for
taxation as a REIT, with certain exceptions, the Company will not be subject to
federal income tax at the Company level on its taxable income that is
distributed to its shareholders. A REIT is subject to a number of organizational
and operational requirements, including a requirement that it currently
distribute at least 95% of its annual taxable income. Failure to qualify as a
REIT will render the Company subject to federal income tax (including any
applicable minimum tax) on its taxable income at regular corporate rates and
distributions to the holders of Common Shares in any such year will not be
deductible by the Company. If the Internal Revenue Service were to challenge
successfully the tax status of the Partnership as a partnership for federal
income tax purposes, the Partnership would be taxable as a corporation. In such
event, the Company would likely cease to qualify as a REIT for a variety of
reasons. Although the Company does not intend to request a ruling from the
Service as to its REIT status or the partnership status of the Partnership, the
Company has, in the past, obtained the opinion of its legal counsel that, as of
the date of the opinion, the Company qualifies as a REIT. The opinion was based
on certain assumptions and representations and is not binding on the Service or
any court. Even if the Company qualifies for taxation as a REIT, the Company may
be subject to certain federal, state and local taxes on its income and property.
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ITEM 2. PROPERTIES
The following tables set forth certain information with respect to the
Hotels that were owned by the Company as of December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------
NUMBER OF
YEAR SUITES/ ROOM LEASE
OPENED ROOMS REVENUE PAYMENT OCCUPANCY ADR REVPAR
------ ----- ------- ------- --------- --- ------
(1) (2) (3) (3) (3)
<S> <C> <C> <C> <C> <C> <C> <C>
Residence Inn:
Addison, TX........................... 1996 150 3,657,610 1,855,790 80.40% $89.74 $72.15
Altamonte Springs, FL................. 1985 128 38,633 8,951 84.15 91.41 76.92
Arlington, TX......................... 1995 114 2,915,043 1,398,900 86.11 89.09 76.72
Atlanta (Downtown), GA................ 1996 160 3,387,525 1,260,000 65.17 88.78 57.86
Binghamton, NY........................ 1987 72 2,045,215 945,465 89.78 86.69 77.82
Cherry Hill, NJ....................... 1989 96 2,994,016 1,368,612 87.43 97.73 85.45
Columbus East, OH..................... 1986 80 12,745 4,879 87.93 74.21 65.25
Denver (Downtown), CO................. 1982 156 4,611,644 2,049,498 90.15 89.86 81.02
Denver (South), CO.................... 1981 128 3,738,994 1,835,942 88.14 90.83 80.06
East Lansing, MI...................... 1984 60 1,435,598 600,767 79.86 82.16 65.62
Eden Prairie, MN...................... 1985 126 3,382,383 1,565,100 83.56 88.15 73.66
Fort Wayne, IN........................ 1985 80 12,998 5,053 84.59 66.27 56.06
Fremont, CA........................... 1985 80 2,960,031 1,424,010 86.79 116.80 101.37
Grand Rapids, MI...................... 1984 96 2,074,085 876,857 79.67 74.46 59.32
Harrisburg, PA........................ 1988 80 2,157,416 925,337 83.76 88.21 73.88
Indianapolis, IN...................... 1984 88 11,298 5,303 76.20 79.23 60.38
Lexington, KY......................... 1985 80 11,838 7,195 89.29 77.48 69.19
Louisville, KY........................ 1984 96 29,809 10,147 90.29 91.13 82.28
Mountain View (Palo Alto), CA......... 1985 112 5,149,068 3,030,320 91.85 137.14 125.96
Ontario, CA........................... 1986 200 48,845 12,597 71.87 79.89 57.42
Portland, ME.......................... 1996 78 2,067,674 936,718 88.03 82.58 72.69
Richmond, VA.......................... 1986 80 2,305,938 1,047,921 85.98 91.85 78.97
San Jose, CA.......................... 1986 80 3,396,691 1,720,939 92.64 125.57 116.33
San Mateo, CA......................... 1985 159 6,413,031 3,393,001 90.14 122.86 110.75
Shelton, CT........................... 1988 96 574,220 295,618 88.39 112.94 99.83
Silicon Valley I, CA.................. 1983 231 8,938,913 5,011,801 87.98 120.69 106.19
Silicon Valley II, CA................. 1985 247 9,881,207 5,652,561 87.46 125.48 109.74
Troy (Central), MI.................... 1986 152 4,543,278 2,343,605 87.31 93.79 81.89
Troy (Southeast), MI.................. 1985 96 2,685,023 1,276,259 84.49 90.69 76.63
Wichita East, KS...................... 1981 64 1,493,835 551,448 82.50 77.61 64.02
Windsor, CT........................... 1986 96 2,684,077 1,118,599 82.83 92.48 76.60
Winston-Salem, NC..................... 1986 88 14,512 5,875 84.71 79.35 67.22
Summerfield Suites
Addison, TX........................... 1996 132 2,055,636 995,078 77.72 104.63 81.32
Belmont, CA........................... 1995 132 2,865,736 1,390,601 83.91 129.76 108.88
El Segundo, CA........................ 1995 122 2,191,886 998,003 83.28 106.93 89.06
Irving (Las Colinas), TX.............. 1996 148 2,435,604 1,304,156 74.32 115.20 85.61
Mount Laurel, NJ...................... 1996 116 1,914,181 874,852 78.45 104.36 81.88
West Hollywood, CA.................... 1993 109 2,075,329 975,156 81.64 118.86 97.03
Hampton Inn:
Albany/Latham, NY..................... 1990 126 2,185,443 1,082,009 66.18 71.89 47.58
Germantown, MD........................ 1987 176 2,692,636 1,275,570 58.75 71.34 41.92
Islandia (Long Island), NY............ 1988 121 2,658,768 1,246,803 73.33 82.10 60.20
Lombard (Chicago), IL................. 1987 128 1,080,380 476,715 64.22 67.04 43.05
Naples, FL............................ 1990 107 1,933,644 836,876 71.87 68.89 49.51
Norcross, GA.......................... 1996 150 1,877,901 688,161 53.63 64.38 34.53
Schaumburg (Chicago), IL.............. 1986 128 1,244,288 632,264 71.24 69.89 49.79
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Tallahassee, FL....................... 1993 93 1,741,363 869,411 80.24 63.93 51.30
West Palm Beach, FL................... 1986 136 2,085,771 783,782 69.98 60.04 42.02
Westchester (Chicago), IL............. 1988 112 1,140,010 578,084 72.65 72.04 52.34
Willow Grove (Philadelphia), PA....... 1991 150 3,622,972 1,975,696 79.91 82.81 66.17
Woburn, MA............................ 1981 100 1,727,252 887,136 77.90 93.32 72.70
Sierra and Sunrise Suites
Atlanta (Cumberland), GA.............. 1996 89 778,768 377,495 78.85 54.77 43.18
Phoenix (Camelback), AZ............... 1997 113 859,271 404,537 68.15 67.18 45.78
Eatontown (Tinton Falls), NJ.......... 1993 96 1,353,161 467,295 75.99 87.94 66.82
Comfort Inn:
Allentown, PA......................... 1990 127 2,048,290 1,061,219 75.00 58.92 44.19
Holiday Inn Express:
Lexington, MA......................... 1971 204 3,155,994 1,572,185 58.69 78.59 46.13
Sheraton Inn:
Fort Lauderdale, FL................... 1988 139 2,483,082 1,134,527 76.29 65.76 50.17
Consolidated Total/
Weighted average.......................... 6,703 $133,880,557 $65,432,679 79.60%(4) $93.74(4) $74.60(4)
===== ============ ===========
</TABLE>
- ------------------------
(1) Represents the hotels' room revenue from the
date of acquisition by the Company.
(2) Represents Percentage Lease revenue
from the Lessee to the Company calculated in accordance with the
Percentage Leases.
(3) Represents the occupancy, ADR and RevPAR of the Hotels for the
year including the period, if any, prior to ownership by the Company.
(4) Excludes results from the following eight Residence Inn hotels acquired
December 30, 1997: Altamonte Springs, FL; Fort Wayne, IN; Indianapolis,
IN; Lexington, KY; Louisville, KY; Ontario, CA; Winston-Salem, NC;
Columbus East, OH.
THE PERCENTAGE LEASES
Each Percentage Lease contains provisions similar to those described
below, and the Company intends that future percentage leases with respect to
additional hotels it may acquire will contain similar provisions.
Percentage Lease Terms. Each Percentage Lease has a non-cancelable term
of at least ten years, subject to earlier termination upon the occurrence of
defaults thereunder and certain other events described in the Percentage Lease.
Certain of the Percentage Leases contain renewal terms of up to 15 years, at the
Lessee's option.
Amounts Payable Under the Percentage Leases. During the term of each
Percentage Lease, the Lessee is obligated to pay to the Partnership (i) the
greater of a fixed annual Base Rent or Percentage Rent, and (ii) certain other
amounts, including interest accrued on any late payments or charges (the
"Additional Charges"). Percentage Rent is based on percentages of room revenues
for each of the Hotels. For all Percentage Leases, both the Base Rent and the
Revenue Break Point in each Percentage Rent formula are (a) adjusted annually
for inflation and (b) in the case of the certain of the Hotels managed by
Marriott, increased to specified levels (not tied to inflation) in the first
years after execution. With respect to adjustments for inflation, the adjustment
will be calculated at the beginning of each calendar year based upon the change
in the CPI during the prior calendar year. The Company receives between 30% and
36.5% of room revenue up to the Revenue Break Point and between 68% and 70% of
room revenue in excess of the Revenue Break Point. The Base Rent for seven of
the Hotels leased to the Summerfield Lessee reduces in 1999, as described in
"Internal Growth Strategy" above, and beginning in 2000 will adjust annually for
inflation.
24
<PAGE> 27
Other than real estate and personal property taxes, ground lease rent
(where applicable), the cost of certain furniture and equipment and certain
capital expenditures, and property and casualty insurance (for the hotels leased
by the JF Lessee), which are obligations of the Company, the Percentage Leases
require the Lessee to pay Base Rent, Percentage Rent, Additional Charges and the
operating expenses of the Hotels (including insurance, utility and other charges
incurred in the operation of the Hotels) during the terms of the Percentage
Leases. The Percentage Leases also provide for rent reductions and abatements in
the event of damage or destruction or a partial taking of any Hotel.
Maintenance and Modifications. Under the Percentage Leases, the Company
is required to pay for capital improvements at each Hotel. In addition, the
Percentage Leases obligate the Company to make available to the Lessee for the
repair, replacement and refurbishment of furniture and equipment in the Hotels,
when and as deemed necessary by the Lessee, an amount equal to 4% or 5% of room
revenues, per month on a cumulative basis. The Company's obligation is carried
forward to the extent that the Lessee has not expended such amount, and any
unexpended amounts remain the property of the Company upon termination of the
Percentage Leases. In addition, the Company intends to cause the expenditure of
amounts in excess of the obligated amounts if necessary to comply with the
reasonable requirements of any franchise license or Marriott Management
Agreement and otherwise to the extent that the Company deems such expenditures
to be in the best interests of the Company. Otherwise, the Lessee is required,
at its expense, to (i) maintain the Hotels in good order and repair, (ii) pay
for all operating expenses of the Hotels and (iii) comply with the requirements
of any Company loan agreement (to the extent applicable to property operations
or cash management), any franchise agreement and the Marriott Management
Agreements.
The Lessee, at its expense, may make non-capital and capital additions,
modifications or improvements to the Hotels, provided that such action does not
significantly alter the character or purposes of the Hotels or significantly
detract from the value or operating efficiencies of the Hotels. All such
alterations, replacements and improvements shall be subject to all the terms and
provisions of the Percentage Leases and become the property of the Company upon
termination of the Percentage Leases. The Company owns, with respect to the
Hotels, substantially all personal property (other than inventory, linens and
other nondepreciable personal property) not affixed to, or deemed a part of, the
real estate or improvements thereon, except to the extent that ownership of such
personal property would cause the rent under a Percentage Lease not to qualify
as "rents from real property" for REIT income test purposes.
25
<PAGE> 28
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any material litigation, nor,
to its knowledge, is any material litigation threatened against the Company or
its properties, other than routine litigation arising in the ordinary course of
business and which is expected to be covered by the Company's liability
insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The information called for in this item is incorporated by reference
from the "Corporate Information" section of the Company's 1997 Annual Report,
filed as Exhibit 13.1 to this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information called for in this item with respect to the Company and
its predecessor is incorporated by reference from the "Selected Financial Data"
section of the 1997 Annual Report filed as Exhibit 13.1 to this Form 10-K.
With respect to the JF Lessee, the following table sets forth selected
historical financial data for the years ended December 31, 1997, 1996 and 1995
and the period September 30, 1994 (inception) through December 31, 1994. The
following selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included, or incorporated by reference, herein.
26
<PAGE> 29
JF LESSEE
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31, Period from
------------------------ September 30, 1994
(Inception)
1997 1996 1995 December 31, 1994
-------- -------- -------- ------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Room revenue $117,170 $ 58,501 $ 24,412 $ 3,404
Other revenue 7,333 4,222 1,895 372
-------- -------- -------- --------
Total revenue 124,503 62,723 26,307 3,776
Hotel operating expenses 61,320 32,274 13,696 2,041
-------- -------- -------- --------
Income before Lessee overhead
and Percentage Lease expense 63,183 30,449 12,611 1,735
Percentage Lease expense 57,486 27,466 11,268 1,480
Lessee overhead 2,210 2,273 952 132
-------- -------- -------- --------
Net income (1) $ 3,487 $ 710 $ 391 $ 123
======== ======== ======== ========
</TABLE>
(1) The JF Lessee has elected status as a Subchapter S corporation for
federal income tax purposes and, generally, pays no corporate level tax
on its net income.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information called for in this item with respect to the Company and
its predecessor is incorporated by reference from the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of the
1997 Annual Report, filed as Exhibit 13.1 to this Form 10-K.
The following is a discussion of the results of operations for the JF
Lessee.
Comparison of Year Ended December 31, 1997 ("1997") to the Year Ended
December 31, 1996 ("1996")
The JF Lessee had total revenue for 1997 of $124,503,000, consisting of
$117,170,000 of room revenue and $7,333,000 of other revenue. Room revenue
increased by $58,669,000, or 100% from $58,501,000 for 1996. This increase was
primarily due to the number of Hotels leased increasing from 18 at January 1,
1996 to 32 at January 1, 1997 and to 47 at December 31, 1997.
27
<PAGE> 30
Percentage Lease payments and hotel operating expenses for 1997 were
$57,486,000 and $61,320,000, respectively. Percentage Lease payments and hotel
operating expenses increased by $30,020,000 or 109% and $29,046,000 or 90%,
respectively from $27,466,000 and $32,274,000 for 1996, respectively. These
increases were primarily due to the number of Hotels leased increasing from 18
at January 1, 1996 to 32 at January 1, 1997 and to 47 at December 31, 1997. Net
income for 1997 was $3,487,000. Net income increased $2,777,000, or 391%, from
$710,000 for 1996.
Departmental profit as a percentage of gross operating revenue
increased to 79.2% in 1997 from 77.2% in 1996. Net income as a percentage of
gross operating revenue increased to 2.8% in 1977 from 1.1% in 1996. These
increases were due primarily to operational efficiencies achieved in 1997.
Comparison of Year Ended December 31, 1996 ("1996") to the Year Ended
December 31, 1995 ("1995")
The JF Lessee had total revenue for 1996 of $62,723,000, consisting of
$58,501,000 of room revenue and $4,222,000 of other revenue. Room revenue
increased by $34,089,000, or 139.6% from $24,412,000 for 1995. This increase was
primarily due to the number of Hotels leased increasing from seven at January 1,
1995 to 18 at January 1, 1996 and to 32 at December 31, 1996.
Percentage Lease payments, hotel operating expenses and overhead
expenses for 1996 were $27,466,000, $32,274,000, and $2,273,000, respectively.
Percentage Lease payments, hotel operating expense and overhead expenses
increased by $16,198,000 or 143.8%, $18,578,000 or 135.7%, and $1,321,000 or
138.8%, respectively from $11,268,000, $13,696,000 and $952,000 for 1995,
respectively. These increases were primarily due to the number of Hotels leased
increasing from seven at January 1, 1995 to 18 at January 1, 1996 and to 32 at
December 31, 1996. Net income for 1996 was $710,000. Net income increased
$319,000, or 81.6%, from $391,000 for 1995.
Departmental profit as a percentage of gross operating revenue remained
relatively constant at 77.2% and 76.2% for 1996 and 1995, respectively. Net
income as a percentage of gross operating revenue remained relatively constant
at 1.1% and 1.5% for 1996 and 1995, respectively.
Liquidity and Capital Resources
The JF Lessee's principal source of revenue is the revenue derived from
the hotels it operates under lease from the Company. The JF Lessee is dependent
on this revenue to provide cash for the payment of its operating expenses,
insurance, overhead and Percentage Lease payments. The JF Lessee is dependent
upon the cash flow from operating activities to meet substantially all of its
liquidity needs, including working capital and distributions to its
shareholders. The JF Lessee does not currently have any established borrowing
facilities. The JF Lessee believes that its cash flow provided by operating
activities will be sufficient to meet its liquidity needs.
28
<PAGE> 31
Net cash flow from operating activities was $4,656,000 in 1997. Net
cash flow used in investing activities was $118,000 in 1997, which consisted
primarily of the collection of affiliate advances and the purchase of marketable
securities. Net cash flow used in financing activities was $2,226,000 in 1997,
which consisted of distributions paid to its shareholders.
Seasonality of Hotel Business
The hotel industry is seasonal in nature. Historically, the operations
of the Hotels have generally reflected higher occupancy rates and ADR during the
second and third quarters.
Inflation
Operators of hotels, including the JF Lessee and any third-party
managers retained by the JF Lessee, in general possess the ability to adjust
room rates quickly. However, competitive pressures have limited and may in the
future limit the ability of the JF Lessee and any third-party manager retained
by the JF Lessee to raise room rates in response to inflation.
Impact of Year 2000
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any computer
program that has date sensitive software may recognize a date using "00" as the
year 1900 rather than as the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in a similar normal business activities.
The JF Lessee has recently assessed its internal computer systems and
believes that the current systems used will properly utilize dates beyond
December 31, 1999. The JF Lessee has been informed that its third party managers
are in the process of studying the year 2000 issue, including inquiries of their
vendors. Upon completion of the management companies' studies, which is expected
in late 1998, the JF Lessee will determine the extent to which it is vulnerable
to the third parties' failure to remediate their own year 2000 issues and the
costs associated with resolving this issue.
Forward Looking Statements
Management's discussion and analysis of financial condition and results
of operations contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
containing the words "believes," "anticipates," "expects" and words of similar
import. Such forward-looking statements relate to future events and the future
financial performance of the JF Lessee, and involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the JF Lessee to be materially different from the results or
achievements expressed or implied by such forward-looking statements. The JF
Lessee is not obligated to update any such factors
29
<PAGE> 32
or to reflect the impact of actual future events or developments on such
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Item 305 of Regulation S-K, the
quantitative and qualitative disclosure called for by this Item 7A. and by Item
305 of Regulation S-K are inapplicable to the Company at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are incorporated by reference from
the Financial Statements included in the 1997 Annual Report, filed as Exhibit
13.1 to this Form 10-K.
INNKEEPERS USA TRUST
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1997
and 1996
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
30
<PAGE> 33
The following financial statements are included herein on the pages
indicated.
<TABLE>
<S> <C>
JF HOTEL, INC., JF HOTEL II, INC. AND JF HOTEL III, INC.
Report of Independent Accountants...........................................................................32
Combined Balance Sheets at December 31, 1997 and
December 31, 1996..........................................................................................33
Combined Statements of Income for the years ended
December 31, 1997, 1996 and 1995 ..........................................................................34
Combined Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995 ..............................................................35
Combined Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ..........................................................................36
Notes to Combined Financial Statements......................................................................37
FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants...........................................................................41
Schedule 3 - Real Estate and Accumulated Depreciation
at December 31, 1997......................................................................................42
</TABLE>
31
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
JF Hotel
We have audited the combined balance sheets of JF Hotel (as described in Note 1)
as of December 31, 1997 and 1996, and the related combined statements of income,
shareholders' equity and cash flows for the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of JF Hotel as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Memphis, Tennessee
March 23, 1998
32
<PAGE> 35
JF HOTEL
COMBINED BALANCE SHEETS
December 31, 1997 and 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
------- -------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,863 $ 5,551
Marketable securities 1,775 1,161
Accounts receivable, net 3,090 2,393
Due from affiliates 298
Inventory 23 67
Prepaid expenses 351 233
------- -------
Total current assets 13,102 9,703
Other assets 180 252
------- -------
Total assets $13,282 $ 9,955
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,061 $ 2,150
Accrued expenses 2,055 1,545
Payable to Manager 2,025 1,634
Other liabilities 585 785
Due to Partnership 3,791 3,541
------- -------
Total current liabilities 11,517 9,655
------- -------
Commitments and contingencies (Note 4)
Shareholders' equity:
Common shares, $1 par value, 3,000 shares authorized,
3,000 shares issued and outstanding at
December 31, 1997 and 1996 3 3
Unrealized gain on marketable securities 562 358
Retained earnings (deficit) 1,200 (61)
------- -------
Total shareholders' equity 1,765 300
------- -------
Total liabilities and shareholders' equity $13,282 $ 9,955
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
33
<PAGE> 36
JF HOTEL
COMBINED STATEMENTS OF INCOME
For the years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Gross operating revenue:
Rooms $ 117,170 $ 58,501 $ 24,412
Food and beverage 636 687 626
Telephone 4,167 2,231 743
Other 2,530 1,304 526
--------- -------- --------
Gross operating revenue 124,503 62,723 26,307
Departmental expenses:
Rooms 22,637 12,404 5,132
Food and beverage 583 583 596
Telephone 1,480 850 381
Other 1,148 470 166
--------- -------- --------
Total departmental profit 98,655 48,416 20,032
--------- -------- --------
Unallocated operating expenses:
General and administrative 8,754 3,943 1,598
Franchise and marketing fees 8,833 4,492 1,941
Advertising and promotions 4,204 2,305 894
Utilities 5,204 3,235 1,505
Repairs and maintenance 5,443 3,073 1,195
Management fees 2,255 540 49
--------- -------- --------
Total unallocated operating expenses 34,693 17,588 7,182
--------- -------- --------
Gross profit 63,962 30,828 12,850
Insurance (779) (379) (239)
Lessee overhead (2,210) (2,273) (952)
Percentage lease expense (57,486) (27,466) (11,268)
--------- -------- --------
Net income $ 3,487 $ 710 $ 391
========= ======== --------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
34
<PAGE> 37
JF HOTEL
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31,1997, 1996 and 1995
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Shares Unrealized
---------------------- Gain On Retained Total
Marketable Earnings Shareholders'
Shares Par Value Securities (Deficit) Equity
------ --------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,000 $ 1 $ 48 $ 49
JF Hotel II, Inc. issuance of common shares 1,000 1 1
Net income 391 391
Distributions paid (439) (439)
----- ---- ---- ------- -------
Balance at December 31, 1995 2,000 2 2
JF Hotel III, Inc. issuance of common shares 1,000 1 1
Net income 710 710
Change in unrealized gain on marketable
securities $358 358
Distributions paid (771) (771)
----- ---- ---- ------- -------
Balance at December 31, 1996 3,000 3 358 (61) 300
Net income 3,487 3,487
Change in unrealized gain on marketable
securities 204 204
Distributions paid (2,226) (2,226)
----- ---- ---- ------- -------
Balance at December 31, 1997 3,000 $ 3 $562 $ 1,200 $ 1,765
===== ==== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
35
<PAGE> 38
JF HOTEL
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,487 $ 710 $ 391
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 45 28
Changes in operating assets and liabilities:
Accounts Receivable (697) (853) (1,306)
Inventory 44 (40) (11)
Prepaid expenses (118) (14) (55)
Other Assets 33 (45)
Accounts payable 911 127 (91)
Accrued expenses 510 483 1,443
Payable to Manager 391 1,634 758
Other Liabilities (200) 785
Due to Partnership 250 1,493 1,955
------- ------- -------
Net cash provided by operating activities 4,656 4,308 3,084
------- ------- -------
Cash flows from investing activities:
Advances to affiliates (298)
Affiliate advances collected 298
Purchase of equipment (6) (81)
Purchase of marketable securities (410) (548) (255)
------- ------- -------
Net cash used in investing activities (118) (927) (255)
------- ------- -------
Cash flows from financing activities:
Distributions paid (2,226) (771) (439)
Advances (payments) to shareholders 40 (40)
Issuance of common shares 1 1
------- ------- -------
Net cash used in financing activities (2,226) (730) (478)
------- ------- -------
Net increase in cash and cash equivalents 2,312 2,651 2,351
Cash and cash equivalents at beginning of year 5,551 2,900 549
------- ------- -------
Cash and cash equivalents at end of year $ 7,863 $ 5,551 $ 2,900
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
36
<PAGE> 39
JF HOTEL
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
JF Hotel, Inc., JF Hotel II, Inc. and JF Hotel III, Inc. (collectively "JF
Hotel" or the "JF Lessee") are under common control and were formed primarily to
lease and operate hotels owned by Innkeepers USA Trust ("Innkeepers") through
Innkeepers USA Limited Partnership and its subsidiaries (collectively the
"Partnership," and together with Innkeepers, the "Company"). As of December 31,
1997, approximately 82.1% of the Partnership was owned by the Company. The
principal shareholders of the JF Lessee are Jeffrey H. Fisher, who is the
President, Chief Executive Officer and Chairman of the Company, and Frederic M.
Shaw, who is the Executive Vice-President and Chief Operating Officer of the
Company. The JF Lessee commenced the leasing and operation of seven hotels (the
"Initial Hotels") on September 30, 1994 and at December 31, 1997 leased 47
hotels (the "JF Leased Hotels") from the Company.
The Lessee operates 25 of the Hotels, Residence Inn by Marriott, Inc. ("RIBM", a
wholly-owned subsidiary of Marriott International, Inc.) operates 20 of the
Hotels, and an unaffiliated party operates two of the Hotels. The financial
statements of the 20 hotels operated by RIBM are maintained on a 52/53 week
period basis. The 1996 fiscal year ended on January 3, 1997 and the 1997 fiscal
year ended on January 2, 1998.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. Cash equivalents are placed
with reputable institutions and the balances may at times exceed federal
depository insurance limits.
The carrying amount of cash and cash equivalents approximates fair value.
MARKETABLE SECURITIES
Marketable securities, which primarily consist of 113,950 and 83,050 shares of
the Company's common stock at December 31, 1997 and 1996, respectively, are
classified as available for sale and are carried at market value. The
appreciation in value of the marketable securities, since purchase, is recorded
in shareholders' equity until realized.
INVENTORY
Inventory, consisting of food and beverage, is stated at the lower of cost
(generally, first-in, first-out) or market. Linens and uniforms are expensed as
incurred.
PREPAID EXPENSES
Prepaid expenses consist primarily of prepaid insurance.
REVENUE RECOGNITION
Revenue is recognized as earned. Credit evaluations are performed and an
allowance for doubtful accounts is provided against accounts receivable which
are estimated to be uncollectible.
FRANCHISE FEES
The cost of obtaining franchise licenses, for hotels subject to such licenses,
is paid by the Company, and the continuing franchise fees (generally a
percentage of room revenue) are paid by the JF Lessee.
37
<PAGE> 40
JF HOTEL
NOTES TO COMBINED FINANCIAL STATEMENTS
ADVERTISING COSTS
Advertising costs are expensed as incurred. Included in franchise and marketing
fees are fees (generally a percentage of room revenue) payable to marketing
funds of the franchisors which were $3,303,000, $1,728,000, and $868,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
PERCENTAGE LEASE EXPENSE
Each JF Leased Hotel is leased by the Company to the JF Lessee under a
percentage lease agreement ("Percentage Lease"). The Percentage Lease for each
JF Leased Hotel provides for the payment to the Company of monthly percentage
rent based on fixed percentages of gross room revenue in excess of certain
specified levels. The Percentage Lease for each JF Leased Hotel provides for
minimum base rents in the event that percentage rents do not exceed base rents.
Percentage lease expense is recognized as due to the Company under the
Percentage Leases from lease inception.
INCOME TAXES
The JF Lessee has elected S corporation status under the Internal Revenue Code.
Accordingly, the shareholders of the JF Lessee are taxed on an individual basis
on their proportionate share of the JF Lessee's taxable income. Consequently, no
provision for income taxes has been reflected in the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. DUE FROM AFFILIATES
At December 31, 1996, Due From Affiliates consisted of unreimbursed capital
expenditures and principal payments due from the Partnership and amounts owed to
partnerships controlled by the shareholders of the JF Lessee. These amounts were
repaid in 1997.
3. SHARE APPRECIATION RIGHTS
In 1994, the JF Lessee granted to certain officers an aggregate of 70,000 share
appreciation rights ("SARs") based on the performance of the Company's common
shares. The SARs' vest over a four year period, have been granted at an exercise
price of $10.00 and have a maximum term of ten years. In 1997, the JF Lessee
granted to certain employees and officers an aggregate of 300,000 SARs, which
vest over four or five year periods, have an exercise price of $13.25 and a
maximum term of ten years. No SARs have been exercised as of December 31, 1997.
At December 31, 1997 and 1996, the JF Lessee has recognized $196,000 and
$234,000, respectively, in compensation cost related to the SARs, which is
included in Lessee Overhead in the accompanying combined statements of income.
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The JF Lessee has future lease commitments for office space through 1998.
Minimum future rental payments under those noncancelable operating leases is
approximately $135,000 in 1998.
38
<PAGE> 41
JF HOTEL
NOTES TO COMBINED FINANCIAL STATEMENTS
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS, CONTINUED
Rent expense, excluding Percentage Lease expense, was $135,000, $219,000, and
$40,700 for the years ended December 31, 1997, 1996 and 1995, respectively.
The JF Lessee has future minimum base lease commitments under the Percentage
Lease agreements to the Company through 2012. Minimum future base lease payments
under the Percentage Lease agreements are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998 $ 33,067
1999 33,067
2000 33,067
2001 33,067
2002 33,067
Thereafter 170,882
--------
$336,217
========
</TABLE>
The JF Lessee paid base rents of $25,580,000, $10,212,000 and $4,793,000, and
percentage rent, in excess of base rents, of $31,906,000, $17,254,000 and
$6,475,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
RIBM operates 20 of the Hotels under management agreements with the JF Lessee
(the "RIBM Management Agreements"). The RIBM Management Agreements, generally,
have an initial term of 13 years and provide for a base fee of 2% of gross
revenues at the managed hotels and an incentive fee which is 50% of available
cash flow, as defined. For seven of the Hotels only, the RIBM Management
Agreement provides for an incentive fee of 65% of available cash flow up to 3.5%
of gross revenue and 50% of available cash flow thereafter. The agreement also
contains penalties for early termination. Amounts due to RIBM under the RIBM
Management Agreements are included in Payable to Manager in the accompanying
combined balance sheet. The right to operate the 20 hotels as Residence Inns is
contained in the RIBM Management Agreement. In lieu of a franchise fee, the RIBM
Management Agreements provide for a system fee of 5% of gross revenues at the
RIBM managed hotels. The system fee is included in franchise and marketing fees
in the accompanying combined statements of income.
Two of the JF Leased Hotels are operated under management agreements with an
unaffiliated party with terms of 5 years and providing for a base fee of 2% of
gross revenues and an incentive fee based on the performance of the hotels
managed.
The Company has reimbursed the JF Lessee $100,000, $100,000, and $40,000 for the
use of office facilities for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company has advanced to the JF Lessee the working capital
deposit required under the RIBM Management Agreements. These advances are
included in other liabilities in the accompanying combined balance sheet.
Percentage Lease expense due to the Company, which remains unpaid at December
31, 1997 and 1996, is included in Due to Partnership in the accompanying
combined balance sheet. The Company has also guaranteed the JF Lessee's
obligations under its franchise licenses (and is liable for certain of the JF
Lessee's obligations under the Marriott Management Agreements), generally in
exchange for certain rights to substitute a replacement lessee as the franchisee
(or as the parties to the Marriott Management Agreement) if the Company
terminates the related Percentage Lease.
39
<PAGE> 42
JF HOTEL
NOTES TO COMBINED FINANCIAL STATEMENTS
5. EMPLOYEE BENEFIT PLAN
In July 1996, the JF Lessee began sponsoring a defined contribution employee
benefit plan (the "Plan"). Substantially all employees who are age 21 or older
and have at least one year of service, as defined, are eligible to participate
in the Plan. Employees may contribute up to 15% of their compensation to the
Plan, subject to certain annual limitations. The JF Lessee currently does not
contribute to the Plan. The JF Lessee absorbs certain administrative expenses of
the Plan.
On October 1, 1997, the JF Lessee established a self-insured health plan for its
employees. The JF Lessee has made a provision for reported and unreported claims
incurred as of December 31, 1997. The JF Lessee also maintains individual and
aggregate stop loss policies.
6. SUBSEQUENT EVENTS
In January 1998, the Company acquired and leased six hotels to the JF Lessee
under Percentage Leases.
40
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Innkeepers USA Trust is
included in Exhibit 13.1 of this Form 10-K. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedule on pages 41 through 43 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Memphis, Tennessee
March 23, 1998
41
<PAGE> 44
INNKEEPERS USA TRUST
SCHEDULE 3 - REAL ESTATE AND ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Gross Amounts of Which
Initial Cost Acquisition Carried at Close of Period
----------------------- --------------------- --------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvement Land Improvement Land Improvement
----------- ------------ ---- ----------- ---- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Residence Inn:
Addison, TX $ 1,000,000 $ 11,913,050 $ 0 $ 0 $ 1,000,000 $ 11,913,050
Altamonte Springs, 1,329,300 7,085,660 0 0 1,329,300 7,085,660
FL
Arlington, TX 860,000 8,432,997 0 0 860,000 8,432,997
Atlanta (Downtown), 1,550,000 14,926,908 0 3,540 1,550,000 14,930,448
GA
Binghamton, NY 4 720,000 5,293,910 0 124,302 720,000 5,418,212
Cherry Hill, NJ 4 1,000,000 7,998,153 0 229,148 1,000,000 8,227,301
Columbus East, OH 724,800 3,861,606 0 0 724,800 3,861,606
Denver (Downtown), 4 1,210,000 7,989,641 0 46,248 1,210,000 8,035,889
CO
Denver (South), CO 3 1,105,000 7,714,756 0 360,531 1,105,000 8,075,287
East Lansing, MI 2 385,000 3,830,424 0 52,453 385,000 3,882,877
Eden Prairie, MN 1,240,000 9,248,876 0 6,737 1,240,000 9,255,613
Fort Wayne, IN 751,650 3,998,805 0 0 751,650 3,998,805
Fremont, CA 3 1,000,000 4,675,247 0 124,111 1,000,000 4,799,358
Grand Rapids, MI 2 770,000 6,432,820 0 36,806 770,000 6,469,626
Harrisburg, PA 1 770,000 5,662,329 0 121,318 770,000 5,783,647
Indianapolis, IN 789,150 4,195,834 0 0 789,150 4,195,834
Lexington, KY 1,069,350 5,694,871 0 0 1,069,350 5,694,871
Louisville, KY 1,509,600 8,028,532 0 0 1,509,600 8,028,532
Mountain View 3 3,700,000 12,283,463 0 129,910 3,700,000 12,413,373
(Palo Alto), CA
Ontario, CA 1,876,650 9,963,981 0 0 1,876,650 9,963,981
Portland, ME 520,000 4,996,765 0 300 520,000 4,997,065
Richmond, VA 3 600,000 5,154,740 0 65,172 600,000 5,219,912
San Jose, CA 3 1,350,000 5,808,270 0 105,994 1,350,000 5,914,264
San Mateo, CA 4,600,000 15,148,774 0 55,320 4,600,000 15,204,094
Shelton, CT 1,560,000 8,143,530 0 0 1,560,000 8,143,530
Silicon Valley I, CA 4 6,330,000 23,232,485 0 68,090 6,330,000 23,300,575
Silicon Valley II, CA 2 5,450,000 25,292,711 0 79,559 5,450,000 25,372,270
Troy (Central), MI 3 1,290,000 4,891,360 0 274,779 1,290,000 5,166,139
Troy (Southeast), MI 3 760,000 7,245,716 0 226,060 760,000 7,471,776
Wichita East, KA 4 525,000 3,429,683 0 48,436 525,000 3,478,119
Windsor, CT 3 1,150,000 4,712,293 0 216,999 1,150,000 4,929,292
Winston-Salem, NC 874,500 4,647,510 0 0 874,500 4,647,510
</TABLE>
<TABLE>
<CAPTION>
Life Upon
Whick
Depreciation In
Accumulated Net Date of Date of Statement Is
Total Depreciation Book Value Construction Acquisition Computed
----- ------------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Residence Inn:
Addison, TX $ 12,913,050 $ 223,171 $ 12,689,879 1996 1997 40
Altamonte Springs, 8,414,960 0 8,414,960 19 1997 40
FL
Arlington, TX 9,292,997 157,802 9,135,195 1995 1997 40
Atlanta (Downtown), 16,480,448 435,614 16,044,834 1996 1996 40
GA
Binghamton, NY 6,138,212 452,448 5,685,764 1987 1994 40
Cherry Hill, NJ 9,227,301 314,386 8,912,915 1989 1996 40
Columbus East, OH 4,586,406 0 4,586,406 19 1997 40
Denver (Downtown), 9,245,889 234,204 9,011,685 1982 1996 40
CO
Denver (South), CO 9,180,287 524,986 8,655,301 1981 1995 40
East Lansing, MI 4,267,877 110,156 4,157,721 1984 1996 40
Eden Prairie, MN 10,495,613 173,343 10,322,270 1985 1997 40
Fort Wayne, IN 4,750,455 0 4,750,455 19 1997 40
Fremont, CA 5,799,358 291,722 5,507,636 1985 1995 40
Grand Rapids, MI 7,239,626 187,548 7,052,078 1984 1996 40
Harrisburg, PA 6,553,647 220,014 6,333,633 1988 1996 40
Indianapolis, IN 4,984,984 0 4,984,984 19 1997 40
Lexington, KY 6,764,221 0 6,764,221 19 1997 40
Louisville, KY 9,538,132 0 9,538,132 19 1997 40
Mountain View 16,113,373 721,546 15,391,827 1985 1995 40
(Palo Alto), CA
Ontario, CA 11,840,631 0 11,840,631 19 1997 40
Portland, ME 5,517,065 145,678 5,371,387 1996 1996 40
Richmond, VA 5,819,912 302,019 5,517,893 1986 1995 40
San Jose, CA 7,264,264 349,238 6,915,026 1986 1995 40
San Mateo, CA 19,804,094 444,023 19,360,071 1985 1996 40
Shelton, CT 9,703,530 33,931 9,669,599 19 1997 40
Silicon Valley I, CA 29,630,575 679,229 28,951,346 1983 1996 40
Silicon Valley II, CA 30,822,270 738,437 30,083,833 1985 1996 40
Troy (Central), MI 6,456,139 341,858 6,114,281 1986 1995 40
Troy (Southeast), MI 8,231,776 455,799 7,775,977 1985 1995 40
Wichita East, KA 4,003,119 103,444 3,899,675 1981 1996 40
Windsor, CT 6,079,292 311,329 5,767,963 1986 1995 40
Winston-Salem, NC 5,522,010 0 5,522,010 19 1997 40
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Gross Amounts of Which
Initial Cost Acquisition Carried at Close of Period
----------------------- --------------------- --------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvement Land Improvement Land Improvement
----------- ------------ ---- ----------- ---- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Summerfield Suites:
Addison, TX 5 1,470,000 11,918,869 0 0 1,470,000 11,918,869
Belmont, CA 5 2,900,000 16,318,056 0 0 2,900,000 16,318,056
El Segundo 5 1,970,000 11,395,769 0 0 1,970,000 11,395,769
Las Colinas, TX 5 2,263,000 15,581,927 0 0 2,263,000 15,581,927
Mount Laurel, NJ 5 400,000 11,200,995 0 0 400,000 11,200,995
West Hollywood, CA 5 969,000 12,689,650 0 0 969,000 12,689,650
Hampton Inn:
Albany/Latham, NY 1 850,000 7,974,632 0 214,735 850,000 8,189,367
Germantown, MD 1 920,000 4,811,562 0 1,928,131 920,000 6,739,693
Islandia (Long Island), 4 920,000 4,854,980 0 122,910 920,000 4,977,890
NY
Lombard, IL 1 600,000 6,602,047 0 0 600,000 6,602,047
Naples, FL 4 690,000 4,782,493 0 266,682 690,000 5,049,175
Norcross, GA 1,200,000 7,711,883 0 9,267 1,200,000 7,721,150
Schaumburg, IL 1 572,000 4,211,770 0 0 572,000 4,211,770
Tallahassee, FL 4 500,000 4,242,469 0 14,171 500,000 4,256,640
West Palm Beach, FL 2 0 3,936,536 0 510,751 0 4,447,287
Westchester, IL 1 572,000 4,640,531 0 0 572,000 4,640,531
Willow Grove 1 1,110,000 8,375,236 0 41,856 1,110,000 8,417,092
(Philadelphia), PA
Woburn, MA 1 0 2,645,776 0 2,824,385 0 5,470,161
Sierra and Sunrise
Suites:
Atlanta, GA 5 985,000 3,518,144 0 0 985,000 3,518,144
Phoenix, AZ 5 1,288,000 5,149,588 0 0 1,288,000 5,149,588
Tinton Falls, NJ 5 750,000 4,625,441 0 0 750,000 4,625,441
Comfort Inn:
Allentown, PA 1 715,000 6,045,158 0 128,662 715,000 6,173,820
Holiday Inn Express:
Lexington, MA 1 875,000 5,434,073 0 2,691,545 875,000 8,125,618
Sheraton Inn:
Fort Lauderdale, FL 1 0 7,779,311 0 270,187 0 8,049,498
Vacant land 618,883 0 0 0 618,883 0
Corporate 0 0 0 31,547 0 31,547
----------- ------------ ------ ----------- ----------- ------------
$71,507,883 $438,382,596 $ 0 $11,430,642 $71,507,883 $449,813,238
----------- ------------ ------ ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
Life Upon
Whick
Depreciation In
Accumulated Net Date of Date of Statement Is
Total Depreciation Book Value Construction Acquisition Computed
----- ------------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Summerfield Suites:
Addison, TX 13,388,869 148,270 13,240,599 1996 1997 40
Belmont, CA 19,218,056 203,369 19,014,687 1995 1997 40
El Segundo 13,365,769 141,796 13,223,973 1995 1997 40
Las Colinas, TX 17,844,927 194,312 17,650,615 1996 1997 40
Mount Laurel, NJ 11,600,995 139,683 11,461,312 1996 1997 40
West Hollywood, CA 13,658,650 157,874 13,500,776 1993 1997 40
Hampton Inn:
Albany/Latham, NY 9,039,367 722,011 8,317,356 1990 1994 40
Germantown, MD 7,659,693 986,474 6,673,219 1987 1995 40
Islandia (Long Island), 5,897,890 561,776 5,336,114 1988 1992 40
NY
Lombard, IL 7,202,047 82,017 7,120,030 1987 1997 40
Naples, FL 5,739,175 486,893 5,252,282 1990 1990 40
Norcross, GA 8,921,150 226,336 8,694,814 1996 1996 40
Schaumburg, IL 4,783,770 52,249 4,731,521 1986 1997 40
Tallahassee, FL 4,756,640 293,213 4,463,427 1993 1995 40
West Palm Beach, FL 4,447,287 1,263,737 3,183,550 1986 1986 40
Westchester, IL 5,212,531 57,602 5,154,929 1988 1997 40
Willow Grove 9,527,092 1,163,063 8,364,029 1991 1991 40
(Philadelphia), PA
Woburn, MA 5,470,161 445,893 5,024,268 1981 1996 40
Sierra and Sunrise
Suites:
Atlanta, GA 4,503,144 43,446 4,459,698 1996 1997 40
Phoenix, AZ 6,437,588 63,713 6,373,875 1997 1997 40
Tinton Falls, NJ 5,375,441 57,571 5,317,870 1993 1997 40
Comfort Inn:
Allentown, PA 6,888,820 449,792 6,439,028 1989 1995 40
Holiday Inn Express:
Lexington, MA 9,000,618 564,787 8,435,831 1971 1996 40
Sheraton Inn:
Fort Lauderdale, FL 8,049,498 1,806,436 6,243,062 1988 1988 40
Vacant land 618,883 0 618,883 N/A 1997 N/A
Corporate 31,547 1,164 30,383 40
------------ ----------- ------------
$521,321,121 $18,265,402 $503,055,719
------------ ----------- ------------
</TABLE>
43
<PAGE> 46
Notes to Schedule 3 - Real Estate and Accumulated Depreciation
1. Collateral for the $190 million Line of Credit.
2. Collateral for various mortgage notes.
3. Collateral for the $30 million First Term Loan.
4. Collateral for the$42 million Second Term Loan.
5. Collateral for the Interim Loan.
44
<PAGE> 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the year covered by this Form 10-K with respect to its Annual Meeting
of Shareholders to be held on May 6, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the year covered by this Form 10-K with respect to its Annual Meeting
of Shareholders to be held on May 6, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the year covered by this Form 10-K with respect to its Annual Meeting
of Shareholders to be held on May 6, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the year covered by this Form 10-K with respect to its Annual Meeting
of Shareholders to be held on May 6, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
The following Financial Statements are included in this report on the
pages indicated.
45
<PAGE> 48
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
JF HOTEL, INC., JF HOTEL II, INC. AND JF HOTEL III, INC.
Report of Independent Accountants...........................................................................32
Combined Balance Sheets at December 31, 1997 and 1996 ......................................................33
Combined Statements of Income for the years ended
December 31, 1997, 1996 and 1995 .........................................................................34
Combined Statement of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995....................................................................35
Combined Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995..........................................................................36
Notes to Combined Financial Statements......................................................................37
FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants...........................................................................41
Schedule 3 - Real Estate and Accumulated Depreciation
at December 31, 1997......................................................................................42
</TABLE>
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
With the exception of the consolidated financial statements and the accountants'
report thereon listed in the above index, the information referred to in Items
1,5, 6 and 7, and the supplementary quarterly financial information referred to
in Item 8, all of which is included in the 1997 Annual Report to Shareholders of
Innkeepers USA Trust and incorporated by reference into this Form 10-K Annual
Report, the 1997 Annual Report to Shareholders is not to be deemed "filed" as
part of this report.
(b) REPORTS ON FORM 8-K
None.
46
<PAGE> 49
(c) EXHIBITS
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
3.1 Amended and Restated Declaration of Trust of the Registrant (previously filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-11, Registration
No. 33-81362 and incorporated herein by reference).
3.2 Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-11, Registration No. 33-81362 and incorporated
herein by reference).
4.1 Form of Common Share Certificate (previously filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-11, Registration No. 33-81362 and
incorporated herein by reference).
10.1 Second Amended and Restated Agreement of Limited Partnership of Innkeepers
USA Limited Partnership (previously filed as Exhibit 10.1-A to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.2 Form of Percentage Lease (previously filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-11, Registration No. 33-81362 and incorporated
herein by reference).
10.3 Form of Right of First Refusal and Option to Purchase (previously filed as Exhibit
10.12 to the Company's Registration Statement on Form S-11, Registration No. 33-
81362 and incorporated herein by reference).
10.4 Innkeepers USA Trust 1994 Share Incentive Plan.
10.5 Innkeepers USA Trust Non-Employee Trustees' Share Option Plan.
10.6 Form of Employment Agreement (previously filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-11, Registration
No. 33-81362 and incorporated herein by reference).
10.7 Form of Exclusive Hotel Development Agreement and Covenant Not to Compete
(previously filed as Exhibit 10.17 to the Company's Registration Statement on
Form S-11, Registration No. 33-81362 and incorporated herein by reference).
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
10.8 Percentage Lease Agreement between Innkeepers USA Limited Partnership and JF
Hotel, Inc. for the Hampton Inn - West Palm Beach, Florida (previously filed as
Exhibit 10.4 to the Company's registration statement on Form S-11, Registration
No. 33-95622 and incorporated herein by reference).
10.9 Consolidated Percentage Lease Agreement between Innkeepers USA Limited
Partnership and JF Hotel, Inc. for certain hotels (previously filed as Exhibit 10.5
to the Company's registration statement on Form S-11, Registration No. 33-95622
and incorporated herein by reference).
10.10 Credit Agreement, dated as of February 17, 1998, among Innkeepers USA Trust,
Innkeepers USA Limited Partnership, Nationsbanc, N.A., Nomura Asset Capital
Corporation and the lenders named therein.
10.11 Employment Agreement between David Bulger and the Company (previously filed
as Exhibit 10.10 to the Company's registration statement on Form S-11,
Registration No. 33-95622 and incorporated herein by reference).
10.12 Seven Contribution Agreements, each dated as of September 16, 1996, between
various partnerships and Innkeepers USA Limited Partnership for the seven
DeBoer Hotels (previously filed as Exhibits 2.1 - 2.7 to the Company's Form 8-K
filed on November 22, 1996 and incorporated herein by reference).
10.13 Form of Contribution Agreement between a partnership subsidiary of Innkeepers
USA Trust and a Summerfield partnership (previously filed as Exhibit 10.1 to the
Company's Form 8-K filed on July 18, 1997 and incorporated herein by reference).
10.14 Form of percentage lease agreement for Summerfield acquisition hotels (previously
filed as Exhibit 10.2 to the Company's Form 8-K filed on July 18, 1997 and
incorporated herein by reference).
10.15 Agreement on Franchise-Related matters between the Innkeepers acquisition
partnership, Innkeepers USA Limited Partnership and Summerfield Suites
Management Company, L.P., dated as of June 20, 1997 (previously filed as
Exhibit 10.3 to the Company's Form 8-K filed on July 18, 1997 and incorporated
herein by reference).
10.16 Lease Master Agreement between the Innkeepers acquisition partnerships,
Innkeepers USA Limited Partnership and Summerfield Suites Lease Company,
L.P., dated as of June 20, 1997 (previously filed as Exhibit 10.4 to the Company's
Form 8-K filed on July 18, 1997 and incorporated herein by reference).
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
10.17 Voting Agreement among Jeffrey H. Fisher, Innkeepers USA Trust, Innkeepers
USA Limited Partnership, the Summerfield Contributing partnerships, and the
beneficial holders of Summerfield Units, dated June 20, 1997 (previously filed as
Exhibit 10.5 to the Company's Form 8-K filed on July 18, 1997 and incorporated
herein by reference).
10.18 Redemption and Registration Rights Agreement between Innkeepers USA Trust,
Innkeepers USA Limited Partnership, the Summerfield Contributing Partnerships
and the beneficial holders or the Summerfield Units dated as of June 20, 1997
(previously filed as Exhibit 10.6 to the Company's Form 8-K filed on July 18,
1997 and incorporated herein by reference).
13.1 1997 Annual Report to Shareholders.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule (SEC use only)
</TABLE>
(d) FINANCIAL STATEMENT SCHEDULES
Schedule 3 - Real Estate and Accumulated Depreciation at
December 31, 1997.
49
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INNKEEPERS USA TRUST
March 26, 1998 /s/ Jeffrey H. Fisher
----------------------------------------
Chairman of the Board and President
March 26, 1998 /s/ David Bulger
----------------------------------------
Treasurer
(Principal Financial Officer)
March 26, 1998 /s/ Gregory M. Fay
----------------------------------------
Vice-President of Accounting
(Principal Accounting Officer)
50
<PAGE> 53
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jeffrey H. Fisher Chairman of the Board and March 26, 1998
- -------------------------------------- President (Principal
Jeffrey H. Fisher Executive Officer)
/s/ Miles Berger Trustee March 26, 1998
- ---------------------------------------
Miles Berger
/s/ C. Gerald Goldsmith Trustee March 24, 1998
- ---------------------------------------
C. Gerald Goldsmith
/s/ Bruce Zenkel Trustee March 25, 1998
- ---------------------------------------
Bruce Zenkel
/s/ Jack P. DeBoer Trustee March 26, 1998
- ---------------------------------------
Jack P. DeBoer
Trustee March ___, 1998
- ---------------------------------------
Thomas Crocker
/s/ David Bulger Treasurer March 26, 1998
- --------------------------------------- (Principal Financial Officer)
David Bulger
/s/ Gregory M. Fay Vice President of March 26, 1998
- ------------------------------------- Accounting (Principal
Gregory M. Fay Accounting Officer)
/s/ Rolf E. Ruhfus Trustee March 30, 1998
- -------------------------------------
Rolf E. Ruhfus
</TABLE>
<PAGE> 54
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
3.1 Amended and Restated Declaration of Trust of the Registrant (previously filed
as Exhibit 3.1 to the Company's Registration Statement on Form S-11,
Registration No. 33-81362 and incorporated herein by reference).
3.2 Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-11, Registration No. 33-81362
and incorporated herein by reference).
4.1 Form of Common Share Certificate (previously filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-11, Registration No. 33-81362
and incorporated herein by reference).
10.1 Second Amended and Restated Agreement of Limited Partnership of Innkeepers
USA Limited Partnership (previously filed as Exhibit 10.1-A to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.2 Form of Percentage Lease (previously filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-11, Registration No. 33-81362 and
incorporated herein by reference).
10.3 Form of Right of First Refusal and Option to Purchase (previously filed as
Exhibit 10.12 to the Company's Registration Statement on Form S-11,
Registration No. 33-81362 and incorporated herein by reference).
10.4 Innkeepers USA Trust 1994 Share Incentive Plan.
10.5 Innkeepers USA Trust Non-Employee Trustees' Share Option Plan.
10.6 Form of Employment Agreement (previously filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-11, Registration No. 33-81362
and incorporated herein by reference).
10.7 Form of Exclusive Hotel Development Agreement and Covenant Not to
Compete (previously filed as Exhibit 10.17 to the Company's Registration
Statement on Form S-11, Registration No. 33-81362 and incorporated herein by
reference).
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
10.8 Percentage Lease Agreement between Innkeepers USA Limited Partnership and
JF Hotel, Inc. for the Hampton Inn - West Palm Beach, Florida (previously filed
as Exhibit 10.4 to the Company's registration statement on Form S-11,
Registration No. 33-95622 and incorporated herein by reference).
10.9 Consolidated Percentage Lease Agreement between Innkeepers USA Limited
Partnership and JF Hotel, Inc. for certain hotels (previously filed as
Exhibit 10.5 to the Company's registration statement on Form S-11,
Registration No. 33-95622 and incorporated herein by reference).
10.10 Credit Agreement, dated as of February 17, 1998, among Innkeepers USA
Trust, Innkeepers USA Limited Partnership, Nationsbanc, N.A., Nomura Asset
Capital Corporation and the lenders named therein.
10.11 Employment Agreement between David Bulger and the Company (previously
filed as Exhibit 10.10 to the Company's registration statement on Form S-11,
Registration No. 33-95622 and incorporated herein by reference).
10.12 Seven Contribution Agreements, each dated as of September 16, 1996, between
various partnerships and Innkeepers USA Limited Partnership for the seven
DeBoer Hotels (previously filed as Exhibits 2.1 - 2.7 to the Company's Form 8-
K filed on November 22, 1996 and incorporated herein by reference).
10.13 Form of Contribution Agreement between a partnership subsidiary of
Innkeepers USA Trust and a Summerfield partnership (previously filed as
Exhibit 10.1 to the Company's Form 8-K filed on July 18, 1997 and
incorporated herein by reference).
10.14 Form of percentage lease agreement for Summerfield acquisition hotels
(previously filed as Exhibit 10.2 to the Company's Form 8-K filed on July 18,
1997 and incorporated herein by reference).
10.15 Agreement on Franchise-Related matters between the Innkeepers acquisition
partnership, Innkeepers USA Limited Partnership and Summerfield Suites
Management Company, L.P., dated as of June 20, 1997 (previously filed as
Exhibit 10.3 to the Company's Form 8-K filed on July 18, 1997 and
incorporated herein by reference).
10.16 Lease Master Agreement between the Innkeepers acquisition partnerships,
Innkeepers USA Limited Partnership and Summerfield Suites Lease Company,
L.P., dated as of June 20, 1997 (previously filed as Exhibit 10.4 to the
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
Company's Form 8-K filed on July 18, 1997 and incorporated
herein by reference).
10.17 Voting Agreement among Jeffrey H. Fisher, Innkeepers USA Trust, Innkeepers
USA Limited Partnership, the Summerfield Contributing partnerships, and the
beneficial holders of Summerfield Units, dated June 20, 1997 (previously filed
as Exhibit 10.5 to the Company's Form 8-K filed on July 18, 1997 and
incorporated herein by reference).
10.18 Redemption and Registration Rights Agreement between Innkeepers USA Trust,
Innkeepers USA Limited Partnership, the Summerfield Contributing
Partnerships and the beneficial holders or the Summerfield Units dated as of
June 20, 1997 (previously filed as Exhibit 10.6 to the Company's Form 8-K
filed on July 18, 1997 and incorporated herein by reference).
13.1 1997 Annual Report to Shareholders.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule (SEC use only)
</TABLE>
<PAGE> 1
Exhibit 10.4
INNKEEPERS USA TRUST
1994 SHARE INCENTIVE PLAN
AMENDED AND RESTATED AS OF
FEBRUARY 3, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I DEFINITIONS
<S> <C> <C>
1.01. Acquiring Person..................................... 1
1.02. Administrator........................................ 1
1.03. Affiliate............................................ 1
1.04. Agreement............................................ 1
1.05. Associate............................................ 1
1.06. Board................................................ 1
1.07. Cause................................................ 2
1.08. Change of Control.................................... 2
1.09. Code................................................. 3
1.10. Committee............................................ 3
1.11. Company.............................................. 3
1.12. Continuing Trustee................................... 3
1.13. Control Affiliate.................................... 3
1.14. Control Change Date.................................. 3
1.15. Corresponding SAR.................................... 3
1.16. Disability........................................... 3
1.17. Dividend Equivalent Right Performance
Measures.......................................... 4
1.18. Dividend Equivalent Right Performance
Period............................................ 4
1.19. Exchange Act......................................... 5
1.20. Fair Market Value.................................... 5
1.21. Incentive Award...................................... 5
1.22. Initial Value........................................ 5
1.23. Option............................................... 5
1.24. Participant.......................................... 5
1.25. Performance Award.................................... 6
1.26. Performance Shares................................... 6
1.27. Person............................................... 7
1.28. Plan................................................. 7
1.29. Related Entity....................................... 7
1.30. SAR.................................................. 7
1.31. Share Award.......................................... 8
1.32. Shares............................................... 8
ARTICLE II PURPOSES............................................. 8
ARTICLE III ADMINISTRATION
ARTICLE IV ELIGIBILITY.......................................... 10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V SHARES SUBJECT TO PLAN
5.01. Shares Issued........................................ 11
5.02. Aggregate Limit...................................... 11
5.03. Reallocation of Shares............................... 11
ARTICLE VI OPTIONS
6.01. Award................................................ 12
6.02. Option Price......................................... 12
6.03. Maximum Option Period................................ 12
6.04. Nontransferability................................... 13
6.05. Transferable Options................................. 13
6.06. Employee Status...................................... 14
6.07. Exercise............................................. 14
6.08. Payment.............................................. 15
6.09. Performance Awards................................... 15
6.10. Change of Control.................................... 15
6.11. Shareholder Rights................................... 15
6.12. Disposition of Shares................................ 15
ARTICLE VII SARS
7.01. Award................................................ 16
7.02. Maximum SAR Period................................... 16
7.03. Nontransferability................................... 17
7.04. Transferable SARs.................................... 17
7.05. Exercise............................................. 17
7.06 Change of Control.................................... 18
7.07. Employee Status...................................... 18
7.08. Settlement........................................... 18
7.09. Shareholder Rights................................... 19
ARTICLE VIII SHARE AWARDS
8.01. Award................................................ 19
8.02. Vesting.............................................. 19
8.03. Performance Objectives............................... 19
8.04. Employee Status...................................... 20
8.05. Change of Control.................................... 20
8.06. Shareholder Rights................................... 20
ARTICLE IX PERFORMANCE SHARE AWARDS............................. 21
9.01. Award................................................ 21
9.02. Earning the Award.................................... 21
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
9.03. Payment.............................................. 22
9.04. Shareholder Rights................................... 22
9.05. Nontransferability................................... 22
9.06. Transferable Performance Shares...................... 23
9.07. Employee Status...................................... 23
9.08. Change of Control.................................... 23
ARTICLE X INCENTIVE AWARDS
10.01. Award................................................ 24
10.02. Terms and Conditions................................. 24
10.03. Nontransferability................................... 25
10.04. Transferable Incentive Awards........................ 25
10.05. Employee Status...................................... 25
10.06. Change of Control.................................... 26
10.07. Shareholder Rights................................... 26
ARTICLE XI INDEMNIFICATION...................................... 26
ARTICLE XII ADJUSTMENT UPON CHANGE IN SHARES..................... 27
ARTICLE XIII COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES........................ 28
ARTICLE XIV GENERAL PROVISIONS
14.01. Effect on Employment and Service..................... 29
14.02. Unfunded Plan........................................ 29
14.03. Rules of Construction................................ 30
ARTICLE XV AMENDMENT............................................ 30
ARTICLE XVI DURATION OF PLAN..................................... 31
ARTICLE XVII EFFECTIVE DATE OF PLAN............................... 31
</TABLE>
<PAGE> 5
INNKEEPERS USA TRUST
1994 SHARE INCENTIVE PLAN
ARTICLE I
DEFINITIONS
1.01. Acquiring Person means that a Person, considered alone or together with
all Control Affiliates and Associates of that Person, is or becomes directly or
indirectly the beneficial owner of securities representing at least thirty
percent (30%) of the Company's then outstanding securities entitled to vote
generally in the election of the Board.
1.02. Administrator means the Committee and any delegate of the Committee that
is appointed in accordance with Article III.
1.03. Affiliate means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company.
1.04. Agreement means a written agreement (including any amendment or supplement
thereto) between the Company and a Participant specifying the terms and
conditions of a Share Award, an award of Performance Shares, an Incentive Award
or an Option or SAR granted to such Participant.
1.05. Associate, with respect to any Person, is defined in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as amended as of January
1, 1990. An Associate does not include the Company or a majority-owned
subsidiary of the Company.
1.06. Board means the Board of Trustees of the Company.
<PAGE> 6
1.07. Cause, with respect to a Participant, means (i) "Cause" as defined in an
Agreement with the Participant; or, if the Agreement does not contain a
definition of "Cause", (ii) "Cause" as defined in the employment agreement, as
in effect from time to time, between the Company and the Participant; or, if the
agreement described in subsection (ii) does not contain a definition of "Cause"
or there is no such agreement, (iii) "Cause" as defined in the employment
agreement, as in effect from time to time, between the Company and the Company's
Chief Executive Officer; or, if the agreement described in subsection (iii) does
not contain a definition of "Cause" or there is no such agreement, (iv)
Participant's being convicted of a felony involving theft, embezzlement or
misappropriation of the Company's property.
1.08. Change of Control means that (i) a Person is or becomes an Acquiring
Person; (ii) a Person enters into an agreement that would result in that
Person's becoming an Acquiring Person; (iii) the Company enters into any
agreement with a Person that involves the transfer of at least fifty percent
(50%) of the Company's total assets on a consolidated basis, as reported in the
Company's consolidated financial statements filed with the Securities and
Exchange Commission; (iv) the Company enters into any agreement to merge or
consolidate the Company or to effect a statutory share exchange with another
Person, regardless of whether the Company is intended to be the surviving or
resulting entity after the merger, consolidation, or statutory share exchange;
or (v) the Continuing Trustees cease for any reason to constitute a majority of
the Board.
-2-
<PAGE> 7
1.09. Code means the Internal Revenue Code of 1986, and any amendments thereto.
1.10. Committee means the Compensation Committee of the Board.
1.11. Company means Innkeepers USA Trust.
1.12. Continuing Trustee means any member of the Board, while a member of the
Board and (i) who was a member of the Board prior to March 1, 1997 or (ii) whose
nomination for or election to the Board was recommended or approved by a
majority of the Continuing Trustees.
1.13. Control Affiliate, with respect to any Person, means an affiliate as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act, as amended as of January 1, 1990.
1.14. Control Change Date means the date on which a Change of Control occurs. If
a Change of Control occurs on account of a series of transactions, the "Control
Change Date" is the date of the last of such transactions.
1.15. Corresponding SAR means an SAR that is granted in relation to a particular
Option and that can be exercised only upon the surrender to the Company,
unexercised, of that portion of the Option to which the SAR relates.
1.16. Disability, with respect to a Participant, means a complete physical or
mental inability, confirmed by an independent licensed physician, to perform
substantially all of the services required by the Participant's employment
contract or required of an employee with Participant's job description
immediately before
-3-
<PAGE> 8
Participant first became unable to perform those services, that continues for a
period of 240 consecutive days.
1.17. Dividend Equivalent Right Performance Measures shall mean those measures
of the Company's, an Affiliate's or a Participant's performance over the
Dividend Equivalent Right Performance Period established by the Administrator
with respect to a particular Performance Award. If no Dividend Equivalent Right
Performance Measures are specified in an Agreement that provides for a
Performance Award, then Dividend Equivalent Right Performance Measures shall
mean achievement of a fifteen percent (15%) annual compounded increase in the
fair market value of an investment in Shares during the Dividend Equivalent
Right Performance Period, assuming all dividends payable with respect to such
investment are reinvested in Shares.
1.18. Dividend Equivalent Right Performance Period shall mean the period in
which Dividend Equivalent Right Performance Measures are measured that is
established by the Administrator with respect to a particular Performance Award.
If no Dividend Equivalent Right Performance Period is specified in an Agreement
that provides for a Performance Award, then Dividend Equivalent Right
Performance Period shall mean the five year period beginning on the later of the
date of grant of the Option to which the Performance Award relates or the date
of grant of the Performance Award; provided, however, that, in the absence of
contrary provisions in an Agreement, a Dividend Equivalent Right Performance
Period shall end on the earliest of (i) a Control Change Date or (ii) with
respect to a Participant
-4-
<PAGE> 9
to whom a Performance Award has been granted, the date that such Participant's
employment with the Company terminates due to his death or Disability or is
terminated by the Company without Cause.
1.19. Exchange Act means the Securities Exchange Act of 1934, as amended and as
in effect from time to time.
1.20. Fair Market Value means, on any given date, the closing price of a Share
as reported on the New York Stock Exchange composite tape on such date, or if
the Shares were not traded on the New York Stock Exchange on such date, then on
the next preceding day that the Shares were traded on such exchange, all as
reported by such source as the Administrator may select.
1.21. Incentive Award means an award which, subject to such terms and conditions
as may be prescribed by the Administrator, entitles the Participant to receive a
cash payment from the Company or an Affiliate.
1.22. Initial Value means, with respect to an SAR, the Fair Market Value of one
Share on the date of grant.
1.23. Option means a share option that entitles the holder to purchase from the
Company a stated number of Shares at the price set forth in an Agreement. In the
discretion of the Administrator and if provided in an Agreement, an Option may
include a Performance Award.
1.24. Participant means an employee of the Company or an Affiliate, including an
employee who is a member of the Board, who satisfies the requirements of Article
IV and is selected by the Administrator to receive a Share Award, an award
-5-
<PAGE> 10
of Performance Shares, an Option, an SAR, an Incentive Award or a combination
thereof.
1.25. Performance Award means the right, awarded in tandem with a newly granted
or outstanding Option, to receive a cash payment for all dividends that would
have been paid on each Share for which the related Option is exercised, without
interest or compounding, during the period from the date of grant of the Option
(or, if later, that date of grant of the Performance Award) through the date
that the Option is exercised for such Share, had such Share been outstanding
throughout that period. A Performance Award will be earned only if the Dividend
Equivalent Performance Measures have been satisfied for the Dividend Equivalent
Right Performance Period and only if Participant is employed on the day
preceding the last day of the Dividend Equivalent Right Performance Period.
1.26. Performance Shares means an award, in the amount determined by the
Administrator and specified in an Agreement, stated with reference to a
specified number of Shares, that in accordance with the terms of an Agreement
entitles the holder to receive a cash payment or Shares or a combination
thereof. In the discretion of the Administrator, a Performance Share award may
include the right to receive an additional payment for all dividends that would
have been paid on each specified Share, without interest or compounding, from
the date of grant through the date of settlement of the Performance Share award.
A Participant will be entitled to such a payment only if the performance
criteria that must be satisfied for the
-6-
<PAGE> 11
Performance Share award to be earned are met and only to the extent the award is
settled in Shares.
1.27. Person means any human being, firm, corporation, partnership, or other
entity. Person also includes any human being, firm, corporation, partnership, or
other entity as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act,
as amended as of January 1, 1990. The term Person does not include the Company
or any Related Entity, and the term Person does not include any employee-benefit
plan maintained by the Company or by any Related Entity, and any person or
entity organized, appointed, or established by the Company or by any subsidiary
for or pursuant to the terms of any such employee-benefit plan, unless the Board
determines that such an employee-benefit plan or such person or entity is a
Person.
1.28. Plan means the Innkeepers USA Trust 1994 Share Incentive Plan.
1.29. Related Entity means any entity that is part of a controlled group of
corporations or is under common control with the Company within the meaning of
Code Section 1563(a), 414(b) or 414(c).
1.30. SAR means a Share appreciation right that in accordance with the terms of
an Agreement entitles the holder to receive, with respect to each Share
encompassed by the exercise of such SAR, the amount determined by the
Administrator and specified in an Agreement. In the absence of such a
determination, the holder shall be entitled to receive, with respect to each
Share encompassed by the exercise of such SAR, the excess of the Fair Market
Value on the date of exercise over the Initial Value. References to "SARs"
include both
-7-
<PAGE> 12
Corresponding SARs and SARs granted independently of Options, unless the context
requires otherwise.
1.31. Share Award means Shares awarded to a Participant under Article VIII.
1.32. Shares means the common shares of the Company.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company and its Affiliates in
recruiting and retaining individuals with ability and initiative by enabling
such persons to participate in the future success of the Company and its
Affiliates and to associate their interests with those of the Company and its
shareholders. The Plan is intended to permit the grant of both Options
qualifying under Section 422 of the Code ("incentive share options") and Options
not so qualifying, and the grant of SARs, Share Awards, Performance Awards,
Performance Shares and Incentive Awards. No Option that is intended to be an
incentive share option shall be invalid for failure to qualify as an incentive
share option. The proceeds received by the Company from the sale of Shares
pursuant to this Plan shall be used for general corporate purposes.
-8-
<PAGE> 13
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator shall have authority to grant Share Awards, Performance Awards,
Performance Shares, Incentive Awards, Options and SARs upon such terms (not
inconsistent with the provisions of this Plan), as the Administrator may
consider appropriate. Such terms may include conditions (in addition to those
contained in this Plan), on the exercisability of all or any part of an Option
or SAR or on the transferability or forfeitability of a Share Award, a
Performance Award, an award of Performance Shares or an Incentive Award.
Notwithstanding any such conditions, the Administrator may, in its discretion,
(i) accelerate the time at which any Option or SAR may be exercised, or the time
at which a Share Award may become transferable or nonforfeitable or the time at
which an Incentive Award or award of Performance Shares may be settled or (ii)
suspend the forfeiture of any award made under this Plan. In addition, the
Administrator shall have complete authority to interpret all provisions of this
Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules
and regulations pertaining to the administration of the Plan; and to make all
other determinations necessary or advisable for the administration of this Plan.
The express grant in the Plan of any specific power to the Administrator shall
not be construed as limiting any power or authority of the Administrator. Any
decision made, or action taken, by the Administrator or in
-9-
<PAGE> 14
connection with the administration of this Plan shall be final and conclusive.
Neither the Administrator nor any member of the Committee shall be liable for
any act done in good faith with respect to this Plan or any Agreement, Option,
SAR, Performance Award, Share Award, Incentive Award or award of Performance
Shares. All expenses of administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more
officers of the Company all or part of the Committee's authority and duties with
respect to grants and awards to individuals who are not subject to the reporting
and other provisions of Section 16 of the Exchange Act. The Committee may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Committee's delegate or delegates that were
consistent with the terms of the Plan.
ARTICLE IV
ELIGIBILITY
Any employee of the Company or an Affiliate (including a
corporation that becomes an Affiliate after the adoption of this Plan), is
eligible to participate in this Plan if the Administrator, in its sole
discretion, determines that such person has contributed significantly or can be
expected to contribute significantly to the profits or growth of the Company or
an Affiliate. Trustees of the Company who are employees of the Company or an
Affiliate may be selected to participate in this Plan.
-10-
<PAGE> 15
ARTICLE V
SHARES SUBJECT TO PLAN
5.01. Shares Issued. Upon the award of Shares pursuant to a Share Award or in
settlement of an award of Performance Shares, the Company may issue Shares from
its authorized but unissued Shares. Upon the exercise of any Option or SAR, the
Company may deliver to the Participant (or the Participant's broker if the
Participant so directs), Shares from its authorized but unissued Shares.
5.02. Aggregate Limit. The maximum aggregate number of Shares that may be issued
under this Plan pursuant to the exercise of SARs and Options and the grant of
Share Awards and the settlement of Performance Shares is 2,700,000 Shares. The
maximum aggregate number of Shares that may be issued under this Plan as Share
Awards and in settlement of Performance Shares is 900,000 Shares. The maximum
aggregate number of Shares that may be issued under this Plan and the maximum
number of Shares that may be issued as Share Awards and in settlement of
Performance Shares shall be subject to adjustment as provided in Article XII.
5.03. Reallocation of Shares. If an Option is terminated, in whole or in part,
for any reason other than its exercise or the exercise of a Corresponding SAR
that is settled with Shares, the number of Shares allocated to the Option or
portion thereof may be reallocated to other Options, SARs, Performance Shares
and Share Awards to be granted under this Plan. If an SAR is terminated, in
whole or in part, for any reason other than its exercise that is settled with
Shares or the exercise of a related Option, the number of Shares allocated to
the SAR or portion thereof may
-11-
<PAGE> 16
be reallocated to other Options, SARs, Performance Shares and Share Awards to be
granted under this Plan. If an award of Performance Shares is terminated, in
whole or in part, for any reason other than its settlement with Shares, the
number of Shares allocated to the Performance Shares or portion thereof may be
reallocated to other Options, SARs, Performance Shares and Share Awards to be
granted under this Plan. If a Share Award is forfeited, in whole or in part, for
any reason, the number of Shares allocated to the Share Award or portion thereof
may be reallocated to other Options, SARs, Performance Shares and Share Awards
to be granted under this Plan.
ARTICLE VI
OPTIONS
6.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom an Option is to be granted and will
specify the number of Shares covered by such awards; provided, however, that no
individual may be granted Options in any calendar year covering more than
750,000 Shares.
6.02. Option Price. The price per share for Shares purchased on the exercise of
an Option shall be determined by the Administrator on the date of grant, but
shall not be less than the Fair Market Value on the date the Option is granted.
6.03. Maximum Option Period. The maximum period in which an Option may be
exercised shall be determined by the Administrator on the date of grant, except
that no Option that is an incentive share option shall be exercisable after the
expiration of ten years from the date such Option was granted. The terms of any
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Option that is an incentive share option may provide that it is exercisable for
a period less than such maximum period.
6.04. Nontransferability. Except as provided in Section 6.05, each Option
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. In the event of any transfer of an Option (by the
Participant or his transferee), the Option and any Corresponding SAR that
relates to such Option must be transferred to the same person or persons or
entity or entities. Except as provided in Section 6.05, during the lifetime of
the Participant to whom the Option is granted, the Option may be exercised only
by the Participant. No right or interest of a Participant in any Option shall be
liable for, or subject to, any lien, obligation, or liability of such
Participant.
6.05. Transferable Options. Section 6.04 to the contrary notwithstanding, if the
Agreement provides, an Option that is not an incentive share option may be
transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members or a
partnership in which such family members are the only partners, on such terms
and conditions as may be permitted under Securities Exchange Commission Rule
16b-3 as in effect from time to time. The holder of an Option transferred
pursuant to this Section shall be bound by the same terms and conditions that
governed the Option during the period that it was held by the Participant;
provided, however, that such transferee may not transfer the Option except by
will or the laws of descent and distribution. In the event of any transfer of an
Option (by the Participant or his transferee), the Option and any
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Corresponding SAR that relates to such Option must be transferred to the same
person or persons or entity or entities.
6.06. Employee Status. For purposes of determining the applicability of Section
422 of the Code (relating to incentive share options), or in the event that the
terms of any Option provide that it may be exercised only during employment or
within a specified period of time after termination of employment, the
Administrator may decide to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not be
deemed interruptions of continuous employment.
6.07. Exercise. Subject to the provisions of this Plan and the applicable
Agreement, an Option may be exercised in whole at any time or in part from time
to time at such times and in compliance with such requirements as the
Administrator shall determine; provided, however, that incentive share options
(granted under the Plan and all plans of the Company and its Affiliates) may not
be first exercisable in a calendar year for Shares having a Fair Market Value
(determined as of the date an Option is granted) exceeding $100,000. An Option
granted under this Plan may be exercised with respect to any number of whole
Shares less than the full number for which the Option could be exercised. A
partial exercise of an Option shall not affect the right to exercise the Option
from time to time in accordance with this Plan and the applicable Agreement with
respect to the remaining Shares subject to the Option. The exercise of an Option
shall result in the termination of any Corresponding SAR to the extent of the
number of Shares with respect to which the Option is exercised.
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<PAGE> 19
6.08. Payment. Subject to rules established by the Administrator and unless
otherwise provided in an Agreement, payment of all or part of the Option price
may be made in cash, a cash equivalent acceptable to the Administrator, or with
Shares which have been owned by the Participant for at least six months and
which have not been used for another exercise during the prior six months. If
Shares are used to pay all or part of the Option price, the sum of the cash and
cash equivalent and the Fair Market Value (determined as of the day preceding
the date of exercise) of the Shares surrendered must not be less than the Option
price of the Shares for which the Option is being exercised.
6.09. Performance Awards. If an Option Agreement includes a Performance Award,
the Participant shall be entitled to the payment (if any) that is due thereunder
within 30 days after the later of: (i) with respect to each Share for which the
Option is exercised, the date the Option is exercised for such Shares, and (ii)
the last day of the applicable Dividend Equivalent Right Performance Period.
6.10. Change of Control. Section 6.07 to the contrary notwithstanding, each
outstanding Option shall be fully exercisable (in whole or in part at the
discretion of the holder) on and after a Control Change Date.
6.11. Shareholder Rights. No Participant shall have any rights as a shareholder
with respect to Shares subject to his Option until the date of exercise of such
Option.
6.12. Disposition of Shares. A Participant shall notify the Company of any sale
or other disposition of Shares acquired pursuant to an Option that was an
incentive share option if such sale or disposition occurs (i) within two years
of the grant of an
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Option or (ii) within one year of the issuance of Shares to the Participant.
Such notice shall be in writing and directed to the Secretary of the Company.
ARTICLE VII
SARS
7.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom SARs are to be granted and will specify
the number of Shares covered by such awards; provided, however, that no
individual may be granted SARs in any calendar year covering more than 750,000
Shares. For purposes of the preceding sentence, an Option and Corresponding SAR
shall be treated as a single award. In addition no Participant may be granted
Corresponding SARs (under all incentive share option plans of the Company and
its Affiliates) that are related to incentive share options which are first
exercisable in any calendar year for Shares having an aggregate Fair Market
Value (determined as of the date the related Option is granted) that exceeds
$100,000.
7.02. Maximum SAR Period. The term of each SAR shall be determined by the
Administrator on the date of grant, except that no Corresponding SAR that is
related to an incentive share option shall have a term of more than ten years
from the date such related Option was granted. The terms of any Corresponding
SAR that is related to an incentive share option may provide that it has a term
that is less than such maximum period.
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7.03. Nontransferability. Except as provided in Section 7.04, each SAR granted
under this Plan shall be nontransferable except by will or by the laws of
descent and distribution. In the event of any such transfer, a Corresponding SAR
and the related Option must be transferred to the same person or persons or
entity or entities. During the lifetime of the Participant to whom the SAR is
granted, the SAR may be exercised only by the Participant. No right or interest
of a Participant in any SAR shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.
7.04. Transferable SARs. Section 7.03 to the contrary notwithstanding, if the
Agreement provides, an SAR, other than a Corresponding SAR that is related to an
incentive share option, may be transferred by a Participant to the Participant's
children, grandchildren, spouse, one or more trusts for the benefit of such
family members or a partnership in which such family members are the only
partners, on such terms and conditions as may be permitted under Securities
Exchange Commission Rule 16b-3 as in effect from time to time. The holder of an
SAR transferred pursuant to this Section shall be bound by the same terms and
conditions that governed the SAR during the period that it was held by the
Participant; provided, however, that such transferee may not transfer the SAR
except by will or the laws of descent and distribution. In the event of any
transfer of a Corresponding SAR (by the Participant or his transferee), the
Corresponding SAR and the related Option must be transferred to the same person
or person or entity or entities.
7.05. Exercise. Subject to the provisions of this Plan and the applicable
Agreement, an SAR may be exercised in whole at any time or in part from time to
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<PAGE> 22
time at such times and in compliance with such requirements as the Administrator
shall determine; provided, however, that a Corresponding SAR that is related to
an incentive share option may be exercised only to the extent that the related
Option is exercisable and only when the Fair Market Value exceeds the option
price of the related Option. An SAR granted under this Plan may be exercised
with respect to any number of whole Shares less than the full number for which
the SAR could be exercised. A partial exercise of an SAR shall not affect the
right to exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining Shares subject to the SAR.
The exercise of a Corresponding SAR shall result in the termination of the
related Option to the extent of the number of Shares with respect to which the
SAR is exercised.
7.06 Change of Control. Section 7.05 to the contrary notwithstanding, each
outstanding SAR shall be fully exercisable (in whole or in part at the
discretion of the holder) on and after a Control Change Date.
7.07. Employee Status. If the terms of any SAR provide that it may be exercised
only during employment or within a specified period of time after termination of
employment, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability or other reasons
shall not be deemed interruptions of continuous employment.
7.08. Settlement. At the Administrator's discretion, the amount payable as a
result of the exercise of an SAR may be settled in cash, Shares, or a
combination
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<PAGE> 23
of cash and Shares. No fractional Share will be deliverable upon the exercise of
an SAR but a cash payment will be made in lieu thereof.
7.09. Shareholder Rights. No Participant shall, as a result of receiving an SAR
award, have any rights as a shareholder of the Company or any Affiliate until
the date that the SAR is exercised and then only to the extent that the SAR is
settled by the issuance of Shares.
ARTICLE VIII
SHARE AWARDS
8.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom a Share Award is to be made and will
specify the number of Shares covered by such awards; provided, however, that no
Participant may receive Share Awards in any calendar year for more than 150,000
Shares.
8.02. Vesting. The Administrator, on the date of the award, may prescribe that a
Participant's rights in a Share Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement.
8.03. Performance Objectives. In accordance with Section 8.02, the Administrator
may prescribe that Share Awards will become vested or transferable or both based
on objectives stated with respect to the Company's return on equity, total
earnings, earnings per Share, earnings growth, return on capital, return on
assets, Fair Market Value, Share price appreciation, funds from operations
growth,
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<PAGE> 24
or such other measures as may be selected by the Administrator. If the
Administrator, on the date of award, prescribes that a Share Award shall become
nonforfeitable and transferable only upon the attainment of performance
objectives, the Shares subject to such Share Award shall become nonforfeitable
and transferable only to the extent that the Administrator certifies that such
objectives have been achieved.
8.04. Employee Status. In the event that the terms of any Share Award provide
that Shares may become transferable and nonforfeitable thereunder only after
completion of a specified period of employment, the Administrator may decide in
each case to what extent leaves of absence for governmental or military service,
illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment.
8.05. Change of Control. Sections 8.02, 8.03 and 8.04 to the contrary
notwithstanding, each outstanding Share Award shall be transferable and
nonforfeitable on and after a Control Change Date.
8.06. Shareholder Rights. Prior to their forfeiture (in accordance with the
applicable Agreement and while the Shares granted pursuant to the Share Award
may be forfeited or are nontransferable), a Participant will have all rights of
a shareholder with respect to a Share Award, including the right to receive
dividends and vote the Shares; provided, however, that during such period (i) a
Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of Shares granted pursuant to a Share Award, (ii) the Company shall
retain custody of the
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<PAGE> 25
certificates evidencing Shares granted pursuant to a Share Award, and (iii) the
Participant will deliver to the Company a Share power, endorsed in blank, with
respect to each Share Award. The limitations set forth in the preceding sentence
shall not apply after the Shares granted under the Share Award are transferable
and are no longer forfeitable.
ARTICLE IX
PERFORMANCE SHARE AWARDS
9.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom an award of Performance Shares is to be
made and will specify the number of Shares covered by such awards; provided,
however, that no Participant may receive an award of Performance Shares in any
calendar year for more than 150,000 Shares.
9.02. Earning the Award. The Administrator, on the date of the grant of an
award, shall prescribe that the Performance Shares, or portion thereof, will be
earned, and the Participant will be entitled to receive payment pursuant to the
award of Performance Shares, only upon the satisfaction of performance
objectives and such other criteria as may be prescribed by the Administrator
during a performance measurement period of at least one year. The performance
objectives may be stated with respect to the Company's return on equity, total
earnings, earnings per Share, earnings growth, return on capital, return on
assets, Fair Market Value, Share price appreciation, funds from operations
growth, or such other measures as may be
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<PAGE> 26
selected by the Administrator. No payments will be made with respect to
Performance Shares unless, and then only to the extent that, the Administrator
certifies that such objectives have been achieved.
9.03. Payment. In the discretion of the Administrator, the amount payable when
an award of Performance Shares is earned may be settled in cash, by the issuance
of Shares or a combination thereof. A Participant's rights in any Shares issued
in settlement of a Performance Share award may be forfeited or otherwise
restricted for a period of time or subject to such conditions as the
Administrator may prescribe. A fractional Share shall not be deliverable when an
award of Performance Shares is earned, but a cash payment will be made in lieu
thereof.
9.04. Shareholder Rights. No Participant shall, as a result of receiving an
award of Performance Shares, have any rights as a shareholder until and to the
extent that the award of Performance Shares is earned and settled in Shares. If
the Agreement so provides, a Participant may receive a cash payment equal to the
dividends that are payable with respect to the number of Shares covered by the
award between the date the Performance Shares are awarded and the date Shares
are issued pursuant to the Performance Share award. After an award of
Performance Shares is earned and settled in Shares, a Participant will have all
the rights of a shareholder as described in Section 8.06.
9.05. Nontransferability. Except as provided in Section 9.06, Performance Shares
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. No right or interest of a Participant in any
Performance
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<PAGE> 27
Shares shall be liable for, or subject to, any lien, obligation, or liability of
such Participant.
9.06. Transferable Performance Shares. Section 9.05 to the contrary
notwithstanding, if the Agreement provides, an award of Performance Shares may
be transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members or a
partnership in which such family members are the only partners, on such terms
and conditions as may be permitted under Securities Exchange Commission Rule
16b-3 as in effect from time to time. The holder of Performance Shares
transferred pursuant to this Section shall be bound by the same terms and
conditions that governed the Performance Shares during the period that they were
held by the Participant; provided, however that such transferee may not transfer
Performance Shares except by will or the laws of descent and distribution.
9.07. Employee Status. In the event that the terms of any Performance Share
Award provide that no payment will be made unless the Participant completes a
stated period of employment, the Administrator may decide to what extent leaves
of absence for government or military service, illness, temporary disability, or
other reasons shall not be deemed interruptions of continuous employment.
9.08. Change of Control. Sections 9.02 to the contrary notwithstanding, on and
after a Control Change Date, each outstanding Performance Share award shall be
earned as of a Control Change Date. To the extent the Agreement provides that
the
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<PAGE> 28
Performance Share award will be settled with Shares, such Shares shall be
nonforfeitable and transferable as of the Control Change Date.
ARTICLE X
INCENTIVE AWARDS
10.01. Award. The Administrator shall designate Participants to whom Incentive
Awards are made. All Incentive Awards shall be finally determined exclusively by
the Administrator under the procedures established by the Administrator;
provided, however, that no Participant may receive an Incentive Award payment in
any calendar year that exceeds the lesser of (i) $300,000 and (ii) 150% of the
Participant's base salary (prior to any salary reduction or deferral elections)
as of the date of grant of the Incentive Award.
10.02. Terms and Conditions. The Administrator, at the time an Incentive Award
is made, shall specify the terms and conditions which govern the award. Such
terms and conditions shall prescribe that the Incentive Award shall be earned
only upon, and to the extent that, performance objectives are satisfied. The
performance objectives may be stated with respect to the Company's return on
equity, total earnings, earnings per Share, earnings growth, return on capital,
return on assets, Fair Market Value, Share price appreciation, funds from
operations growth, or such other measures as may be selected by the
Administrator. Such terms and conditions also may include other limitations on
the payment of Incentive Awards including, by way of example and not of
limitation, requirements that the Participant complete
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a specified period of employment with the Company or an Affiliate. The
Administrator, at the time an Incentive Award is made, shall also specify when
amounts shall be payable under the Incentive Award and whether amounts shall be
payable in the event of the Participant's death, disability, or retirement.
10.03. Nontransferability. Except as provided in Section 10.04, Incentive Awards
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. No right or interest of a Participant in an
Incentive Award shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
10.04. Transferable Incentive Awards. Section 10.03 to the contrary
notwithstanding, if provided in an Agreement, an Incentive Award may be
transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members or to a
partnership in which such family members are the only partners, on such terms
and conditions as may be permitted by Securities Exchange Commission Rule 16b-3
as in effect from time to time. The holder of an Incentive Award transferred
pursuant to this Section shall be bound by the same terms and conditions that
governed the Incentive Award during the period that it was held by the
Participant; provided, however, that such transferee may not transfer the
Incentive Award except by will or the laws of descent and distribution.
10.05. Employee Status. If the terms of an Incentive Award provide that a
payment will be made thereunder only if the Participant completes a stated
period of employment, the Administrator may decide to what extent leaves of
absence for
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governmental or military service, illness, temporary disability or other reasons
shall not be deemed interruptions of continuous employment.
10.06. Change of Control. Section 10.02 to the contrary notwithstanding, any
Incentive Award shall be earned in its entirety as of a Control Change Date.
10.07. Shareholder Rights. No Participant shall, as a result of receiving an
Incentive Award, have any rights as a shareholder of the Company or any
Affiliate on account of such award.
ARTICLE XI
INDEMNIFICATION
A Participant shall be entitled to a payment under this Article XI
if (a) any benefit, payment, accelerated exercisability or vesting or other
right under this Plan constitutes a "parachute payment" (as defined in Code
Section 280G(b)(2)(A), but without regard to Code Section 280G(b)(2)(A)(ii)),
with respect to such Participant and (b) the Participant incurs a liability
under Code Section 4999. The amount payable to a Participant described in the
preceding sentence shall be the amount required to indemnify the Participant and
hold him harmless from the application of Code Sections 280G and 4999. To effect
this indemnification, the Company must pay such Participant an amount sufficient
to pay the excise tax imposed on Participant under Code Section 4999 with
respect to benefits, payments, accelerated exercisability and vesting and other
rights under this Plan and any other plan or agreement, and any income,
employment, hospitalization, excise or other taxes
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attributable to the indemnification payment. The benefit payable under this
Article XI shall be paid in a single cash sum not later than twenty days after
the date (or extended filing date) on which the tax return reflecting liability
for the Code Section 4999 excise tax is required to be filed with the Internal
Revenue Service.
ARTICLE XII
ADJUSTMENT UPON CHANGE IN SHARES
The maximum number of Shares as to which Options, SARs, Performance
Shares and Share Awards may be granted under this Plan, the terms of outstanding
Share Awards, Options, Performance Shares, Incentive Awards, and SARs, and the
per individual limitations on the number of Shares or for which Options, SARs,
Performance Shares, and Share Awards may be granted shall be adjusted as the
Committee shall determine to be equitably required in the event that (i) the
Company (a) effects one or more Share dividends, Share split-ups, subdivisions
or consolidations of shares or (b) engages in a transaction to which Section 424
of the Code applies or (ii) there occurs any other event which, in the judgment
of the Committee necessitates such action. Any determination made under this
Article XI by the Committee shall be final and conclusive.
The issuance by the Company of shares of any class, or securities
convertible into shares of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible
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<PAGE> 32
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the maximum number of shares as to
which Options, SARs, Performance Shares and Share Awards may be granted, the per
individual limitations on the number of Shares for which Options, SARs,
Performance Shares and Share Awards may be granted or the terms of outstanding
Share Awards, Options, Performance Shares, Incentive Awards or SARs.
The Committee may make Share Awards and may grant Options, SARs,
Performance Shares, and Incentive Awards in substitution for performance shares,
phantom shares, share awards, stock options, stock appreciation rights, or
similar awards held by an individual who becomes an employee of the Company or
an Affiliate in connection with a transaction described in the first paragraph
of this Article XII. Notwithstanding any provision of the Plan (other than the
limitation of Section 5.02), the terms of such substituted Share Awards or
Option, SAR, Performance Shares or Incentive Award grants shall be as the
Committee, in its discretion, determines is appropriate.
ARTICLE XIII
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Shares shall be issued,
no certificates for Shares shall be delivered, and no payment shall be made
under this Plan except in compliance with all applicable federal and state laws
and regulations (including, without limitation, withholding tax requirements),
any listing agreement
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<PAGE> 33
to which the Company is a party, and the rules of all domestic stock exchanges
on which the Company's shares may be listed. The Company shall have the right to
rely on an opinion of its counsel as to such compliance. Any share certificate
issued to evidence Shares when a Share Award is granted, a Performance Share is
settled or for which an Option or SAR is exercised may bear such legends and
statements as the Administrator may deem advisable to assure compliance with
federal and state laws and regulations. No Option or SAR shall be exercisable,
no Share Award or Performance Share shall be granted, no Shares shall be issued,
no certificate for Shares shall be delivered, and no payment shall be made under
this Plan until the Company has obtained such consent or approval as the
Administrator may deem advisable from regulatory bodies having jurisdiction over
such matters.
ARTICLE XIV
GENERAL PROVISIONS
14.01. Effect on Employment and Service. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof), shall confer upon any individual any right to continue in the employ
or service of the Company or an Affiliate or in any way affect any right and
power of the Company or an Affiliate to terminate the employment or service of
any individual at any time with or without assigning a reason therefor. 14.02.
Unfunded Plan. The Plan, insofar as it provides for grants, shall be unfunded,
and the Company shall not be required to segregate any assets that may
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at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
14.03. Rules of Construction. Headings are given to the articles and sections of
this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
ARTICLE XV
AMENDMENT
The Board may amend or terminate this Plan from time to time;
provided, however, that no amendment may become effective until shareholder
approval is obtained if (i) the amendment increases the aggregate number of
Shares that may be issued under the Plan or (ii) the amendment changes the class
of individuals eligible to become Participants. No amendment shall, without a
Participant's consent, adversely affect any rights of such Participant under any
outstanding Share Award, Performance Share Award, Option, SAR, Performance Award
or Incentive Award outstanding at the time such amendment is made.
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ARTICLE XVI
DURATION OF PLAN
No Share Award, Performance Share Award, Option, SAR, Performance
Award or Incentive Award may be granted under this Plan after December 31, 2006.
Share Awards, Performance Share awards, Options, SARs, Performance Awards and
Incentive Awards granted before that date shall remain valid in accordance with
their terms.
ARTICLE XVII
EFFECTIVE DATE OF PLAN
Options, SARs, Performance Awards, Share Awards, Performance Shares
and Incentive Awards may be granted under this Plan upon its adoption by the
Board; provided that, unless this Plan is approved by a majority of the votes
cast by the Company's shareholders, voting either in person or by proxy, at a
duly held shareholders' meeting at which a quorum is present, (i) no Option
granted on or after February 3, 1997 shall be exercisable or effective to the
extent its grant would cause the maximum aggregate number of Shares issuable
hereunder to exceed 800,000, and (ii) no SAR, Share Award, Performance Award,
Performance Shares or Incentive Award granted on or after February 3, 1997 shall
be exercisable or effective.
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<PAGE> 1
Exhibit 10.5
INNKEEPERS USA TRUST
TRUSTEES' SHARE INCENTIVE PLAN
AMENDED AND RESTATED AS OF FEBRUARY 3, 1997
<PAGE> 2
ARTICLE I
DEFINITIONS
1.01. Acquiring Person means that a Person, considered alone or together with
all Control Affiliates and Associates of that Person, is or becomes directly or
indirectly the beneficial owner of securities representing at least thirty
percent (30%) of the Company's then outstanding securities entitled to vote
generally in the election of the Board.
1.02. Affiliate means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company, including an entity that
becomes an Affiliate after the adoption of this Plan.
1.03. Associate, with respect to any Person, is defined in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as amended as of January
1, 1990. An Associate does not include the Company or a majority-owned
subsidiary of the Company.
1.04. Award Date means the date of the first Board meeting after each annual
meeting of the Company's shareholders.
1.05. Board means the Board of Trustees of the Company.
1.06. Change of Control means that (i) a Person is or becomes an Acquiring
Person; (ii) a Person enters into an agreement that would result in that
Person's becoming an Acquiring Person; (iii) the Company enters into any
agreement with a Person that involves the transfer of at least fifty percent
(50%) of the Company's total assets on a consolidated basis, as reported in the
Company's consolidated financial statements filed with the Securities and
Exchange Commission; (iv) the Company enters into any agreement to merge or
consolidate the Company or to effect a statutory share exchange with another
Person,
<PAGE> 3
regardless of whether the Company is intended to be the surviving or resulting
entity after the merger, consolidation, or statutory share exchange; or (v) the
Continuing Trustees cease for any reason to constitute a majority of the Board.
1.07. Code means the Internal Revenue Code of 1986, as amended.
1.08. Committee means the committee appointed by the Board to administer the
Plan.
1.09. Company means Innkeepers USA Trust.
1.10. Continuing Trustee means any member of the Board, while a member of the
Board and (i) who was a member of the Board prior to February 3, 1997 or (ii)
whose nomination for or election to the Board was recommended or approved by a
majority of the Continuing Trustees.
1.11. Control Affiliate, with respect to any Person, means an affiliate as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act, as amended as of January 1, 1990.
1.12. Control Change Date means the date on which a Change of Control occurs. If
a Change of Control occurs on account of a series of transactions, the Control
Change Date is the date of the last of such transactions.
1.13. Disability means a complete physical or mental inability, confirmed by an
independent licensed physician, to perform substantially all of the services
required of a member of the Board.
1.14. Fair Market Value means, on any given date, the closing price of a Share
as reported on the New York Stock Exchange composite tape on such date, or if
the Shares
2
<PAGE> 4
were not traded on the New York Stock Exchange on such day, then on the next
preceding day that the Shares were traded on such exchange, all as reported by
such source as the Committee may select.
1.15. First Award Date means the date that the registration statement relating
to the Company's initial public offering of Shares was declared effective by the
Securities and Exchange Commission.
1.16. Founding Trustee means a Participant who was a member of the Board on the
First Award Date.
1.17. Non-Founding Trustee means a Participant who is neither a Founding Trustee
nor a Reelected Trustee.
1.18. Option means an option that entitles the holder to purchase Shares from
the Company on the terms set forth in Article IV of this Plan.
1.19. Participant means a member of the Board who, on the First Award Date or
applicable Award Date, is not an employee or officer of the Company or an
Affiliate and who is not a member of the Committee. Participant also means an
individual who is not an employee of the Company or an Affiliate and who is
elected or appointed a member of the Board other than at an annual meeting of
the Company's shareholders.
1.20. Person means any human being, firm, corporation, partnership, or other
entity. Person also includes any human being, firm, corporation, partnership, or
other entity as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act,
as amended as of January 1, 1990. For purposes of this Plan, the term Person
does not include the Company or any Related Entity, and the term Person does not
include any employee-benefit plan maintained
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<PAGE> 5
by the Company or by any Related Entity, and any person or entity organized,
appointed, or established by the Company or by any subsidiary for or pursuant to
the terms of any such employee-benefit plan, unless the Committee determines
that such an employee-benefit plan or such person or entity is a Person.
1.21. Plan means the Innkeepers USA Trust Trustees' Share Incentive Plan.
1.22. Reelected Trustee means a Participant who, during the term of this Plan,
ceases to be a member of the Board but is subsequently elected or appointed to
the Board.
1.23. Related Entity means any entity that directly or indirectly, through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company.
1.24. Shares means the common shares of the Company.
ARTICLE II
PURPOSES
The Plan is intended to (i) assist the Company in recruiting and
retaining trustees and (ii) promote a greater identity of interest between
Participants and shareholders by enabling Participants to participate in the
Company's future success.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee
shall have authority to grant Options and award Shares upon such terms (not
inconsistent with the provisions of the Plan) as the Committee may consider
appropriate. In addition, the
4
<PAGE> 6
Committee shall have complete authority to interpret all provisions of the Plan;
to adopt, amend, and rescind rules and regulations pertaining to the
administration of the Plan; and to make all other determinations necessary or
advisable for the administration of the Plan. The express grant in the Plan of
any specific power to the Committee shall not be construed as limiting any power
or authority of the Committee. Any decision made, or action taken, by the
Committee or in connection with the administration of the Plan shall be final
and conclusive. No member of the Committee shall be liable for any act done in
good faith with respect to the Plan. All expenses of administering the Plan
shall be borne by the Company.
ARTICLE IV
OPTIONS
4.01. Grant of Options to Founding Trustees and Participants Elected at Annual
Meeting.
(a) This Section 4.01 does not apply to Participants described
in the first sentence of Section 4.02. Each Founding Trustee shall be granted an
Option for 5,000 Shares on the First Award Date. Each Non-Founding Trustee shall
be granted, on the first Award Date on which he is a member of the Board, and
each Reelected Trustee shall receive, on the first Award Date after his
reelection to the Board, an Option for a number of Shares determined in
accordance with Section 4.03. Subject to the provisions of Article VIII and
Section 4.06, an Option granted under this Section 4.01 shall be exercisable
with respect to 1000 Shares on the first Award Date after the date on which such
Option was granted, and with respect to an additional 1000 Shares subject to
such Option on each successive Award Date.
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<PAGE> 7
(b) Any Participant who receives an Option under Section 4.01(a)
shall also receive, on each date in 1997 through 1999 that a portion of such
Option becomes exercisable, an additional Option for 1000 Shares, which shall be
immediately exercisable in full. Further, any Participant who first becomes a
member of the Board at the annual meeting of the Company's shareholders in 1999
shall receive on the Award Date in 1999 an Option for 1000 Shares, which shall
become exercisable on the next succeeding Award Date, subject to Section 4.06.
4.02. Grant of Options to Other Participants.
(a) This Section 4.02 applies to Participants (other than
Founding Trustees) who are elected or appointed to the Board other than at an
annual meeting of the Company's shareholders. Each Participant to whom this
Section 4.02 applies shall be granted, on the date of such appointment or
election to the Board, an Option for a number of Shares determined in accordance
with Section 4.03. Subject to the provisions of Article VIII and Section 4.06,
an Option granted under this Section 4.02 shall be exercisable with respect to
1000 Shares on the first anniversary of the date the Option was granted, and
with respect to an additional 1000 Shares subject to such Option on each
successive anniversary of the date the Option was granted.
(b) Any Participant who receives an Option under Section 4.02(a)
shall also receive on each date in 1997 through 1999 that a portion of such
Option becomes exercisable, an additional Option for 1000 Shares, which shall be
immediately exercisable in full. Further, any Participant who first becomes a
member of the Board in 1999 other than at the annual meeting of the Company's
shareholders in 1999 shall receive, on the date of his
6
<PAGE> 8
initial election or appointment to the Board, an Option for 1000 Shares, which
shall become exercisable on the first anniversary of the date of grant, subject
to Section 4.06.
4.03. Number of Shares Subject to Options. Options granted under Sections
4.01(a) and 4.02(a): (i) in 1995 shall cover 4,000 Shares; (ii) in 1996 shall
cover 3,000 Shares; (iii) in 1997 shall cover 2,000 Shares; and (iv) in 1998
shall cover 1,000 Shares.
4.04. Options Granted in 2000 and Subsequent Years. In addition to other Options
granted under this Article IV, a Participant shall receive an Option for 2,000
Shares on the Award Date in the year 2000 and on each subsequent Award Date
during the term of this Plan, but only if the Participant is a member of the
Board on the applicable Award Date. Further, a Participant who first becomes a
member of the Board (i) other than at an annual meeting of the Company's
shareholders and (ii) on a date in any calendar year that follows the Award Date
in such year shall receive an Option for 2000 Shares on the date he is first
elected or appointed to the Board. All Options granted under this Section 4.04
shall be immediately exercisable in full.
4.05 Option Price and Payment. The price per share for Shares purchased on the
exercise of an Option shall be the Fair Market Value on the date that the Option
is granted. Payment of the Option price shall be made in cash, cash equivalent
acceptable to the Committee, by the surrender of Shares or a combination
thereof. If Shares are surrendered in payment of the Option price, the Shares
surrendered must have an aggregate Fair Market Value (determined as of the day
preceding the exercise date) that, together with any cash or cash equivalent
paid, is not less than the Option price for the number of Shares for which the
Option is being exercised.
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<PAGE> 9
4.06. Exercise.
Except as provided in this Section, an Option will become
exercisable on a date specified in this Article IV only if a Participant is a
member of the Board on such date. An Option held by a Participant who is a
member of the Board on a Control Change Date will become exercisable in full on
the Control Change Date. If a Control Change Date occurs as a result of the
circumstances described in Section 1.06(v), then the preceding sentence shall
also apply to a Continuing Trustee who was a member of the Board on the day
preceding the Control Change Date, whether or not he is a member on the Control
Change Date. An Option held by a Participant who ceases to serve on the Board on
account of his death or Disability will become exercisable in full on the date
Participant ceases to serve on the Board.
To the extent that an Option has become exercisable under this
Article IV, it may be exercised whether or not the Participant is a member of
the Board on the date or dates of exercise. An Option may be exercised with
respect to any number of whole Shares less than the full number for which the
Option could be exercised. A partial exercise of an Option shall not affect the
right to exercise the Option from time to time in accordance with this Plan with
respect to the remaining Shares subject to the Option. All Options shall be
evidenced by Agreements that shall be subject to the applicable provisions of
this Plan and to such other provisions as the Committee may adopt.
4.07. Maximum Option Period. The maximum period during which an Option may be
exercised shall be ten years from the date of grant. In the event of the
Participant's death, the Option may be exercised by the Participant's estate, a
Permitted Transferee (defined
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<PAGE> 10
below), or such person or persons who succeed to the Participant's or Permitted
Transferee's rights by will or the laws of descent and distribution until the
expiration of the Option period. Participant's estate, a Permitted Transferee or
such other person or persons may exercise the Option with respect to all or part
of the number of Shares for which Participant or the Permitted Transferee could
have exercised the Option on the date of Participant's death.
4.08. Limited Transferability. An Option granted under this Plan may be
transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members, or a
partnership in which such family members are the only partners (each person or
entity, a "Permitted Transferee"), on such terms and conditions as may be
permitted under Securities and Exchange Commission Rule 16b-3 as in effect from
time to time. The holder of an Option transferred pursuant to this Section shall
be bound by the same terms and conditions that governed the Option during the
period that it was held by the Participant; provided, however, that a Permitted
Transferee may not transfer the Option except by will or the laws of descent and
distribution. Except for transfers expressly permitted under this Section 4.08,
an Option granted under this Plan may not be transferred except by will or by
the laws of descent and distribution. No right or interest of a Participant in
any Option shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
4.09. Shareholder Rights. No Participant shall have any rights as a shareholder
with respect to Shares subject to his Option until the date of exercise of such
Option.
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4.10. Shares Subject to Options. Upon the exercise of any Option, the Company
may deliver to the Participant (or the Participant's broker if the Participant
so directs), Shares from its previously authorized but unissued Shares.
ARTICLE V
SHARE AWARDS
5.01. Grant of Share Awards to Founding Trustees and Participants Elected at
Annual Meeting.
(a) This Section 5.01 does not apply to Participants described
in the first sentence of Section 5.02. Each Founding Trustee will be awarded
7,500 Shares on the First Award Date. Each Non-Founding Trustee will be awarded,
on the first Award Date on which he is a member of the Board, a whole number of
Shares having an aggregate Fair Market Value on that date that as nearly as
possible equals, but does not exceed, $75,000. Each Reelected Trustee will be
awarded, on the first Award Date following his reelection to the Board, a number
of Shares having an aggregate Fair Market Value on that date that as nearly as
possible equals, but does not exceed (i) $75,000 minus (ii) the Fair Market
Value of any Shares previously awarded to him under this Article V that had
vested pursuant to this Section 5.01 or Section 5.02, as applicable. For
purposes of the preceding sentence, the Fair Market value of the previously
awarded Shares shall be determined as of the date such Shares were issued to the
Participant.
(b) Twenty percent (20%) of the Shares issued to a Participant
under this Section 5.01 shall be immediately and fully vested as of the First
Award Date or Award Date, as applicable. On each subsequent Award Date, an
additional twenty percent (20%) of
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<PAGE> 12
the Shares issued to such Participant shall become fully vested. Except as
provided in Section 5.05, if a Participant is not a member of the Board on any
Award Date on which a portion of the Shares issued to him would otherwise become
vested under this Section, (i) no additional Shares shall become vested on that
date, and (ii) the Participant shall have no further right to or interest in any
Shares issued to him under the Plan that were not vested prior to that date.
5.02. Grant of Share Awards to Other Participants.
(a) This Section applies to Participants (other than Founding
Trustees) who are elected or appointed to the Board other than at an annual
meeting of the Company's shareholders. Each Participant to whom this Section
5.02 applies will be awarded, on the date of such appointment or election, a
whole number of Shares having an aggregate Fair Market Value on that date that
as nearly as possible equals, but does not exceed, $75,000. Each Reelected
Trustee to whom this Section 5.02 applies will be awarded, on the date of his
appointment or election to the Board, a number of Shares having an aggregate
Fair Market Value on that date that as nearly as possible equals, but does not
exceed (i) $75,000 minus (ii) the Fair Market Value of the Shares previously
awarded to him under this Article V that had vested pursuant to Section 5.01 or
this Section 5.02, as applicable. For purposes of the preceding sentence, the
Fair Market value of the previously awarded Shares shall be determined as of the
date such Shares were issued to the Participant.
(b) Twenty percent (20%) of the Shares issued to a Participant
under this Section 5.02 shall be immediately and fully vested as of the date the
Shares are granted to the Participant. On each subsequent anniversary of the
date the Shares were granted, an
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additional twenty percent (20%) of the Shares issued to such Participant shall
become fully vested. Except as provided in Section 5.05, if a Participant is not
a member of the Board on any date on which a portion of the Shares issued to him
would otherwise become vested under this Section, (i) no additional Shares shall
become vested on that date, and (ii) the Participant shall have no further right
to or interest in any Shares issued to him under the Plan that were not vested
prior to that date.
5.03. Supplemental Awards. In addition to Shares awarded under Section 5.01,
each Founding Trustee shall be awarded 5,000 Shares on the Award Date in 1997.
One-third of such Shares shall be immediately and fully vested. An additional
one-third of such Shares shall vest on the first Award Date following the date
of grant, and the balance of the Shares shall vest on the second Award Date
following the date of grant. Except as provided in Section 5.05, if a Founding
Trustee is not a member of the Board on any date on which a portion of the
Shares issued to him would otherwise become vested under this Section, (i) no
additional Shares shall become vested on that date, and (ii) the Founding
Trustee shall have no further right to or interest in any Shares that were not
vested prior to that date.
5.04. Fractional Shares. A fractional share shall not become vested hereunder,
and when any provision hereof may cause a fractional share to become vested, any
vesting in such fractional share shall be postponed until such fractional share
and other fractional shares equal a vested whole share.
5.05 Vesting. Except as provided in this Section, Shares awarded under this Plan
will become vested on a date specified in this Article V only if a Participant
is a member of the Board on such date or dates. A Share award held by a
Participant who is a member of
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<PAGE> 14
the Board on a Control Change Date will become fully vested on the Control
Change Date. Further, if the Control Change Date occurs as a result of the
circumstances described in Section 1.06(v), then the preceding sentence shall
also apply to a Continuing Trustee who was a member of the Board on the day
preceding the Control Change Date, whether or not he is a member on the Control
Change Date. A Share award held by a Participant who ceases to serve on the
Board on account of his death or Disability will become fully vested on the date
he ceases to serve on the Board.
5.06. Transferability. A Participant may not pledge, exchange, hypothecate,
bequeath, or otherwise transfer any Shares issued to such Participant under the
Plan until such Shares are vested pursuant to this Article V. Any transfer of
Shares permitted under this Plan is subject to restrictions imposed by federal
and state securities and other laws.
5.07. Shareholder Rights. Until such time as a Share issued to a Participant
under this Plan is vested pursuant to this Article V, the Company shall retain
custody of the certificate evidencing such Share and shall hold a stock power
endorsed in blank with respect to such Share, which stock power is to be
provided to the Company by the Participant as soon as reasonably possible after
the date on which Shares are issued to him. A Participant will have the right to
vote all Shares issued to him under this Plan and to receive all dividends
thereon, for as long as the Participant continues to serve as a member of the
Board, notwithstanding that a portion of the Shares issued to the Participant is
not vested pursuant to this Article V. Except as provided in Section 5.05, on
the date that the Participant ceases to be a member of the Board, all voting
rights and all rights to receive
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dividends with respect to any Shares not yet vested pursuant to this Article V
shall immediately terminate.
5.08. Shares Subject to Awards. Upon the award of Shares in accordance with this
Article V, the Company may issue Shares from its authorized but unissued Shares.
ARTICLE VI
INDEMNIFICATION
A Participant shall be entitled to a payment under this Article
VI if (i) any benefit, payment, accelerated exercisability or vesting or other
right under this Plan constitutes a "parachute payment" (as defined in Code
Section 280G(b)(2)(A), but without regard to Code Section 280G(b)(2)(A)(ii)),
with respect to such Participant and (ii) the Participant incurs a liability
under Code Section 4999. The amount payable to a Participant described in the
preceding sentence shall be the amount required to indemnify the Participant and
hold him harmless from the application of Code Sections 280G and 4999. To effect
this indemnification, the Company must pay such Participant an amount sufficient
to pay the excise tax imposed on Participant under Code Section 4999 with
respect to benefits, payments, accelerated exercisability and vesting and other
rights under this Plan and any other plan or agreement and any income,
self-employment, hospitalization, excise or other taxes attributable to the
indemnification payment. The benefit payable under this Article VI shall be paid
in a single cash sum not later than twenty days after the date (or extended
filing date) on which the tax return reflecting liability for the Code Section
4999 excise tax is required to be filed with the Internal Revenue Service.
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ARTICLE VII
ADJUSTMENT IN AGGREGATE OUTSTANDING OPTIONS AND SHARE AWARDS
UPON CHANGE IN COMMON SHARES AND
ADJUSTMENT IN OPTIONS AND SHARE AWARDS MADE THEREAFTER
The provisions of this Plan shall be revised as the Committee
shall determine to be equitably required in the event that (i) the Company (a)
effects one or more Share dividends, Share split-ups, subdivisions or
consolidation of Shares or (b) engages in a transaction to which Section 424 of
the Code applies or (ii) there occurs any other event which, in the judgment of
the Committee, necessitates such action. Any determination made under this
Article VII by the Committee shall be final and conclusive.
The issuance by the Company of shares of any class, or
securities convertible into shares of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares of obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
shares that will be issued as of any applicable Award Date or other date of
grant specified herein.
ARTICLE VIII
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Shares shall be issued and no certificates for Shares shall
be delivered under the Plan except in compliance with all applicable federal and
state laws and regulations (including, without limitation, withholding tax
requirements), any listing agreement to which
15
<PAGE> 17
the Company is a party, and the rules of all domestic stock exchanges on which
the Company's Shares may be listed. The Company shall have the right to rely on
an opinion of its counsel as to such compliance. Any certificate issued to
evidence Shares issued under the Plan may bear such legends and statements as
the Committee may deem advisable to assure compliance with federal and state
laws and regulations. No Shares shall be issued and no certificate for Shares
shall be delivered under the Plan until the Company has obtained such consent or
approval as the Committee may deem advisable from regulatory bodies having
jurisdiction over such matters.
ARTICLE IX
GENERAL PROVISIONS
9.01. Unfunded Plan. The Plan, insofar as it provides for awards, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by awards under the Plan. Any liability of the
Company to any person with respect to any award to be made under the Plan shall
be based solely upon any contractual obligations that may be created pursuant to
the Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
9.02. Rules of Construction. Headings are given to the articles and sections of
the Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
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ARTICLE X
AMENDMENT
The Board may amend the Plan from time to time or terminate the
Plan at any time; provided, however, that no amendment may become effective
until shareholder approval is obtained if the amendment materially (i) increases
the benefits to be awarded under the Plan or (ii) changes the class of
individuals eligible to become Participants. The preceding sentence to the
contrary notwithstanding, the Plan may not be amended more than once every six
months other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act of 1974, or the rules thereunder. No
amendment shall, without a Participant's consent, adversely affect any rights of
such Participant under any outstanding Options or awards of Shares granted under
this Plan outstanding at the time such amendment is made.
ARTICLE XI
DURATION OF PLAN
No Shares may be awarded and no Options may be granted under the
Plan after the Award Date in 2007; provided, however, that no Shares may be
awarded and no Options may be granted under the Plan after the Award Date in
1998 unless the amendments to the Plan presented for shareholder approval at the
1997 annual meeting of the Company's shareholders receive such approval. Options
granted and awards of Shares made during the term of the Plan shall remain in
effect in accordance with its terms notwithstanding the expiration of the Plan.
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ARTICLE XII
EFFECTIVE DATE OF PLAN
Shares may be issued under the Plan on the First Award Date,
provided that the Plan has been approved (at a duly held shareholders' meeting
at which a quorum is present) by a majority of the votes cast by the Company's
shareholders, voting either in person or by proxy, or by unanimous consent of
the Company's shareholders. Options may be granted under this Plan upon its
adoption by the Board, but no Option will be effective or exercisable unless
this Plan is approved by shareholders in accordance with the preceding sentence.
Notwithstanding the foregoing, no Options granted under Sections 4.01(b) and
4.02(b) and no awards of Shares granted under Section 5.03 shall be exercisable
or effective unless the amendments to the Plan presented for shareholder
approval at the 1997 annual meeting of the Company's shareholders receive such
approval.
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UNANIMOUS CONSENT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF TRUSTEES OF INNKEEPERS USA TRUST
The undersigned, being all the members of the Compensation
Committee (the "Committee") of the Board of Trustees (the "Board") of INNKEEPERS
USA TRUST, a Maryland real estate investment trust (the "Company"), and in lieu
of a meeting of trustees, the call and notice of which are hereby expressly
waived, do hereby consent to the adoption of the following resolutions:
RESOLVED, that the Committee recommends that the Board amend
Section 8.02 of the Innkeepers USA Trust 1994 Share Incentive Plan (the "1994
Plan") to read as follows:
8.02 Vesting. A Participant's rights in a Share Award shall be
forfeitable or otherwise restricted for a period of time or subject to
such conditions as may be set forth in the Agreement. The period of
restriction shall be at least three years; provided, however, that the
minimum period of restriction shall be at least one year in the case of
a Share Award that will become transferable and nonforfeitable on
account of satisfaction of performance objectives prescribed by the
Administrator. Notwithstanding the foregoing, Share Awards for a
maximum of ten percent of the aggregate number of Shares that may be
issued under this Plan in accordance with Article V (as that section
may be amended from time to time) may be granted without regard to the
restrictions described in the preceding two sentences.
RESOLVED FINALLY, that the Committee recommends that the Board
amend the first sentence of Article XV of the 1994 Plan to read as follows:
The Board may amend this Plan from time to time or terminate
this Plan at any time; provided, however, that no amendment may become
effective until shareholder approval is obtained if the amendment (i)
increases the aggregate number of Shares that may be issued under the
Plan; (ii) changes the class of individuals eligible to become
Participants; or (iii) materially increases the benefits that may be
provided to Participants under the Plan.
IN WITNESS WHEREOF, this Unanimous Consent of the Compensation
Committee of the Board of Trustees of Innkeepers USA Trust has been executed by
all of the members of the Compensation Committee effective the 19th day of
June, 1997.
/s/ Miles Berger
Date: August 30, 1997 ------------------------------------
Miles Berger
/s/ C. Gerald Goldsmith
Date: August 30, 1997 ------------------------------------
C. Gerald Goldsmith
/s/ Bruce Zenkel
Date: August 30, 1997 ------------------------------------
Bruce Zenkel
<PAGE> 1
Exhibit 10.10
CREDIT AGREEMENT
among
INNKEEPERS USA TRUST
and
INNKEEPERS USA LIMITED PARTNERSHIP,
as Borrowers
NATIONSBANK, N.A.,
as Administrative Agent
NOMURA ASSET CAPITAL CORPORATION,
as Documentation Agent
and
THE LENDERS NAMED HEREIN,
as Lenders
$250,000,000
AS OF
FEBRUARY 17, 1998
NATIONSBANC MONTGOMERY SECURITIES, LLC
as Arranger
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 DEFINITIONS AND TERMS.............................................1
1.1 Definitions.......................................................1
1.2 Time References..................................................16
1.3 Other References.................................................16
1.4 Accounting Principles............................................16
1.5 Joint and Several................................................16
SECTION 2 COMMITMENT.......................................................17
2.1 Revolving Facility...............................................17
2.2 Borrowing Procedure..............................................17
2.3 Letters of Credit................................................18
2.4 Competitive Bid Facility.........................................20
SECTION 3 TERMS OF PAYMENT.................................................21
3.1 Notes and Payments...............................................21
3.2 Interest and Principal Payments..................................21
3.3 Interest Options.................................................22
3.4 Quotation of Rates...............................................22
3.5 Default Rate.....................................................22
3.6 Interest Recapture...............................................22
3.7 Interest Calculations............................................22
3.8 Maximum Rate.....................................................23
3.9 Interest Periods.................................................23
3.10 Continuations; Conversions.......................................23
3.11 Order of Application.............................................24
3.12 Right of Setoff; Adjustments.....................................24
3.13 Booking Borrowings...............................................25
3.14 Increased Cost and Reduced Return................................25
3.15 Limitation on Types of Borrowings................................26
3.16 Illegality.......................................................26
3.17 Treatment of Affected Loans......................................27
3.18 Compensation.....................................................27
3.19 Taxes............................................................28
3.20 Fees.............................................................29
3.21 Extension of Maturity Date.......................................30
3.22 Option to Replace Lenders........................................31
SECTION 4 BORROWING BASE...................................................31
4.1 Borrowing Base...................................................31
4.2 Admission of Qualified Properties into the Borrowing Base........32
4.3 Negative Pledge Agreements.......................................34
4.4 Borrowing Base Covenants.........................................34
4.5 Failure to Comply With Borrowing Base Covenants..................34
SECTION 5 CONDITIONS PRECEDENT.............................................35
5.1 Conditions to Initial Borrowing..................................35
5.2 Conditions to all Borrowings.....................................37
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.3 Conditions Generally.............................................37
SECTION 6 REPRESENTATIONS AND WARRANTIES...................................38
6.1 Purpose of Credit Facility.......................................38
6.2 Existence, Good Standing, Authority and Compliance...............38
6.3 Affiliates.......................................................38
6.4 Authorization and Contravention..................................38
6.5 Binding Effect...................................................38
6.6 Financial Statements; Fiscal Year................................39
6.7 Litigation.......................................................39
6.8 Taxes............................................................39
6.9 Environmental Matters............................................39
6.10 Employee Plans...................................................40
6.11 Properties; Liens................................................40
6.12 Locations........................................................40
6.13 Government Regulations...........................................40
6.14 Transactions with Affiliates.....................................40
6.15 Insurance........................................................40
6.16 Labor Matters....................................................40
6.17 Solvency.........................................................40
6.18 Full Disclosure..................................................40
6.19 Exemption from ERISA; Plan Assets................................41
SECTION 7 AFFIRMATIVE COVENANTS............................................41
7.1 Items to be Furnished............................................41
7.2 Use of Proceeds..................................................42
7.3 Books and Records................................................42
7.4 Inspections......................................................43
7.5 Taxes............................................................43
7.6 Payment of Obligations...........................................43
7.7 Expenses.........................................................43
7.8 Maintenance of Existence, Assets, and Business...................43
7.9 Insurance........................................................43
7.10 Preservation and Protection of Rights............................44
7.11 Environmental Laws...............................................44
7.12 INDEMNIFICATION..................................................44
7.13 REIT Status......................................................45
7.14 ERISA Exemptions.................................................45
7.15 Listed Company...................................................45
7.16 Properties.......................................................45
SECTION 8 NEGATIVE COVENANTS...............................................45
8.1 Payment of Obligations...........................................45
8.2 Employee Plans...................................................45
8.3 Transactions with Affiliates.....................................45
8.4 Compliance with Governmental Requirements and Documents..........46
8.5 Loans, Advances, and Investments.................................46
8.6 Dividends and Distributions......................................46
8.7 Sale of Assets...................................................46
8.8 Mergers and Dissolutions.........................................46
8.9 Assignment.......................................................46
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
8.10 Fiscal Year and Accounting Methods...............................46
8.11 New Businesses...................................................46
8.12 Government Regulations...........................................47
8.13 Interest Rate Agreements.........................................47
8.14 Subsidiary Guarantors............................................47
SECTION 9 FINANCIAL COVENANTS..............................................47
9.1 Interest Coverage Ratios.........................................47
9.2 Fixed Charge Coverage Ratio......................................47
9.3 Adjusted Fixed Charge Coverage Ratio.............................47
9.4 Secured Indebtedness.............................................47
9.5 Total Indebtedness to Total Capitalization.......................47
9.6 Total Indebtedness to Implied Value..............................48
9.7 Minimum Tangible Net Worth.......................................48
SECTION 10 DEFAULT..........................................................48
10.1 Payment of Obligation............................................48
10.2 Covenants........................................................48
10.3 Debtor Relief....................................................48
10.4 Judgments and Attachments........................................49
10.5 Government Action................................................49
10.6 Misrepresentation................................................49
10.7 Default Under Other Agreements...................................49
10.8 Validity and Enforceability of Loan Documents....................49
10.9 Management Changes...............................................49
10.10 Change in Control................................................50
10.11 Plan Assets......................................................50
10.12 Default Under Operating Leases...................................50
SECTION 11 RIGHTS AND REMEDIES..............................................50
11.1 Remedies Upon Default............................................50
11.2 Waivers..........................................................51
11.3 Performance by Administrative Agent..............................51
11.4 Not in Control...................................................51
11.5 Course of Dealing................................................51
11.6 Cumulative Rights................................................51
11.7 Application of Proceeds..........................................51
11.8 Certain Proceedings..............................................51
11.9 Documentation Agent..............................................52
SECTION 12 AGENTS AND LENDERS...............................................52
12.1 Agents...........................................................52
12.2 Expenses.........................................................54
12.3 Proportionate Absorption of Losses...............................54
12.4 Delegation of Duties; Reliance...................................54
12.5 Limitation of Agents' Liability..................................55
12.6 Default..........................................................56
12.7 Limitation of Liability..........................................56
12.8 Relationship of Lenders..........................................56
12.9 Benefits of Agreement............................................56
12.10 Approval of Lenders..............................................56
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 13 MISCELLANEOUS....................................................57
13.1 Headings.........................................................57
13.2 Nonbusiness Days; Time...........................................57
13.3 Communications...................................................57
13.4 Form and Number of Documents.....................................57
13.5 Survival.........................................................57
13.6 Governing Law....................................................57
13.7 Invalid Provisions...............................................57
13.8 Venue; Service of Process; Jury Trial............................58
13.9 Amendments, Consents, Conflicts, and Waivers.....................58
13.10 Multiple Counterparts............................................59
13.11 Assignments and Participations...................................60
13.12 Discharge Only Upon Payment in Full; Reinstatement in
Certain Circumstances..........................................62
13.13 Entirety.........................................................62
13.14 Amendment and Restatement........................................62
</TABLE>
<PAGE> 6
SCHEDULES AND EXHIBITS
Schedule 1 Parties, Addresses, Commitments, and Wiring Information
Schedule 2.1 JF Hotel Lessees
Schedule 2.2 Summerfield Lessees
Schedule 4.1 Form of Borrowing Base Report
Schedule 4.2 Closing Date Borrowing Base Properties
Schedule 6.2 Jurisdictions of Incorporation, Chief Executive Office, and
Jurisdictions
Schedule 6.7 Litigation
Schedule 6.9 Environmental Matters
Schedule 6.14 Affiliates Transactions
Exhibit A Borrowing Request
Exhibit B Compliance Certificate
Exhibit C LC Request
Exhibit D Form of Revolving Credit Note
Exhibit E Form of Subsidiary Guaranty
Exhibit F Form of Counsel Opinion
Exhibit G Form of Assignment and Acceptance
Exhibit H Form of Mortgage
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of February , 1998, among INNKEEPERS
USA TRUST, a Maryland real estate investment trust (the "TRUST") and INNKEEPERS
USA LIMITED PARTNERSHIP, a Virginia limited partnership (the "PARTNERSHIP") (the
Trust and the Partnership are individually called a "BORROWER" and collectively
called "BORROWERS"), each of the lenders that are a signatory hereto or that
becomes a signatory hereto as provided in SECTION 13.11(A) (individually,
together with its successors and permitted assigns, a "LENDER" and collectively,
the "LENDERS"), NATIONSBANK, N.A., a national banking association, as
Administrative Agent (in such capacity, together with its successors and
permitted assigns, "ADMINISTRATIVE AGENT") and as Issuing Bank (in such
capacity, together with its successors and permitted assigns, "ISSUING BANK"),
and NOMURA ASSET CAPITAL CORPORATION, as Documentation Agent (in such capacity,
together with its successors and permitted assigns, "DOCUMENTATION AGENT").
R E C I T A L S:
1. Borrowers have requested that Lenders extend to Borrowers a
revolving credit facility not to exceed the principal amount of $250,000,000.
2. Lenders are willing to extend the requested credit on the terms and
subject to the conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1
DEFINITIONS AND TERMS
1.1 DEFINITIONS. Unless otherwise indicated, as used in the Loan
Documents:
"ADJUSTED EBITDA" means, for any Person for any period, (a) EBITDA,
minus (b) to the extent not already deducted from EBITDA, all ground lease
payments, minus (c) a Capital Expenditure reserve equal to the greater of (i)
four percent (4%) of Gross Room Revenue for such period with respect to all
Properties owned by such Person, and (ii) any reserves required under all
Operating Leases of such Person during such period.
"ADJUSTED EURODOLLAR RATE" means, for any Eurodollar Borrowing for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by Administrative Agent to be equal to the
quotient obtained by dividing (a) the Eurodollar Rate (LIBOR) for such
Eurodollar Borrowing for such Interest Period by (b) one (1) minus the Reserve
Requirement for such Eurodollar Borrowing for such Interest Period.
<PAGE> 8
"ADJUSTED FIXED CHARGES" means, for any Person for any period, the sum
of (a) all Debt Service during such period, (b) all Distributions paid or
payable during such period in respect of any preferred Stock of such Person, and
(c) all actual Capital Expenditures during such period.
"ADJUSTED NOI" has the meaning set forth in SECTION 4.1(D).
"ADMINISTRATIVE AGENT" is defined in the preamble.
"AFFILIATE" of a Person means any other individual or entity who
directly or indirectly controls, or is controlled by, or is under common control
with, that Person. For purposes of this definition "control," "controlled by,"
and "under common control with" mean possession, directly or indirectly, of
power to direct (or cause the direction of) management or policies (whether
through ownership of voting Stock, by contract, or otherwise).
"AGENTS" means Administrative Agent and Documentation Agent, and
"AGENT" means any one of the Agents.
"AGREEMENT" means this Credit Agreement, as modified, amended,
supplemented, or restated from time to time.
"APPLICABLE LENDING OFFICE" means, for each Lender and for each Type of
Borrowing, the "LENDING OFFICE" of such Lender (or of an Affiliate of such
Lender) designated for such Type of Borrowing on SCHEDULE 1 or such other office
of such Lender (or an Affiliate of such Lender) as such Lender may from time to
time specify to Administrative Agent and Borrowers by written notice in
accordance with the terms hereof as the office by which its Borrowings of such
Type are to be made and maintained.
"APPLICABLE MARGIN" means, as of any date of determination:
(A) If the Trust does not have an Investment Grade Rating on such
determination date, then the interest margin over the Base Rate or the Adjusted
Eurodollar Rate, as the case may be, based upon the Total Indebtedness to
Implied Value Ratio, as stated in the table below:
2
<PAGE> 9
<TABLE>
<CAPTION>
====================================================================================
APPLICABLE APPLICABLE
TOTAL INDEBTEDNESS TO IMPLIED MARGIN FOR MARGIN FOR
LEVEL VALUE RATIO EURODOLLAR BASE RATE
BORROWINGS BORROWINGS
====================================================================================
<S> <C> <C> <C>
1 Greater than 35% 1.625% 0.75%
- ------------------------------------------------------------------------------------
2 Less than or equal to 35%, but 1.50% 0.75%
greater than 25%
- ------------------------------------------------------------------------------------
3 Less than or equal to 25% 1.40% 0.75%
====================================================================================
</TABLE>
The Applicable Margin determined above in effect at any time (whether in the
middle of an Interest Period or otherwise) is based upon the Total Indebtedness
to Implied Value Ratio as determined from the Current Financials and related
Compliance Certificate then most-recently received by Agents, effective on the
third (3rd) Business Day following receipt. If Borrowers fail to timely furnish
to Agents any Financial Statements and related Compliance Certificate as
required by this Agreement, then the maximum Applicable Margin applies from the
date those Financial Statements and related Compliance Certificate are required
to be delivered and remain in effect until Borrowers furnishes them to Agents.
(B) If the Trust has an Investment Grade Rating on such determination
date, then the interest margin over the Base Rate or the Adjusted Eurodollar
Rate, as the case may be, that corresponds to the Moody's Rating and the S & P
Rating set forth below on the date of determination:
<TABLE>
<CAPTION>
=======================================================================================
APPLICABLE MARGIN APPLICABLE MARGIN
FOR FOR
LEVEL MOODY'S S & P RATING EURODOLLAR BASE RATE
RATING BORROWINGS BORROWINGS
=======================================================================================
<S> <C> <C> <C> <C>
1 Baa3 BBB- 1.375% 0.5%
- ---------------------------------------------------------------------------------------
2 Baa2 BBB 1.30% 0.25%
- ---------------------------------------------------------------------------------------
3 Baa1 or better BBB+ or better 1.225% 0%
=======================================================================================
</TABLE>
For purposes of the foregoing: (a) if the Moody's Rating and the S & P Rating
shall fall within different LEVELS, then the Applicable Margin shall be
determined by reference to the numerically lower LEVEL (e.g., if the S & P
Rating is in LEVEL 1 and the Moody's Rating is in LEVEL 2, then the Applicable
Margin shall be determined by reference to LEVEL 1); and (b) if only one of the
Moody's Rating or the S & P Rating shall be in effect, then Borrowers may
substitute the corresponding rating of Duff & Phelps Credit Ratings Co., Fitch
Investors Service, L.P., or another ratings agency acceptable to Agents. Each
change in the Applicable
3
<PAGE> 10
Margin shall be effective commencing on the third (3rd) Business Day following
the earlier to occur of (i) Agents' receipt of notice from Borrowers, as
required in SECTION 7.1(H), of a change in the Moody's Rating or the S & P
Rating, and (ii) any Agent's actual knowledge of a change in the Moody's Rating
or the S & P Rating.
(C) Administrative Agent shall promptly notify each Credit Party and
Borrowers of any change in the Applicable Margin, provided that the failure to
provide such notice shall not affect the effective date of any such change.
"APPROVED COSTS" means, for any Hotel, the sum of the acquisition,
construction, and other capitalized costs of such Hotel, whether in the form of
cash, property, liabilities assumed, or other consideration.
"APPROVED FRANCHISE" means any "Marriott," "Promus," "Holiday Inn," or
"Summerfield" franchise or license or another franchise or license approved by
Required Lenders in writing.
"APPLICABLE THRESHOLD" means that both (a) the Moody's Rating is equal
to Ba1 and/or the S & P Rating is equal to BB+, and (b) the ratio of (i)
Adjusted NOI for the Borrowing Base Properties in the Borrowing Base as of the
date of determination for the twelve (12) month period ending on the last day of
the fiscal quarter ending on or prior to such date, to (ii) Implied Debt Service
as of the last day of the fiscal quarter ending on or prior to such date, is
equal to or greater than 2.5 to 1.0.
"APPLICABLE TIME" means a date in which (a) Nomura Asset Capital
Corporation or any of its successors (but not assigns) is a Lender hereunder,
(b) the Trust does not have an Investment Grade Rating, and (c) the Applicable
Threshold has not been met.
"BASE RATE" means, for any day, the greater of (a) the sum of the
Federal Funds Rate plus one-half of one percent (0.5%), and (b) the annual
interest rate most recently announced by Administrative Agent as its prime rate
(or, if the Person then acting as Administrative Agent under this Agreement is
not a bank organized under the Governmental Requirements of the United States or
any State, then the rate announced by NationsBank, N.A., or any successor
thereof, as its prime rate) in effect at its principal office, automatically
fluctuating upward and downward with and as specified in each announcement
without special notice to Borrowers or any other Person (which prime rate may
not necessarily represent the lowest or best rate actually charged to a
customer).
"BASE RATE BORROWING" means a Borrowing bearing interest at the Base
Rate plus the Applicable Margin.
4
<PAGE> 11
"BORROWING" means (without duplication) any amount disbursed by (a)
Lenders to or on behalf of any Borrower under the Loan Documents, or (b) any
Lender in accordance with, and to satisfy the obligations of any Borrower under,
any Loan Document.
"BORROWING BASE" is defined in SECTION 4.1.
"BORROWING BASE PROPERTIES" means each of the Qualified Properties
owned by an Obligor and approved by Required Lenders for inclusion in the
Borrowing Base in accordance with SECTION 4, and "BORROWING BASE PROPERTY" means
any one of the Borrowing Base Properties.
"BORROWING BASE REPORT" means a report in substantially the form of
SCHEDULE 4.1 certified by a Responsible Officer of each Borrower, setting forth
in reasonable detail the total number of Rooms, date placed in service, date
acquired, property location, type, Approved Costs, room revenue, base rent,
lower tier, upper tier, threshold, percentage rent, real estate taxes,
insurance, ground rents, capital expenditure reserve, Adjusted NOI, and a
calculation of the Implied Value for each of the Borrowing Base Properties
(individually and in the aggregate).
"BORROWING DATE" means (a) for any Borrowing (i) the date for which
funds are requested by Borrowers, or (ii) the date any Borrowing is Converted
hereunder to another Type of Borrowing, and (b) for any LC, the date in which an
LC is requested by Borrowers.
"BORROWING REQUEST" means a request substantially in the form of
EXHIBIT A and signed by a Responsible Officer of Borrowers.
"BUSINESS DAY" means (a) for all purposes, any day other than Saturday,
Sunday, and any other day that commercial banks are authorized by any
Governmental Requirement to be closed in Virginia or New York, and (b) for
purposes of any Eurodollar Borrowing, a day that satisfies the requirements of
CLAUSE (A) and is a day when commercial banks are open for domestic or
international business in London.
"CAPITAL EXPENDITURES" means any expenditures by a Person for an asset
that will be used in years subsequent to the year in which the expenditure is
made or which is properly classified in the relevant financial statements of
such Person in accordance with GAAP as a capital asset; provided, however, that
"CAPITAL EXPENDITURES" shall not include expenditures incurred in connection
with (a) Hotels under construction, (b) Hotels that are being substantially
refurbished or rehabilitated, or (c) a franchisor's or licensor's product
improvement plan.
"CAPITAL LEASE" means, for any Person, any capital lease or sublease
that has been (or under GAAP should be) capitalized on a balance sheet of such
Person.
5
<PAGE> 12
"CASH AVAILABLE FOR DISTRIBUTION" means, for any Person for any period,
Funds from Operations less Capital Expenditures during such period.
"CASH EQUIVALENTS" means (a) investments and direct obligations of the
United States of America or any agency thereof, or obligations fully guaranteed
by the United States of America or any agency thereof, provided that such
obligations mature within one (1) year of the date of acquisition thereof, (b)
commercial paper rated "A-1" or better according to S & P or "P-1" or better
according to Moody's and maturing not more than one hundred and eighty (180)
days from the date of acquisition thereof, (c) time deposits with, and
certificates of deposit and bankers' acceptances issued by, any Agent or any
United States bank having capital surplus and undivided profits aggregating at
least $1,000,000,000, and (d) mutual funds whose investments are limited to the
foregoing.
"CHANGE IN CONTROL" means the occurrence of any one of the following:
(a) any Person or group of related Persons shall have acquired beneficial
ownership of more than thirty-five percent (35%) of the outstanding Stock of the
Trust (within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended, and the applicable rules and regulations thereunder);
(b) during any period of twelve (12) consecutive calendar months, individuals
who were members of the Board of Directors of the Trust on the first (1st) day
of such period shall cease to constitute at least sixty-six and two-thirds
percent (66-2/3%) of the members of the Board of Directors of the Trust; (c) the
Trust shall cease to own, directly or indirectly, all of the outstanding Stock
of General Partner; or (d) the Trust shall cease to own, directly or indirectly,
at least fifty-one percent (51%) of the outstanding Stock of the Partnership.
"CLOSING DATE" means the date this Agreement is fully executed and
delivered.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"COMMITMENT" means, for a Lender, the amount (which is subject to
reduction and cancellation as provided in this Agreement) stated beside such
Lender's name on SCHEDULE 1 as most recently amended under this Agreement, as
the same may be terminated pursuant to SECTION 11.1, and as the same may be
increased or decreased from time to time by further assignment pursuant to
SECTION 13.11.
"COMMITMENT USAGE" means, at any time, the sum of (a) the Total
Principal Debt plus (b) the LC Exposure.
"COMPANIES" means, without duplication, (a) the Trust, (b) the
Partnership; (c) General Partner; and (d) each of their respective Consolidated
Affiliates, and "COMPANY" means any one of the Companies.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT B and signed by a Responsible Officer of Borrowers.
"CONSOLIDATED AFFILIATE" means, in respect of any Person, any other
Person in whom such Person holds Stock and whose financial results would be
consolidated under GAAP with the financial results of such Person on the
consolidated financial statements of such Person.
"CONSTITUENT DOCUMENTS" means, with respect to any Person, its articles
or certificate of incorporation, bylaws, partnership agreements, organizational
documents, limited liability company
6
<PAGE> 13
agreements, trust agreement, or such other document as may govern such Person's
formation, organization, and management.
"CONTINUE", "CONTINUATION", and "CONTINUED" refers to the continuation
pursuant to SECTION 3.10 hereof of a Eurodollar Borrowing from one Interest
Period to the next Interest Period.
"CONVERT," "CONVERSION," and "CONVERTED" shall refer to a conversion
pursuant to SECTION 3.10 of one Type of Borrowing into another Type of
Borrowing.
"CREDIT PARTIES" means Agents, Lenders, and Issuing Bank, and "CREDIT
PARTY" means any one of the Credit Parties.
"CURRENT FINANCIALS" means, at any time, the consolidated Financial
Statements of the Companies most recently delivered to Agents under SECTION
7.1(A) or 7.1(B), as the case may be.
"DEBT SERVICE" means, for any Person for any period, the sum of (a) all
regularly scheduled principal payments (but excluding any balloon payments) and
(b) all Interest Expense, in each case that is paid or payable during such
period in respect of all Liabilities of such Person.
"DEBTOR RELIEF LAWS" means Title 11 of the United States Code and all
other applicable state or federal liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension
of payments, or similar Governmental Requirements affecting creditors' Rights in
effect from time to time.
"DEFAULT" is defined in SECTION 10.
"DEFAULTING LENDER" means, as of any date, any Lender that has
defaulted on any of its obligations under this Agreement, which default has not
been cured or waived as of such date.
"DEFAULT RATE" means an annual rate of interest equal from day-to-day
to the lesser of (a) the Base Rate plus four (4%), and (b) the Maximum Rate.
"DISTRIBUTION" means, with respect to any Stock issued by a Person, (a)
the retirement, redemption, purchase or other acquisition for value of such
Stock by such Person, (b) the declaration or payment of any dividend on or with
respect to such Stock by such Person, (c) any loan or advance by that Person to,
or other investment by that Person in, the holder of any of such Stock, and (d)
any other payment by that Person with respect to such Stock.
"DOCUMENTATION AGENT" is defined in the preamble.
"EBITDA" means, for any Person for any period, the sum of (a) Net
Income, plus (b) depreciation and amortization expense, plus (c) Interest
Expense, plus (d) income taxes deducted from Net Income in accordance with GAAP,
plus (e) extraordinary losses (and any unusual losses arising in or outside the
ordinary course of business of such Person not included in extraordinary losses)
determined in accordance with GAAP that have been reflected in the determination
of Net Income, minus (f) extraordinary gains (and any unusual gains arising in
or outside the ordinary course of business of such Person not included in
7
<PAGE> 14
extraordinary gains) determined in accordance with GAAP that have been reflected
in the determination of Net Income.
"ELIGIBLE ASSIGNEE" means: (a) a Lender; (b) an Affiliate of a Lender;
and (c) any other Person approved by each Agent and, unless a Default exists at
the time any assignment is effected in accordance with SECTION 13.11, Borrowers,
such approval by Borrowers not to be unreasonably withheld or delayed by
Borrowers and such approval to be deemed given by Borrowers if no objection is
received by the assigning Lender and Administrative Agent from Borrowers within
two (2) Business Days after notice of such proposed assignment has been provided
by Administrative Agent or the assigning Lender to Borrowers; provided, however,
that no Company or any Affiliate of any Company shall qualify as an Eligible
Assignee.
"EMPLOYEE PLAN" means an employee pension benefit plan covered by Title
IV of ERISA and established or maintained by any Company.
"ENVIRONMENTAL LAW" means any and all Governmental Requirements
pertaining to health or the environment in effect in any and all jurisdictions
in which any Company is conducting, or where any Property of any Company is
located and which are applicable to any Company or any Property of any Company,
including, without limitation, the Oil Pollution Act of 1990, as amended,
("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980, as amended, ("CERCLA"), the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976, as amended, ("RCRA"), the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection Governmental Requirements.
The term "oil" has the meaning specified in OPA, the terms "hazardous substance"
and "release" (or "threatened release") have the meanings specified in CERCLA,
and the terms "solid waste" and "disposal" (or "disposed") have the meanings
specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA
or RCRA is amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date of such
amendment, and (ii) to the extent the Governmental Requirements of the state in
which any property of any Company is located establish a meaning for "oil,"
"hazardous substance," "release," "solid waste" or "disposal" which is broader
than that specified in either OPA, CERCLA or RCRA, such broader meaning shall
apply.
"EQUITY ISSUANCE" means the issuance or sale by any Company of any
Stock, or the exercise of any options, warrants, or other rights to subscribe
for or otherwise acquire Stock, of such Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"EURODOLLAR RATE" means, for any Eurodollar Borrowing for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Dow Jones Markets Page 3750 (or any successor
page) as the London interbank offered rate (LIBOR) for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the first
(1st) day of such Interest Period for a term comparable to such Interest Period.
If for any reason such rate is not available, then the term "Eurodollar Rate"
shall mean, for any Eurodollar Borrowing for any Interest Period therefor, the
rate
8
<PAGE> 15
per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two (2) Business
Days prior to the first (1st) day of such Interest Period for a term comparable
to such Interest Period; provided, however, if more than one rate is specified
on Reuters Screen LIBO Page, then the applicable rate shall be the arithmetic
mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of
1%). If neither of such rates is available, then the term "EURODOLLAR RATE"
shall mean, for any Eurodollar Borrowing for any Interest Period therefor, the
rate at which deposits in United States dollars are offered by Administrative
Agent at approximately 11:00 a.m. (London, England time) on the day that is two
(2) Business Days preceding the first (1st) day of such Interest Period to prime
banks in the London interbank market and for a period equal to such Interest
Period commencing on the first (1st) day of such Interest Period and in an
amount equal to Administrative Agent's Pro Rata Share of such Eurodollar
Borrowing.
"EURODOLLAR BORROWING" means a Borrowing bearing interest at the sum of
the Adjusted Eurodollar Rate plus the Applicable Margin.
"EXISTING AGREEMENT" means that certain loan agreement dated May 23,
1997, executed by the Partnership and Nomura Asset Capital Corporation, as
modified, amended, supplemented, or restated prior to the Closing Date.
"FEDERAL FUNDS RATE" means, on any day, the annual rate (rounded
upwards, if necessary, to the nearest 0.01%) determined by Administrative Agent
(which determination is conclusive and binding, absent manifest error) to be
equal to the weighted average of the rates on overnight federal funds
transactions with member banks of the Federal Reserve System arranged by federal
funds brokers as published by the Federal Reserve Bank of New York on the next
successive Business Day; provided, however, that (a) if such determination date
is not a Business Day, then the Federal Funds Rate for such day shall be the
rate for such transactions on the next preceding Business Day as published on
the next successive Business Day, or (b) if those rates are not published for
any Business Day, then the Federal Funds Rate shall be the average of the
quotations at approximately 10:00 a.m. on such Business Day received by
Administrative Agent from three (3) federal funds brokers of recognized standing
selected by Administrative Agent in its sole discretion.
"FINANCIAL STATEMENTS" means, for any Person, balance sheets and
statements of earnings, shareholders' equity, and cash flow prepared (a)
according to GAAP, (b) except as stated in SECTION 1.4, in comparative form to
prior year-end figures or corresponding periods of the preceding fiscal year, as
applicable, and (c) on a consolidated basis if that Person had any Consolidated
Affiliates during the applicable period.
"FIXED CHARGES" means, for any Person for any period, the sum of (a)
all Debt Service during such period, (b) all Distributions paid or payable
during such period in respect of any preferred Stock of such Person, and (c) a
Capital Expenditure reserve equal to the greater of (i) four percent (4%) of
Gross Room Revenue for such period with respect to all Properties owned by such
Person, and (ii) any reserves required under all Operating Leases of such Person
during such period.
"FUNDING LOSS" has the meaning set forth in SECTION 3.18.
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"FUNDS FROM OPERATIONS" means, for any Person for any period, net
income plus depreciation and amortization, all as determined in accordance with
GAAP; provided that there shall not be included in such calculation (a) any
proceeds of any insurance policy, (b) any gain or loss which is classified as
"extraordinary" in accordance with GAAP, (c) any capital gains, or (d) net
earnings of Unconsolidated Affiliates to the extent such earnings are not
distributable to such Person after the request of such Person.
"GAAP" means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable on the date of this
Agreement, subject to changes permitted by SECTION 1.4.
"GENERAL PARTNER" means Innkeepers Financial Corporation, a Virginia
corporation.
"GOVERNMENTAL AUTHORITY" means, with respect to any Person, property,
or business, any (a) local, state, or federal judicial, executive, or
legislative instrumentality, (b) private arbitration board or panel acting
through binding arbitration or mediation, or (c) central bank having
jurisdiction over such Person, property, or business.
"GOVERNMENTAL REQUIREMENT" means all applicable statutes, laws,
treaties, ordinances, rules, regulations, orders, writs, injunctions, decrees,
judgments, opinions, and interpretations of any Governmental Authority.
"GROSS ROOM REVENUE" means, with respect to any Hotel for any period,
all revenues from all Rooms in such Hotel during such period.
"HAZARDOUS SUBSTANCE" means any substance (a) the presence of which
requires removal, remediation, or investigation under any Environmental Law, or
(b) that is defined or classified as a hazardous waste, hazardous material,
pollutant, contaminant, or toxic or hazardous substance under any Environmental
Law.
"HOTEL" means any Property operated as a hotel, inn, or otherwise
having Rooms.
"IMPLIED DEBT SERVICE" means, as of any date, the annual Debt Service
required to amortize the outstanding Commitment Usage as of such date assuming
equal monthly payments of principal and interest over a period of twenty (20)
years at an annual rate of interest equal to the greater of (a) two and
one-quarter of one percent (2.25%) in excess of the most-recent rate published
on such date in the United States Federal Reserve Statistical Release (H.15) for
7-year Treasury Constant Maturities, and (b) nine percent (9%).
"IMPLIED VALUE" has the meaning set forth in SECTION 4.1(B).
"INDEBTEDNESS" means, for any Person, all Liabilities of such Person,
excluding accounts payable and accrued expenses in each case incurred in the
ordinary course of business and the payment of which is not past-due (unless
payment is being contested in good faith by appropriate proceedings diligently
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conducted and for which reserves in accordance with GAAP or otherwise reasonably
acceptable to Agents have been provided).
"INTEREST EXPENSE" means, for any Person for any period, all of such
Person's paid, accrued, or amortized interest expense on such Person's
Indebtedness (whether direct, indirect, or contingent, and including interest on
all convertible Indebtedness).
"INTEREST PERIOD" has the meaning set forth in SECTION 3.9.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, or other similar
agreement or arrangement designed to protect any Person against fluctuations in
interest rates.
"INVESTMENT GRADE RATING" means that (a) if both the Moody's Rating and
the S & P Rating are in effect, then both (i) the Moody's Rating equals Baa3 or
better, and (ii) the S & P Rating equals BBB- or better, or (b) if only one of
the Moody's Rating or the S & P Rating shall be in effect, then (i) either the
Moody's Rating equals Baa3 or better or the S & P Rating equals BBB- or better,
and (ii) such rating is supported by the corresponding rating of Duff & Phelps
Credit Rating Co., Fitch Investors Service, L.P., or another rating agency
acceptable to Agents.
"ISSUING BANK" is defined in the preamble.
"JF HOTEL LESSEES" means the Lessees listed on SCHEDULE 2.1, and "JF
HOTEL LESSEE" means any one of the JF Hotel Lessees.
"LC" means a documentary or standby letter of credit issued for the
account of any Borrower by Issuing Bank under this Agreement and under an LC
Agreement.
"LC AGREEMENT" means a letter of credit application and agreement (in
form and substance satisfactory to Issuing Bank) executed by Borrowers and
submitted to Issuing Bank for an LC for the account of such Borrowers.
"LC EXPOSURE" means, without duplication, the sum of (a) the total face
amount of all undrawn and uncancelled LCs plus (b) the total unpaid
reimbursement obligations of Borrowers under drawings under any LC.
"LC REQUEST" means a request substantially in the form of EXHIBIT C
executed by a Responsible Officer of Borrowers.
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"LC SUB-FACILITY" means a sub-facility of the Commitments for the
issuance of LCs, as described in SECTION 2.3, under which the LC Exposure (a)
may never collectively exceed $20,000,000, and (b) together with the Total
Principal Debt may never exceed the Total Commitment.
"LENDERS" is defined in the preamble.
"LESSEES" means each lessee of any Hotel pursuant to an Operating
Lease, and "LESSEE" means any one of the Lessees.
"LIABILITIES" means (without duplication), for any Person, (a) any
indebtedness, liabilities, or obligations required by GAAP to be classified upon
such Person's balance sheet as liabilities, (b) any liabilities secured (or for
which the holder of the Liability has an existing Right, contingent or
otherwise, to be so secured) by any Lien existing on Property owned or acquired
by that Person, (c) any obligations that have been (or under GAAP should be)
capitalized for financial reporting purposes, including all Capital Leases, (d)
any guaranties, endorsements, and other contingent obligations with respect to
the principal of the Liabilities or obligations of others, and (e) the greater
of (i) such Person's Share of any Liabilities of Unconsolidated Affiliates, and
(ii) the amount of any Liabilities of Unconsolidated Affiliates in which the
holder of such Liabilities has recourse against such Person for repayment, and
"LIABILITY" means any of the Liabilities. "LIABILITIES" shall not include any
amounts attributable to minority interests disclosed in the consolidated
Financial Statements of the Companies.
"LIEN" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
substantially similar arrangement for a creditor's claim to be satisfied from
assets or proceeds prior to the claims of other creditors or the owners.
"LITIGATION" means any action by or before any Governmental Authority.
"LOAN DOCUMENTS" means (a) this Agreement, certificates, and reports
delivered under this Agreement, and exhibits and schedules to this Agreement,
(b) the Notes, (c) any Interest Rate Agreements with any Lender specifically
relating to the Obligation, (d) all other agreements, documents, and instruments
executed by Borrowers in favor of any of the Credit Parties (or any Agent on
behalf of the Credit Parties) ever delivered in connection with or under this
Agreement, (e) all LCs and LC Agreements, and (f) all renewals, extensions, and
restatements of, and amendments and supplements to, any of the foregoing.
"MARKETABLE SECURITIES" means Stock that is (a) regularly traded on a
nationally recognized United States public exchange or market acceptable to
Agents on which securities, debt instruments, and/or mutual funds are regularly
traded, and (b) not subject to any federal or state securities laws or other
laws which restrict or limit its sale or transfer.
"MATERIAL ADVERSE EVENT" means any circumstance or event that,
individually or collectively with other circumstances or events, reasonably is
expected to result in any (a) material impairment of the ability of any Borrower
to perform any of its respective payment or other obligations under any Loan
Document, (b) material impairment of the ability of any Credit Party to enforce
(i) any of the obligations of any Borrower under this Agreement or the other
Loan Documents, or (ii) any of their respective Rights under the Loan Documents,
or (c) material and adverse effect on the financial condition of the Companies,
taken as a whole, or any Borrower.
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"MATURITY DATE" means February 17, 2001 as such date may be extended
pursuant to SECTION 3.21.
"MATERIAL ENVIRONMENTAL EVENT" means, with respect to any Borrowing
Base Property, (a) a violation of any Environmental Law with respect to such
Borrowing Base Property, or (b) the presence of any Hazardous Substance on,
about, or under such Borrowing Base Property that, under or pursuant to any
Environmental Law, would require remediation, if in the case of either (A) or
(B), such event or circumstance could result in a material adverse affect on the
value or operations of such Borrowing Base Property.
"MAXIMUM AMOUNT" and "MAXIMUM RATE" respectively mean, for an Agent or
a Lender, the maximum non-usurious amount and the maximum non-usurious rate of
interest that, under applicable Governmental Requirement, such Agent or Lender
is permitted to contract for, charge, take, reserve, or receive on the
Obligation.
"MOODY'S" means Moody's Investors Service, Inc., or, if Moody's no
longer publishes ratings, then another ratings agency acceptable to Agents.
"MOODY'S RATING" means the most recently-announced actual or implied
rating from time to time of Moody's assigned to any class of long-term senior,
unsecured debt securities issued by the Trust, as to which no letter of credit,
guaranty, or third party credit support is in place, regardless of whether all
or any part of such Indebtedness has been issued at the time such rating was
issued.
"MULTI-EMPLOYER PLAN" means a multi-employer plan as defined in
Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code to which any
Borrower or any of its Consolidated Affiliates (or any Person that, for purposes
of Title IV of ERISA, is a member of any Borrower's controlled group or is under
common control with any Borrower within the meaning of Section 414 of the Code)
is making, or has made, or is accruing, or has accrued, an obligation to make
contributions.
"NET INCOME" means, for any Person for any period, the net earnings (or
loss) after taxes of such Person determined in accordance with GAAP.
"NET PROCEEDS" means, with respect to any Equity Issuance by any
Company, the amount of cash received by such Company in connection with such
transaction after deducting therefrom the aggregate, without duplication, of the
following amounts to the extent properly attributable to such transaction: (a)
reasonable brokerage commissions, attorneys' fees, finder's fees, financial
advisory fees, accounting fees, underwriting fees, investment banking fees, and
other similar commissions and fees (and expenses and disbursements of any of the
foregoing), in each case, to the extent paid by such Company; (b) printing and
related expenses and filing, recording, or registration fees or charges or
similar fees or charges paid by such Company; and (c) taxes paid or payable by
such Company to any Governmental Authority as a result of such transaction.
"NOTES" means one of the promissory notes substantially in the form of
EXHIBIT D, and "NOTE" means any one of the Notes.
"OBLIGATION" means all present and future indebtedness and obligations,
and all renewals, increases, and extensions thereof, or any part thereof, now or
hereafter owed to any Credit Party by any Borrower under any Loan Document,
together with all interest accruing thereon, fees, costs, and expenses
(including all
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<PAGE> 20
reasonable attorneys' fees and expenses incurred in the enforcement or
collection thereof) payable under the Loan Documents or in connection with the
protection of Rights under the Loan Documents.
"OBLIGORS" means Borrowers and Subsidiary Guarantors, and "OBLIGOR"
means any one of the Obligors.
"OPERATING LEASE" means, with respect to any Hotel owned or ground
leased by a Company, the lease agreement executed by such Company and the Lessee
of such Hotel.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereof, established under ERISA.
"PERMITTED DISTRIBUTIONS" means: (a) for the Trust in any fiscal year
of the Trust, the greater of (i) the lesser of (A) an amount not to exceed
ninety percent (90%) of the Trust's Funds from Operations for the immediately
preceding fiscal year, and (B) an amount not to exceed the Trust's Cash
Available for Distribution for the immediately preceding fiscal year, and (ii)
the amount of Distributions required to be paid during such fiscal year in order
for the Trust to qualify as a REIT; and (b) for the Partnership in any fiscal
year of the Partnership, the amount of Distributions required to be paid during
such fiscal year in order for the Trust to qualify as a REIT.
"PERMITTED LIENS" means:
(A) Liens, if any, granted to any Agent, for the ratable benefit of the
Credit Parties, to secure the Obligation;
(B) pledges or deposits made to secure payment of worker's compensation
(or to participate in any fund in connection with worker's compensation
insurance), unemployment insurance, pensions, or social security programs;
(C) encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real Property, provided that such items do not
materially impair the use of such Property for the purposes intended and none of
which is violated in any material respect by existing or proposed structures or
land use;
(D) Liens imposed by mandatory provisions of any Governmental
Requirement such as for materialmen's, mechanic's, warehousemen's, and other
like Liens arising in the ordinary course of business, securing payment of any
Liability whose payment is not yet due or that is being contested in good faith
by appropriate proceedings diligently conducted, and for which reserves in
accordance with GAAP or other security (and otherwise reasonably acceptable to
Agents) have been provided;
(E) Liens for taxes, assessments, and governmental charges or
assessments that are not yet due and payable or that are being contested in good
faith by appropriate proceedings diligently conducted, and for which reserves in
accordance with GAAP or other security (and otherwise reasonably acceptable to
Agents) have been provided; and
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(F) Liens securing assessments or charges payable to a Property owner
association or similar entity, which assessments are not yet due and payable or
that are being contested in good faith by appropriate proceedings diligently
conducted, and for which reserves in accordance with GAAP or other security (and
otherwise reasonably acceptable to Agents) have been provided.
"PERSON means any individual, trust, corporation, partnership, limited
liability company, joint venture, unincorporated organization, or other similar
entity, or any Governmental Authority.
"POTENTIAL DEFAULT" means the occurrence of any event or the existence
of any circumstance that could, upon notice or lapse of time or both, become a
Default.
"PRINCIPAL DEBT" means, for a Lender and at any time, the unpaid
principal balance of all outstanding Borrowings from such Lender hereunder as of
such date.
"PROPERTY" means assets and properties, whether real, personal, or
mixed, tangible or intangible.
"PRO RATA" and "PRO RATA SHARE" means, when determined for any Lender,
the proportion (stated as a percentage) that (a) such Lender's Commitment, or,
if the Total Commitments shall have been terminated, then of the sum of (without
duplication) (i) the Principal Debt of such Lender's Note plus (ii) the LC
Exposure of such Lender, bears to (b) the Total Commitment, or, if the Total
Commitments have been terminated, then of the sum of (without duplication) (i)
the Total Principal Debt of the Notes plus (ii) the LC Exposure of all Lenders.
"QUALIFIED PROPERTY" has the meaning set forth in SECTION 4.2(B).
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REIT" means a "real estate investment trust" for purposes of the Code.
"REPRESENTATIVES" means representatives, officers, directors,
employees, attorneys, and agents.
"REQUIRED LENDERS" means, as of any date, any combination of Lenders
(other than Defaulting Lenders) who collectively hold eighty percent (80%) or
more of the Total Commitments (excluding the Commitments of Defaulting Lenders),
or if the Total Commitments have been terminated, then of the sum of (without
duplication) (a) the Total Principal Debt of the Notes (other than of any
Defaulting Lenders) plus (b) the LC Exposure of all Lenders (other than of any
Defaulting Lenders).
"RESERVE REQUIREMENT" means, with respect to any Eurodollar Borrowing
for the relevant Interest Period, the actual aggregate reserve requirements
(including all basic, supplemental, emergency, special, marginal, and other
reserves required by applicable Governmental Requirement) applicable to a member
bank of the Federal Reserve System for eurocurrency fundings or liabilities.
"RESPONSIBLE OFFICER" means, for any Person, any chairman, president,
chief executive officer, chief financial officer, controller, secretary,
executive vice president, or senior vice president of such Person.
"RIGHTS" means rights, remedies, powers, privileges, and benefits.
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"ROOMS" means rooms or suites in service in an existing and operating
extended stay, full service, or limited service hotel.
"SECURED DEBT" means, for any Person, Indebtedness of such Person
secured by Liens (other than Permitted Liens) in any of such Person's Properties
or other assets.
"SHARE" means, for any Person, such Person's share of the assets,
liabilities, revenues, income, losses, or expenses of an Unconsolidated
Affiliate based upon such Person's percentage ownership of the Stock of such
Unconsolidated Affiliate.
"SOLVENT" means, as to a Person, that (a) the aggregate fair market
value of its assets exceeds its Liabilities, and (b) such Person is able to pay
and is paying its Liabilities as they mature.
"S & P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., a New York corporation, or if S & P no longer publishes ratings,
then another ratings agency acceptable to Agents.
"S & P RATING" means the most recently-announced actual or implied
rating from time to time of S & P assigned to any class of long-term senior,
unsecured debt securities issued by the Trust, as to which no letter of credit,
guaranty, or third party credit support is in place, regardless of whether all
or any part of such Indebtedness has been issued at the time such rating was
issued.
"STOCK" means all shares, options, warrants, general or limited
partnership interests, membership interests, or other ownership interests
(regardless of how designated) of or in a corporation, partnership, limited
liability company, trust, or other entity, whether voting or nonvoting,
including common stock, preferred stock, or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended).
"SUBSIDIARY GUARANTORS" has the meaning set forth in SECTION 4.2(B),
and "SUBSIDIARY GUARANTOR" means any one of the Subsidiary Guarantors.
"SUBSIDIARY GUARANTY" means the Unconditional Guaranty of Payment dated
of even date herewith, executed by each of the Subsidiary Guarantors in favor of
the Credit Parties, and substantially in the form of EXHIBIT C.
"SUMMERFIELD LESSEES" means the Lessees listed on SCHEDULE 2.2, and
"SUMMERFIELD LESSEE" means any one of the Summerfield Lessees.
"TANGIBLE NET WORTH" means, as of any date, (a) Total Assets, minus (b)
all Liabilities of the Companies, on a consolidated basis, as of such date.
"TAXES" means, for any Person, taxes, assessments, or other
governmental charges or levies imposed upon it, its income, or any of its
properties, franchises, or assets.
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"TERMINATION DATE" means the earlier of (a) the Maturity Date, and (b)
the effective date that Lenders' commitments to lend hereunder are otherwise
canceled or terminated in accordance with this Agreement.
"TOTAL ASSETS" means, for the Companies, on a consolidated basis, as of
any date, all assets of such Person determined in accordance with GAAP.
"TOTAL COMMITMENT" means, at any time, the sum of the Commitments of
all Lenders in the original amount of $250,000,000.
"TOTAL INDEBTEDNESS TO IMPLIED VALUE RATIO" means, as of any date, the
ratio of (a) all Indebtedness of the Companies, on a consolidated basis, as of
such date, to (b) the sum of (i) the Implied Value of all Hotels owned by the
Companies and that have been in service for more than twelve (12) months as of
the determination date, plus (ii) the Approved Costs of all Hotels owned by the
Companies and that have been in service for less than twelve (12) months as of
the determination date, plus (iii) the Approved Costs of all Hotels under
construction to the extent financed with Advances under this Agreement, plus
(iv) the sum of the Companies' investment in all cash, Cash Equivalents, and
Marketable Securities.
"TOTAL PRINCIPAL DEBT" means, at any time, the sum of the Principal
Debt of all Lenders.
"TYPE" means any type of Borrowing determined with respect to the
applicable interest option.
"UNCONSOLIDATED AFFILIATE" means, in respect of any Person, any other
Person in whom such Person holds Stock and whose financial results would not be
consolidated under GAAP with the financial results of such Person on the
consolidated financial statements of such Person.
"UNUSED COMMITMENT" means, as of any date, (a) the Total Commitment
minus (b) the Commitment Usage.
1.2 TIME REFERENCES. Unless otherwise specified in the Loan Documents
(a) time references are to time in McLean, Virginia, and (b) in calculating a
period from one date to another, the word "from" means "from and including" and
the word "to" or "until" means "to but excluding."
1.3 OTHER REFERENCES. Unless otherwise specified in the Loan Documents
(a) where appropriate, the singular includes the plural and vice versa, and
words of any gender include each other gender, (b) headings and caption
references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to "telecopy,"
"facsimile," "fax," or similar terms are to facsimile or telecopy transmissions,
(f) references to "including" mean including without limiting the generality of
any description preceding that word, (g) the rule of construction that
references to general items that follow references to specific items are limited
to the same type or character of those specific items is not applicable in the
Loan Documents, (h) references to any Person include that Person's heirs,
personal representatives, successors, trustees, receivers, and permitted
assigns, (i) references to any Governmental Requirement include every amendment
or supplement to it, rule and regulation adopted under it, and successor or
replacement for it, and (j) references to any Loan
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Document or other document include every renewal and extension of it, amendment
and supplement to it, and replacement or substitution for it.
1.4 ACCOUNTING PRINCIPLES. Under the Loan Documents, unless otherwise
stated, (a) GAAP determines all accounting and financial terms and compliance
with financial covenants, (b) GAAP in effect on the date of this Agreement
determines compliance with financial covenants, (c) otherwise, all accounting
principles applied in a current period must be comparable (except for changes in
accounting principles adequately disclosed and in conformity with GAAP) in all
material respects to those applied during the preceding comparable period, and
(d) all accounting and financial terms and compliance with financial covenants
must be for the Companies, on a consolidated basis, as applicable. If there is a
change in GAAP after the date hereof, then each Compliance Certificate shall
include calculations setting forth the adjustments from the relevant financial
items as shown in the Current Financials, based on the then-current GAAP, to the
corresponding financial items based on GAAP as used in the Current Financials
delivered to Agents on or prior to the date hereof, so as to demonstrate how
such financial covenant compliance was derived from the Current Financials.
1.5 JOINT AND SEVERAL.
(A) All representations contained herein shall be deemed individually
made by each Borrower, and each of the covenants, agreements, and obligations
set forth herein shall be deemed to be the joint and separate covenants,
agreements, and obligations of each Borrower. Any notice, request, consent,
report, or other information or agreement delivered to any Credit Party by any
Borrower shall be deemed to be ratified by, consented to, and also delivered by
the other Borrowers. Each Borrower recognizes and agrees that each covenant and
agreement of a "Borrower" and "Borrowers" in this Agreement and in any other
Loan Document shall create a joint and several obligation of such entities,
which may be enforced against such entities jointly, or against each entity
separately.
(B) Each Borrower hereby irrevocably and unconditionally agrees: (i)
that it is jointly and severally liable to the Credit Parties for the full and
prompt payment of the Obligation and the performance by each Borrower of its
obligations hereunder in accordance with the terms hereof; (ii) to fully and
promptly perform all of its obligations hereunder with respect to the
Obligation; and (iii) as a primary obligation to indemnify each Credit Party on
demand for and against any loss (excluding losses arising out of the gross
negligence or willful misconduct of any Credit Party) incurred by such Credit
Party as a result of any of the obligations of any one or more of Borrowers
being or becoming void, voidable, unenforceable, or ineffective for any reason
whatsoever, whether or not known to any Credit Party or any Person, the amount
of such loss (excluding losses arising out of the gross negligence or willful
misconduct of any Credit Party) being the amount which the Credit Parties would
otherwise have been entitled to recover from any one or more Borrowers.
SECTION 2
COMMITMENT
2.1 REVOLVING FACILITY. Subject to the provisions in the Loan
Documents, each Lender severally and not jointly agrees to lend to Borrowers
such Lender's Pro Rata Share of one or more Borrowings
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hereunder which Borrowers may borrow, repay, and reborrow under this Agreement,
subject to the following conditions:
(A) each Borrowing requested by Borrowers hereunder must occur on a
Business Day and no later than the Business Day immediately preceding the
Termination Date;
(B) each Borrowing requested by Borrowers must be in an amount not less
than $1,000,000 or a greater multiple of $100,000;
(C) the Commitment Usage may not exceed the lesser of (i) the Borrowing
Base, and (ii) the Total Commitment; and
(D) the sum of (i) each Lender's Principal Debt plus (ii) such Lender's
Pro Rata Share of the LC Exposure may not exceed such Lender's Commitment.
2.2 BORROWING PROCEDURE. The following procedures apply to Borrowings:
(A) Borrowers may request a Borrowing by submitting to Agents a
Borrowing Request; provided, however, that Borrowers may not request more than
three (3) Borrowings (other than a Continuation or Conversion of an existing
Borrowing) in any calendar month. The Borrowing Request must be received by
Agents no later than 11:00 a.m. on (i) the third (3rd) Business Day preceding
the Borrowing Date for any Eurodollar Borrowing, or (ii) the Business Day
preceding the Borrowing Date for any Base Rate Borrowing. Administrative Agent
shall promptly notify each Lender of its receipt of any Borrowing Request and
its contents. A Borrowing Request is irrevocable and binding on Borrowers.
(B) By 11:00 a.m. on the applicable Borrowing Date, each Lender shall
remit its Pro Rata Share of each requested Borrowing by wire transfer to
Administrative Agent pursuant to Administrative Agent's wire transfer
instructions on SCHEDULE 1 (or as otherwise directed by Administrative Agent) in
funds that are available for immediate use by Administrative Agent. Subject to
receipt of such funds, Administrative Agent shall make such funds available to
Borrowers in McLean, Virginia at 2:00 p.m. on such Borrowing Date (unless it has
actual knowledge that any applicable condition precedent has not been satisfied
by Borrowers).
(C) Absent contrary written notice from a Lender, Administrative Agent
may assume that each Lender has made its Pro Rata Share of the requested
Borrowing available to Administrative Agent on the applicable Borrowing Date,
and Administrative Agent may, in reliance upon such assumption (but is not
required to), make available to Borrowers a corresponding amount. If a Lender
fails to make its Pro Rata Share of any requested Borrowing available to
Administrative Agent on the applicable Borrowing Date, then Administrative Agent
may recover the applicable amount on demand (i) from such Lender, together with
interest at the Federal Funds Rate for the period commencing on the date the
amount was made available to Borrowers by Administrative Agent and ending on
(but excluding) the date Administrative Agent recovers the amount from such
Lender, or (ii) if such Lender fails to pay its amount upon Administrative
Agent's demand, then from Borrowers, together with interest at an annual
interest rate equal to the rate applicable to the requested Borrowing for the
period commencing on the Borrowing Date and ending on (but excluding) the date
Administrative Agent recovers the amount from Borrowers. No Lender is
responsible for the failure of any other Lender to make its Pro Rata Share of
any Borrowing.
2.3 LETTERS OF CREDIT.
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(A) CONDITIONS. Subject to the terms and conditions of this Agreement,
Issuing Bank agrees, if requested by Borrowers, to issue LCs upon Borrowers'
making or delivering an LC Request and delivering an LC Agreement, both of which
must be received by Agents and Issuing Bank no later than the third (3rd)
Business Day before the Business Day on which the requested LC is to be issued,
provided that (i) no LC may expire after a date that is one (1) month before the
Maturity Date, (ii) the LC Exposure may not exceed the limitations in the
definition of LC Sub-facility, (iii) each LC must expire no later than one (1)
year following its issuance, (iv) the limitations in SECTIONS 2.1(C) and (D) may
not be exceeded, and (v) each LC must be in the minimum amount of $50,000.
(B) PARTICIPATION. Immediately upon Issuing Bank's issuance of any LC,
Issuing Bank shall be deemed to have sold and transferred to each other Lender,
and each other Lender shall be deemed irrevocably and unconditionally to have
purchased and received from Issuing Bank, without recourse or warranty, an
undivided interest and participation to the extent of such Lender's Pro Rata
Share in the LC and all applicable Rights of Issuing Bank in the LC -- other
than Rights to receive certain fees provided in SECTION 3.20(D) to be for
Issuing Bank's sole account.
(C) REIMBURSEMENT OBLIGATION. To induce Issuing Bank to issue and
maintain LCs, and to induce Lenders to participate in issued LCs, Borrowers
agree, jointly and severally, to pay or reimburse Issuing Bank (i) on the second
(2nd) Business Day after Issuing Bank notifies Agents and Borrowers that Issuing
Bank has made payment under a LC, the amount paid by Issuing Bank, and (ii)
within five (5) Business Days after demand, the amount of any additional fees
Issuing Bank customarily charges for amending LCs Agreements, for honoring
drafts under LCs, and for taking similar action in connection with letters of
credit. If Borrowers have not reimbursed Issuing Bank for any drafts paid by the
date on which reimbursement is required under this SECTION, then Administrative
Agent is irrevocably authorized to fund Borrowers' reimbursement obligations as
a Base Rate Borrowing if the conditions in this Agreement for such a Borrowing
(other than any notice requirements or minimum funding amounts) have,
to each Agent's knowledge, been satisfied. Borrower shall have the right to
Convert such Base Rate Borrowing to a Eurodollar Borrowing pursuant to the terms
and conditions set forth in SECTION 3.10. The proceeds of that Borrowing shall
be advanced directly to Issuing Bank to pay Borrowers' unpaid reimbursement
obligations. If funds cannot be advanced as a result of Borrowers' failure to
satisfy any condition precedent set forth in SECTION 5, then Borrowers'
reimbursement obligation shall constitute a demand obligation. Borrowers'
obligations under this SECTION are absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim, or defense to
payment that any Borrower may have at any time against Issuing Bank or any other
Person. From the date that Issuing Bank pays a draft under a LC that is not
repaid with a Borrowing as described above until Borrowers either reimburse or
are obligated to reimburse Issuing Bank for that draft under this SECTION, the
amount of that draft bears interest payable to Issuing Bank at the rate then
applicable to Base Rate Borrowings. From the demand date of the respective
amounts due under this SECTION, to the date paid (including any payment from
proceeds of a Base Rate Borrowing), unpaid reimbursement amounts accrue interest
that is payable on demand at the Default Rate.
(D) GENERAL. Issuing Bank shall promptly notify Agents and Borrowers of
the date and amount of any draft presented for honor under any LC (but failure
to give notice will not affect Borrowers' obligations under this Agreement).
Issuing Bank shall pay the requested amount upon presentment of a draft unless
presentment on its face does not comply with the terms of the applicable LC.
Borrowers' reimbursement obligations to Issuing Bank and Lenders, and each
Lender's obligations to Issuing Bank, under this SECTION are absolute and
unconditional irrespective of, and Issuing Bank is not responsible for, (i) the
validity, enforceability, sufficiency, accuracy, or genuineness of documents or
endorsements (even
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if they are in any respect invalid, unenforceable, insufficient, inaccurate,
fraudulent, or forged), (ii) any dispute by any Company with or any Company's
claims, setoffs, defenses, counterclaims, or other Rights against any Credit
Party or any other Person, or (iii) the occurrence of any Potential Default or
Default. However, nothing in this Agreement constitutes a waiver of Borrowers'
Rights to assert any claim or defense based upon the gross negligence or willful
misconduct of any Credit Party. Issuing Bank shall promptly pay to
Administrative Agent for Administrative Agent to promptly distribute
reimbursement payments received from any Borrower to all Lenders according to
their Pro Rata Share.
(E) OBLIGATION OF LENDERS. If Borrowers fail to reimburse Issuing Bank
as provided in SECTION 2.3(C) by the date on which reimbursement is due under
that SECTION, and funds cannot be advanced under the SECTION 2.1 to satisfy the
reimbursement obligations, then Administrative Agent shall promptly notify each
Lender of Borrowers' failure, of the date and amount paid, and of each Lender's
Pro Rata Share of the unreimbursed amount. Each Lender shall promptly and
unconditionally make available to Administrative Agent, for the account of
Issuing Bank, in immediately available funds its Pro Rata Share of the unpaid
reimbursement obligation, subject to the limitations of SECTION 2.1(D). Funds
are due and payable to Administrative Agent before the close of business on the
Business Day when Administrative Agent gives notice to each Lender of Borrowers'
reimbursement failure (if notice is given before 1:00 p.m.) or on the next
succeeding Business Day (if notice is given after 1:00 p.m.). All amounts
payable by any Lender accrue interest after the due date at the Federal Funds
Rate from the day the applicable draft or draw is paid by Administrative Agent
to (but not including) the date the amount is paid by such Lender to
Administrative Agent. Upon receipt of any such funds, Administrative Agent shall
make them available to Issuing Bank.
(F) DUTIES OF ISSUING BANK. Each Credit Party and each Borrower agree
that, in paying any draft under any LC, Issuing Bank has no responsibility to
obtain any document (other than any documents expressly required by the
respective LC) or to ascertain or inquire as to any document's validity,
enforceability, sufficiency, accuracy, or genuineness or the authority of any
Person delivering it. Neither Issuing Bank nor its Representatives will be
liable to any Credit Party or any Company for any LC's use or for any
beneficiary's acts or omissions (INCLUDING, WITHOUT LIMITATION, ANY ACTS OR
OMISSIONS CONSTITUTING ORDINARY NEGLIGENCE). Any action, inaction, error, delay,
or omission taken or suffered by Issuing Bank or any of its Representatives in
connection with any LC, applicable drafts or documents, or the transmission,
dispatch, or delivery of any related message or advice, if in good faith and in
conformity with applicable Governmental Requirements and in accordance with the
standards of care specified in the Uniform Customs and Practices for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500
(as amended or modified), is binding upon the Companies and the Credit Parties
and, except as provided in SECTION 2.3(E), does not place Issuing Bank or any of
its Representatives under any resulting liability to any Company or any Credit
Party. Issuing Bank is not liable to any Company or any Credit Party for any
action taken or omitted, in the absence of gross negligence or willful
misconduct, by Issuing Bank or its Representative in connection with any LC.
(G) CASH COLLATERAL. On the Termination Date and if requested by
Required Lenders while a Default exists, Borrowers shall provide Administrative
Agent, for the benefit of Issuing Bank and Lenders, cash collateral in an amount
to equal the then-existing LC Exposure.
(H) INDEMNIFICATION. EACH BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND
SAVE EACH CREDIT PARTY, AND THEIR RESPECTIVE REPRESENTATIVES, HARMLESS FROM AND
AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, COSTS, CHARGES, AND
EXPENSES (INCLUDING
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REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS A
CONSEQUENCE OF THE ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE FAILURE OF
ISSUING BANK TO HONOR A DRAW REQUEST UNDER ANY LC AS A RESULT OF ANY ACT OR
OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE GOVERNMENTAL
AUTHORITY. ALTHOUGH EACH CREDIT PARTY, AND THEIR RESPECTIVE REPRESENTATIVES,
HAVE THE RIGHT TO BE INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN
ORDINARY NEGLIGENCE, NO PERSON IS ENTITLED TO INDEMNITY UNDER THE FOREGOING FOR
ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(I) LC AGREEMENTS. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not incorporated
into this Agreement in any manner. The fees and other amounts payable with
respect to each LC are as provided in this Agreement, drafts under each LC are
part of the Obligation, only the events specified in this Agreement as a Default
shall constitute a default under any LC or LC Agreement, and the terms of this
Agreement control any conflict between the terms of this Agreement and any LC
Agreement.
2.4 COMPETITIVE BID FACILITY. If the Trust achieves an Investment Grade
Rating, then Lenders agree that, upon the written request of Borrowers to
Agents, Borrowers and the Credit Parties shall enter into negotiations to amend
this Agreement to provide for an uncommitted competitive advance facility
pursuant to which Borrowers may obtain competitive advances from Lenders through
an auction mechanism. The competitive advance facility shall include terms,
conditions, and fees acceptable to Borrowers and the Credit Parties.
SECTION 3
TERMS OF PAYMENT
3.1 NOTES AND PAYMENTS.
(A) The Total Principal Debt shall be evidenced by the Notes, which
Notes shall be payable by each Borrower, jointly and severally, to Lenders in
the aggregate stated principal amount of the Total Commitment, or so much
thereof as shall be outstanding at maturity.
(B) Borrowers must make each payment and prepayment on the Obligation,
without offset, counterclaim, or deduction, to Administrative Agent's principal
office in McLean, Virginia, in Dollars that will be available for immediate use
by Administrative Agent by 2:00 p.m. on the day due. Payments received after
such time shall be deemed received on the next Business Day. Administrative
Agent shall pay to each Lender any payment to which such Lender is entitled on
the same day Administrative Agent receives the funds from Borrowers if
Administrative Agent receives the payment or prepayment before 2:00 p.m., and
otherwise before 2:00 p.m. on the following Business Day. If and to the extent
that Administrative Agent does not make payments to any Lender when due, then
Administrative Agent shall be obligated to pay to such Lender such unpaid
amounts together with interest at the Federal Funds Rate from the due date until
(but not including) the payment date.
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3.2 INTEREST AND PRINCIPAL PAYMENTS.
(A) INTEREST PAYMENTS.
(i) Subject to SECTION 13.2, accrued interest on each Base
Rate Borrowing is due and payable on the last day of each calendar
month during the term of this Agreement, commencing on February 28,
1998, and on the Termination Date; provided, however, that interest
with respect to any Base Rate Borrowing shall also be due and payable
on the Conversion date of any such Borrowing to a Eurodollar Borrowing.
(ii) Subject to SECTION 13.2, accrued interest on each
Eurodollar Borrowing shall be due and payable as it accrues on the last
day of its respective Interest Period; provided that if any Interest
Period is greater than three (3) months, then accrued interest shall
also be due and payable on the date that is three (3) months after the
commencement of such Interest Period.
(B) PRINCIPAL PAYMENTS. The Total Principal Debt is due and payable on
the Termination Date.
(C) VOLUNTARY PREPAYMENT. Borrowers may voluntarily repay or prepay all
or any part of the Total Principal Debt at any time without premium or penalty,
subject to the following conditions:
(I) Agents must receive Borrowers' written payment notice by
(A) 11:00 a.m. on the Business Day preceding the date of payment of a
Eurodollar Borrowing, and (B) 2:00 p.m. on the Business Day preceding
the date of payment of a Base Rate Borrowing, which shall specify the
payment date and the Type and amount of the Borrowing(s) to be paid,
and which shall constitute an irrevocable and binding obligation of
Borrowers to make a repayment or prepayment on the designated date;
(II) each partial repayment or prepayment must be in a minimum
amount of at least $500,000 and be an integral multiple of $100,000,
or, if such repayment or prepayment is less than $500,000, then equal
to the Total Principal Debt plus all accrued interest thereon; and
(III) Borrowers shall pay any related Funding Loss upon
demand.
3.3 INTEREST OPTIONS. Except as specifically otherwise provided,
Borrowings shall bear interest at an annual rate equal to the lesser of (a) the
Base Rate plus the Applicable Margin, or the Adjusted Eurodollar Rate plus the
Applicable Margin (in each case as designated or deemed designated by Borrowers
and, in the case of Eurodollar Borrowings, for the Interest Period designated by
Borrowers), and (b) the Maximum Rate. Each change in the Base Rate and Maximum
Rate is effective, without notice to Borrowers or any other Person, upon the
effective date of change.
3.4 QUOTATION OF RATES. A Representative of Borrowers may call
Administrative Agent before delivering a Borrowing Request to receive an
indication of the interest rates then in effect, but the indicated rates do not
bind Administrative Agent or Lenders or affect the interest rate that is
actually in effect when Borrowers deliver its Borrowing Request or on the
Borrowing Date.
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3.5 DEFAULT RATE. If permitted by applicable law, all past-due
Principal Debt (at its stated maturity or upon acceleration) and past-due
interest accruing on any of the foregoing, shall bear interest from the date of
any Default at the Default Rate until paid, regardless of whether payment is
made before or after entry of a judgment.
3.6 INTEREST RECAPTURE. If the designated interest rate applicable to
any Borrowing exceeds the Maximum Rate, then the interest rate on that Borrowing
is limited to the Maximum Rate, provided that any subsequent reductions in the
designated rate shall not reduce the interest rate thereon below the Maximum
Rate until the total amount of accrued interest equals the amount of interest
that would have accrued if that designated rate had always been in effect. If at
maturity (stated or by acceleration), or at final payment of the Notes, the
total interest paid or accrued is less than the interest that would have accrued
if the designated rates had always been in effect, then, at that time and to the
extent permitted by applicable law, then Borrowers shall pay an amount equal to
the difference between (a) the lesser of the amount of interest that would have
accrued if the designated rates had always been in effect and the amount of
interest that would have accrued if the Maximum Rate had always been in effect,
and (b) the amount of interest actually paid or accrued on the Notes.
3.7 INTEREST CALCULATIONS.
(A) Interest shall be calculated on the basis of actual number of days
elapsed (including the first day but excluding the last day) but computed as if
each calendar year consisted of 360 days for all Borrowings (unless the
calculation would result in an interest rate greater than the Maximum Rate, in
which event interest shall be calculated on the basis of actual days elapsed and
a year of 365 or 366 days, as the case may be). All interest rate determinations
and calculations by Administrative Agent are conclusive and binding absent
manifest error.
(B) The provisions of this Agreement relating to calculation of the
Base Rate and the Adjusted Eurodollar Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid under this
Agreement that are based upon those rates. Each Lender may fund and maintain its
funding of all or any part of each Borrowing as it selects.
3.8 MAXIMUM RATE. Regardless of any provision contained in any Loan
Document or any document related thereto, it is the intent of the parties to
this Agreement that no Credit Party may contract for, charge, take, reserve,
receive or apply, as interest on all or any part of the Obligation any amount in
excess of the Maximum Rate or the Maximum Amount or receive any unearned
interest in violation of any applicable law, and, if any Credit Party ever does
so, then any excess shall be treated as a partial repayment or prepayment of
principal and any remaining excess shall be refunded to Borrowers. In
determining if the interest paid or payable exceeds the Maximum Rate, Borrowers
and the Credit Parties shall, to the maximum extent permitted under applicable
law, (a) treat all Borrowings as but a single extension of credit (and the
Credit Parties and Borrowers agree that is the case and that provision in this
Agreement for multiple Borrowings is for convenience only), (b) characterize any
non-principal payment as an expense, fee, or premium rather than as interest,
(c) exclude voluntary repayments or prepayments and their effects, and (d)
amortize, prorate, allocate, and spread the total amount of interest throughout
the entire contemplated term of the Obligation. If, however, the Obligation is
paid in full before the end of its full contemplated term, and if the interest
received for its actual period of existence exceeds the Maximum Amount, then the
Credit Parties shall refund any excess (and the Credit Parties may not, to the
extent permitted by applicable
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law, be subject to any penalties provided by any Governmental Requirements for
contracting for, charging, taking, reserving or receiving interest in excess of
the Maximum Amount).
3.9 INTEREST PERIODS. When Borrowers request any Eurodollar Borrowing,
Borrowers may elect the applicable interest period (each an "INTEREST PERIOD"),
which may be, at Borrowers' option, one (1) month or two (2), three (3), or six
(6) months, subject to the following conditions: (a) the initial Interest Period
for a Eurodollar Borrowing commences on the applicable Borrowing Date or
Conversion date, and each subsequent Interest Period applicable to any Borrowing
commences on the day when the next preceding applicable Interest Period expires;
(b) if any Interest Period for a Eurodollar Borrowing begins on a day for which
there exists no numerically corresponding Business Day in the calendar month at
the end of the Interest Period ("ENDING CALENDAR MONTH"), then the Interest
Period ends on the next succeeding Business Day of the Ending Calendar Month,
unless there is no succeeding Business Day in the Ending Calendar Month in which
case the Interest Period ends on the next preceding Business Day of the Ending
Calendar Month; (c) no Interest Period for any portion of Total Principal Debt
may extend beyond the scheduled repayment date for that portion of Principal
Debt; and (d) there may not be in effect at any one time more than ten (10)
Interest Periods.
3.10 CONTINUATIONS; CONVERSIONS. Borrowers may (a) on the last day of
the applicable Interest Period Convert all or part of a Eurodollar Borrowing to
a Base Rate Borrowing, (b) at any time Convert all or part of a Base Rate
Borrowing to a Eurodollar Borrowing, and (c) on the last day of an Interest
Period, Continue a Eurodollar Borrowing for a new Interest Period. Any such
Conversion or Continuation is subject to the dollar limits and denominations of
SECTION 2.1 and may be accomplished by delivering a Borrowing Request to Agents
no later than 11:00 a.m. (i) on the third (3rd) Business Day before (A) the
Conversion date for Conversion to a Eurodollar Borrowing, and (B) the last day
of the Interest Period, for the Continuation to a new Interest Period, and (ii)
one (1) Business Day before the last day of the Interest Period for Conversion
to a Base Rate Borrowing. Absent a Borrowing Notice, a Eurodollar Borrowing
shall be Continued as a Eurodollar Borrowing having a one (1) month Interest
Period (so long as no Default exists and/or the last day of such Interest Period
does not extend beyond the Maturity Date, in either such case such Eurodollar
Borrowing shall be Converted to a Base Rate Borrowing) when the applicable
Interest Period expires.
3.11 ORDER OF APPLICATION.
(A) NO DEFAULT. If no Default exists, then except as otherwise
specifically provided in the Loan Documents, any payment shall be applied to the
Obligation in the order and manner as Borrowers direct.
(B) DEFAULT. If a Default exists, any payment (including proceeds from
the exercise of any Rights) shall be applied in the following order: (i) to all
fees and expenses for which any Credit Party have not been paid or reimbursed in
accordance with the Loan Documents (and if such payment is less than all unpaid
or unreimbursed fees and expenses, then the payment shall be paid against unpaid
and unreimbursed fees and expenses in the order of incurrence or due date); (ii)
to accrued interest on the Principal Debt; (iii) to the Total Principal Debt and
the remaining Obligation in the order and manner as the Required Lenders deem
appropriate; and (iv) as a deposit with Administrative Agent, for the benefit of
the Credit Parties, as security for and payment of any LC Exposure.
(C) PRO RATA. Each payment or prepayment shall be distributed to each
Lender in accordance with its Pro Rata Share of such payment or prepayment.
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3.12 RIGHT OF SETOFF; ADJUSTMENTS.
(A) SETOFF. Upon the occurrence and during the continuance of any
Default, each Lender (and each of its Affiliates) is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender (or any of its Affiliates) to or for the credit or the account of any
Borrower against any and all of the obligations of any Borrower now or hereafter
existing under this Agreement and the Note held by such Lender, irrespective of
whether such Lender shall have made any demand under this Agreement or such Note
and although such obligations may be unmatured. Each Lender agrees promptly to
notify Borrowers after any such setoff and application made by such Lender;
provided, however, that the failure to give such notice shall not affect the
validity of such setoff and application. The Rights of each Lender under this
SECTION are in addition to other Rights (including, without limitation, other
Rights of setoff) that such Lender may have.
(B) ADJUSTMENTS. If any Lender (a "BENEFITTED LENDER") shall at any
time receive any payment of all or part of the Principal Debt owing to it, or
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by setoff, or otherwise), in a greater proportion
than any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Principal Debt owing to it, or interest thereon,
such Benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Principal
Debt owing to it, or shall provide such other Lenders with the benefits of any
such collateral, or the proceeds thereof, as shall be necessary to cause such
Benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with all Lenders; provided, however, that if all or any portion
of such excess payment or benefits is thereafter recovered from such Benefitted
Lender, then such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest.
Borrowers agree that any Lender so purchasing a participation from a Lender
pursuant to this SECTION may, to the fullest extent permitted by law, exercise
all of its Rights of payment (including the Right of setoff) with respect to
such participation as fully as if such Person were the direct creditor of
Borrowers in the amount of such participation.
3.13 BOOKING BORROWINGS. To the extent permitted by applicable law, any
Lender may make, carry, or transfer its Borrowings at, to, or for the account of
any of its branch offices or the office of any of its Affiliates. However, no
Affiliate is entitled to receive any greater payment under SECTION 3.14 than the
transferor Lender would have been entitled to receive with respect to those
Borrowings, and a transfer may not be made if, as a direct result of it, SECTION
3.14 or 3.15 would apply to any of the Obligation. If any of the conditions of
SECTIONS 3.14, 3.15, or 3.16 ever apply to a Lender, then such Lender shall, to
the extent possible, carry or transfer its Borrowings at, to, or for the account
of any of its branch offices or the office or branch of any of its Affiliates so
long as the transfer is consistent with the other provisions of this SECTION,
does not create any burden or adverse circumstance for such Lender that would
not otherwise exist, and eliminates or ameliorates the conditions of SECTIONS
3.14, 3.15, or 3.16 as applicable.
3.14 INCREASED COST AND REDUCED RETURN.
(A) CHANGE IN LAWS. If, after the date hereof, the adoption of any
applicable Governmental Requirement, or any change in any applicable
Governmental Requirement, or any change in the interpretation or administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such Governmental Authority:
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(I) shall subject such Lender (or its Applicable Lending
Office) to any tax, duty, or other charge with respect to any
Eurodollar Borrowing, its Note, or its obligation to make Eurodollar
Borrowings, or change the basis of taxation of any amounts payable to
such Lender (or its Applicable Lending Office) under this Agreement or
its Note in respect of any Eurodollar Borrowings (other than taxes
imposed on the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(II) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than the
Reserve Requirement utilized in the determination of the Adjusted
Eurodollar Rate) relating to any extensions of credit or other assets
of, or any deposits with or other liabilities or commitments of, such
Lender (or its Applicable Lending Office), including the Commitment of
such Lender hereunder; or
(III) shall impose on such Lender (or its Applicable Lending
Office) or the London interbank market any other condition affecting
this Agreement or its Note or any of such extensions of credit or
liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Borrowings or to reduce any sum received or
receivable by such Lender (or its Applicable Lending Office) under this
Agreement or its Note with respect to any Eurodollar Borrowings, then Borrowers
shall pay to such Lender on demand such amount or amounts as will compensate
such Lender for such increased cost or reduction. If any Lender requests
compensation by Borrowers under this SECTION 3.14, then Borrowers may, by notice
to such Lender (with a copy to Agents), suspend the obligation of such Lender to
make or Continue Eurodollar Borrowings, or Convert all Eurodollar Borrowings
into Base Rate Borrowings, until the event or condition giving rise to such
request ceases to be in effect (in which case the provisions of SECTION 3.17
shall be applicable); provided that such suspension shall not affect the Right
of such Lender to receive the compensation so requested.
(B) CAPITAL ADEQUACY. If, after the date hereof, any Lender shall have
determined that the adoption of any applicable Governmental Requirement
regarding capital adequacy or any change therein or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Authority, has or would have the effect of reducing the rate of
return on the capital of such Lender or any corporation controlling such Lender
as a consequence of such Lender's obligations hereunder to a level below that
which such Lender or such corporation could have achieved but for such adoption,
change, request, or directive (taking into consideration its policies with
respect to capital adequacy), then from time to time upon demand Borrowers shall
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction.
(C) NOTICE. Each Lender shall promptly notify Borrowers and Agents of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this SECTION and will designate
a different Applicable Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the judgment of
such Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this SECTION shall furnish to Borrowers and Agents a
statement setting forth the additional amount or amounts to be paid to it
hereunder which shall be
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conclusive in the absence of manifest error. In determining such amount, such
Lender may use any reasonable averaging and attribution methods.
3.15 LIMITATION ON TYPES OF BORROWINGS. If on or prior to the first
(1st) day of any Interest Period for any Eurodollar Borrowing:
(A) Administrative Agent is unable to determine the Eurodollar Rate for
such Interest Period in accordance with the definition of "Eurodollar Rate;" or
(B) the Required Lenders determine (which determination shall be
conclusive) and notify Agents that the Adjusted Eurodollar Rate will not
adequately and fairly reflect the cost to Lenders of funding Eurodollar
Borrowings for such Interest Period;
then Administrative Agent shall give Borrowers prompt notice thereof specifying
the relevant amounts or periods, and so long as such condition remains in
effect, Lenders shall be under no obligation to make additional Eurodollar
Borrowings, Continue any Eurodollar Borrowings, or to Convert any Base Rate
Borrowings to Eurodollar Borrowings and Borrowers shall, on the last day(s) of
the then-current Interest Period(s) for the outstanding Eurodollar Borrowings,
either prepay such Borrowings or Convert such Borrowings into Base Rate
Borrowings in accordance with the terms of this Agreement.
3.16 ILLEGALITY. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to make, maintain, or fund Eurodollar Borrowings hereunder, then such
Lender shall promptly notify Agents and Borrowers thereof and such Lender's
obligation to make or Continue Eurodollar Borrowings and to Convert Base Rate
Borrowings into Eurodollar Borrowings shall be suspended until such time as such
Lender may again make, maintain, and fund Eurodollar Borrowings (in which case
the provisions of SECTION 3.17 shall be applicable).
3.17 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to
make or Continue Eurodollar Borrowings or to Convert Base Rate Borrowings into
Eurodollar Borrowings shall be suspended pursuant to SECTIONS 3.14, 3.15, or
3.16, such Lender's Eurodollar Borrowings shall be automatically Converted into
Base Rate Borrowings on the last day(s) of the then current Interest Period(s)
for all Eurodollar Borrowings (or, in the case of a Conversion required by
SECTION 3.16, on such earlier date as such Lender may specify to Borrowers with
a copy to Agents) and, unless and until such Lender gives notice as provided
below that the circumstances specified in SECTIONS 3.14, 3.15, or 3.16 that gave
rise to such Conversion no longer exist:
(A) to the extent that such Lender's Eurodollar Borrowings have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to such Lender's Eurodollar Borrowings shall be applied instead to its
Base Rate Borrowings; and
(B) all Borrowings that would otherwise be made or Continued by such
Lender as Eurodollar Borrowings shall be made or Continued instead as Base Rate
Borrowings, and all Borrowings of such Lender that would otherwise be Converted
into Eurodollar Borrowings shall be Converted instead into (or shall remain as)
Base Rate Borrowings.
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If such Lender gives notice to Borrowers (with a copy to Agents) that the
circumstances specified in SECTIONS 3.14, 3.15, or 3.16 that gave rise to the
Conversion of such Lender's Eurodollar Borrowings pursuant to this SECTION 3.17
no longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Borrowings made by other Lenders are
outstanding, such Lender's Base Rate Borrowings shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Borrowings, to the extent necessary so that, after
giving effect thereto, all Eurodollar Borrowings held by Lenders are held Pro
Rata (as to principal amounts, Types, and Interest Periods).
3.18 COMPENSATION. Upon the request of any Lender, Borrowers shall pay
to such Lender such amount or amounts as shall be sufficient (in the reasonable
opinion of such Lender) to compensate it for any loss, cost, or expense (herein
called a "FUNDING LOSS") incurred by it as a result of:
(A) any payment, prepayment, or Conversion of a Eurodollar Borrowing
for any reason (including, without limitation, the acceleration of the
Obligation pursuant to SECTION 11.1) on a date other than the last day of the
Interest Period for such Borrowing; or
(B) any failure by Borrowers for any reason (including, without
limitation, the failure of any condition precedent specified in SECTION 5 to be
satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Borrowing on the
date for such borrowing, Conversion, Continuation, or prepayment specified in
the relevant Borrowing Notice.
A Funding Loss shall include, without limitation, an amount equal to (i) the
principal amount so pre-paid, Converted on a date other than the last day of the
Interest Period for such Borrowing ("BREAKAGE DATE I"), or not borrowed,
Converted, Continued or prepaid on the date for such Borrowing, Conversion,
Continuation or prepayment specified in the relevant Borrowing Notice ("BREAKAGE
DATE II"), times (ii) the number of days in the period from the date of such
prepayment, Conversion, or failure to borrow, Convert, Continue, or prepay to
the last day of the Interest Period for the Eurodollar Borrowing so prepaid or
Converted (or in the case of a failure to borrow, Convert, Continue or Prepay,
the Interest Period for such Eurodollar Borrowing which would have commenced on
the date specified for such Borrowing) (the "APPLICABLE INTEREST PERIOD")
divided by 360, times (iii) the Eurodollar Rate for the Applicable Interest
Period less the Eurodollar Rate determined as of the Breakage Date I or Breakage
Date II, as applicable. If the Eurodollar Rate for Breakage Date I or Breakage
Date II, as applicable, is higher than the Eurodollar Rate for the Applicable
Interest Period, or if the amount determined under the immediately preceding
sentence is less than $100, then no Funding Loss shall be payable.
3.19 TAXES.
(A) Any and all payments by Borrowers to or for the account of any
Lender or any Agent hereunder or under any other Loan Document shall be made
free and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and each
Agent, taxes imposed on its income, net receipts, gross income, gross receipts,
and franchise taxes imposed on it, by the jurisdiction under the laws of which
such Lender (or its Applicable Lending Office) or such Agent (as the case may
be) is organized or any political subdivision thereof (all such non-excluded
taxes, duties, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "TAXES"). If Borrowers shall be
required by law
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to deduct any Taxes from or in respect of any sum payable under this Agreement
or any other Loan Document to any Lender or any Agent, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this SECTION
3.19) such Lender or such Agent receives an amount equal to the sum it would
have received had no such deductions been made, (ii) Borrowers shall make such
deductions, (iii) Borrowers shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law, and
(iv) Borrowers shall furnish to Agents, at their respective address referred to
in SECTION 13.3, the original or a certified copy of a receipt evidencing
payment thereof.
(B) In addition, Borrowers agree to pay any and all present or future
stamp or documentary taxes and any other excise or property taxes or charges or
similar levies which arise from any payment made under this Agreement or any
other Loan Document or from the execution or delivery of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "OTHER TAXES").
(C) Borrowers agree to indemnify each Lender and each Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this SECTION 3.19) paid by such Lender or such Agent (as the case may be) and
any liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto.
(D) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by Borrowers or
any Agent (but only so long as such Lender remains lawfully able to do so),
shall provide Borrowers and Agents with (i) Internal Revenue Service Form 1001
or 4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits under an
income tax treaty to which the United States is a party which reduces the rate
of withholding tax on payments of interest or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States, (ii) Internal Revenue Service Form
W-8 or W-9, as appropriate, or any successor form prescribed by the Internal
Revenue Service, and (iii) any other form or certificate required by any taxing
authority (including any certificate required by Sections 871(h) and 881(c) of
the Code), certifying that such Lender is entitled to an exemption from or a
reduced rate of tax on payments pursuant to this Agreement or any of the other
Loan Documents.
(E) For any period with respect to which a Lender has failed to provide
Borrowers and Agents with the appropriate form pursuant to SECTION 3.19(D)
(unless such failure is due to a change in treaty, law, or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under SECTION 3.19(A) or
(B) with respect to Taxes imposed by the United States; provided, however, that
should a Lender, which is otherwise exempt from or subject to a reduced rate of
withholding tax, become subject to Taxes because of its failure to deliver a
form required hereunder, Borrowers shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such Taxes.
(F) If Borrowers are required to pay additional amounts to or for the
account of any Lender pursuant to this SECTION 3.19, then such Lender will agree
to use reasonable efforts to change the jurisdiction of its Applicable Lending
Office so as to eliminate or reduce any such additional payment which may
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thereafter accrue if such change, in the judgment of such Lender, is not
otherwise disadvantageous to such Lender.
(G) Within thirty (30) days after the date of any payment of Taxes,
Borrowers shall furnish to Agents the original or a certified copy of a receipt
evidencing such payment.
(H) Without prejudice to the survival of any other agreement of
Borrowers hereunder, the agreements and obligations of Borrowers contained in
this SECTION 3.19 shall survive the termination of the Total Commitments and the
payment in full of the Notes.
3.20 FEES.
(A) TREATMENT OF FEES. The fees described in this SECTION 3.20 (i) are
not compensation for the use, detention, or forbearance of money, (ii) are in
addition to, and not in lieu of, interest and expenses otherwise described in
this Agreement, (iii) are payable in accordance with SECTION 3.1(B), (iv) are
non-refundable, (v) to the fullest extent permitted by applicable law, bear
interest, if not paid when due, at the Default Rate, and (vi) are calculated on
the basis of actual number of days (including the first day but excluding the
last day) elapsed, but computed as if each calendar year consisted of 360 days,
unless computation would result in an interest rate in excess of the Maximum
Rate in which event the computation is made on the basis of actual days elapsed
and a year of 365 or 366 days, as the case may be. The fees described in this
SECTION 3.20 are in all events subject to the provisions of SECTION 3.8.
(B) AGENT FEES. Borrowers shall pay to Administrative Agent, the fees
specified in the letter agreement between Administrative Agent and Borrowers,
which fee shall be for the account of Administrative Agent and for the account
of Lenders as shall be agreed between Administrative Agent and each Lender.
(C) LENDERS' FEES. Borrowers shall pay to Administrative Agent, for the
ratable account of Lenders, a quarterly unused fee (prorated for partial
quarters) equal to the sum of the amounts obtained by multiplying the daily
Unused Commitment times a per annum rate equal to one-fifth of one percent
(0.20%). Such commitment fee shall accrue commencing on the Closing Date, and
shall be due and payable on the last day of each March, June, September, and
December during the term hereof, commencing on March 31, 1998, and on the
Termination Date, based upon the Unused Commitment for each day during the
quarter ending on such date. Solely for purposes of this SECTION 3.20(C),
"ratable" means, for any calculation period, with respect to any Lender, the
proportion that (A) the average daily Unused Commitment of such Lender during
the period bears to (B) the aggregate amount of the average daily Unused
Commitment of all Lenders during the period.
(D) LC FEES. As an inducement for the issuance (including, without
limitation, the extension) of each LC, Borrowers agree to pay to Administrative
Agent:
(I) For the ratable account of each Lender, on the day the fee
is payable, an issuance fee, payable quarterly in arrears, equal to the
greater of (A) the product of the average face amount of such LC during
each applicable quarterly period times one percent (1%) per annum, and
(B) $1,000; and
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(II) For the account of Issuing Bank, payable on the date of
issuance, an issuance fee, the product of the average face amount of
such LC during each applicable quarterly period times one-quarter of
one percent (.25%) per annum.
(E) EXTENSION FEES. Upon the extension of the Maturity Date, as
provided in SECTION 3.21, Borrowers agree to pay Administrative Agent, on or
before the original Maturity Date, for the ratable account of Lenders, an
extension fee equal to one-quarter of one percent (.25%) of the Total
Commitment.
3.21 EXTENSION OF MATURITY DATE. If no Default or Potential Default
exists, then Borrowers may request a one-year extension of the Maturity Date by
making such request in writing (an "EXTENSION REQUEST") to each Agent between
one hundred and fifty (150) and ninety (90) days prior to the original Maturity
Date. The original Maturity Date shall be extended for one (1) year only if (a)
each Agent and each Lender consent in writing to such extension within thirty
(30) days following the receipt of the Extension Request, and (b) Borrowers pay
to Administrative Agent, for the account of Lenders, the extension fee set forth
in SECTION 3.20(E). The failure to respond by any Agent or any Lender to an
Extension Request shall be deemed to be a denial of such consent by such Person.
If Lenders having a Pro Rata Share of at least eighty percent (80%) consent to
such extension (such Lenders being "CONSENTING LENDERS" and the Lenders not
consenting being "NON-CONSENTING LENDERS"), then the original Maturity Date
shall be extended as to the Consenting Lenders. In such event, Borrowers may, on
or before the original Maturity Date, effect one or more assignments from the
Non-Consenting Lenders to a new Lender or Lenders pursuant to SECTION 13.11 who
shall also consent to the extension of the Maturity Date. Administrative Agent
agrees to exercise its reasonable best efforts to assist Borrowers in
identifying prospective assignees of the Non-Consenting Lenders' Commitments
hereunder; provided, however, that Administrative Agent has no obligation to
ensure that any such assignees will agree to purchase assignments from the
Non-Consenting Lenders. If Borrowers fail to effect assignments from the
Non-Consenting Lenders to a new Lender or Lenders, then Borrowers may elect to
not extend the original Maturity Date, as provided herein, by giving Agents
written notice thereof within five (5) days prior to the original Maturity Date.
In such event, Borrowers shall not be required to pay the extension fee set
forth in SECTION 3.20(E).
3.22 OPTION TO REPLACE LENDERS. If any Lender shall make demand for
payment or reimbursement pursuant to SECTION 3.14(A) or SECTION 3.14(B) or
notifies Borrowers of the occurrence of the circumstances described in SECTION
3.15(B), then, provided that (a) no Default has occurred and is continuing, and
(b) the circumstances resulting in such demand for payment or reimbursement are
not applicable to all Lenders, Borrowers may terminate the Commitment of such
Lender, in whole but not in part, by either (i) (A) giving such Lender and
Agents not less than five (5) Business Days' written notice thereof, which
notice shall be irrevocable and effective only upon receipt thereof by such
Lender and Agents and shall specify the date of such termination, and (B) paying
such Lender (and there shall become due and payable) on such date the
outstanding Principal Debt of all Borrowings made by such Lender, all interest
thereon, and any other Obligation owed to such Lender (including any amounts
payable under SECTION 3.17), if any, or (ii) pursuant to the provisions of
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SECTION 13.11, proposing the introduction of a replacement Lender satisfactory
to Agents, or obtaining the agreement of one or more existing Lenders, to assume
the entire amount of the Commitment of the Lender whose Commitment is being
terminated, on the effective date of such termination. Upon the satisfaction of
all the foregoing conditions, such Lender that is being terminated shall cease
to be a "Lender" for purposes of this Agreement, provided that Borrowers shall
continue to be obligated to such Lender under SECTION 7.12 with respect to
Indemnified Liabilities (as defined in SECTION 7.12) arising prior to such
termination.
SECTION 4
BORROWING BASE
4.1 BORROWING BASE.
(A) CALCULATION OF BORROWING BASE. The "BORROWING BASE" shall, as of
the last date of each fiscal quarter during the term hereof, be equal to the
product of (a) forty percent (40%), and (b) the sum of the following: (i) the
Implied Value of each Borrowing Base Property owned by an Obligor and that has
been in service for more than twelve (12) months as of such determination date;
plus (ii) the Approved Costs of each Borrowing Base Property owned by an Obligor
and that have been in service for less than twelve (12) months as of such
determination date; provided that the number of Rooms in all Borrowing Base
Properties that have been in service for less than twelve (12) months as of such
determination date may not constitute more than twenty percent (20%) of the
total number of Rooms in all Borrowing Base Properties as of such determination
date.
(B) CALCULATION OF IMPLIED VALUE. The "IMPLIED VALUE" with respect to
any Borrowing Base Property means, as of any determination date, (i) Adjusted
NOI from such Borrowing Base Property for the twelve (12) month period ending on
the date of determination, divided by (b) the Capitalization Rate as of such
date.
(C) DETERMINATION OF THE CAPITALIZATION RATE. The "CAPITALIZATION RATE"
means, as of any determination date, (a) for the period of time from the Closing
Date through December 31, 1998, eleven percent (11%), (b) for each calendar year
thereafter during the term of this Agreement, the capitalization rate reasonably
determined by Required Lenders on a state-by-state basis. Administrative Agent
shall notify
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Borrowers within forty-five (45) days prior to any adjustment to the
Capitalization Rate for each state in which a Borrowing Base Property is located
based upon market conditions for comparable properties; provided that the
Capitalization Rate may not be increased or decreased at any one time by more
than one and one-quarter of one percent (1.25%) annually. In determining the
"CAPITALIZATION RATE," Lenders agree to consider the operating performance of
each Borrowing Base Property; provided, however, that Lenders shall not be
required to adjust the Capitalization Rate based upon such individual Borrowing
Base Property performance.
(D) ADJUSTED NOI. "ADJUSTED NOI" means, for any Borrowing Base Property
for any period, (i) all lease payments pursuant to the Operating Lease for such
Borrowing Base Property, minus (ii) any ground lease payments, minus (iii)
appropriate accruals for items such as taxes, insurance, or other operating
expenses payable by the owner of such Borrowing Base Property reasonably
determined by Agents with respect to such Borrowing Base Property, minus (iv) a
Capital Expenditure reserve equal to the greater of (A) four percent (4%) of
Gross Room Revenue for such period, and (B) any reserves required under the
Operating Lease for such Borrowing Base Property, all as determined in
accordance with accounting principles reasonably acceptable to Agents,
consistently applied.
4.2 ADMISSION OF QUALIFIED PROPERTIES INTO THE BORROWING BASE.
(A) REQUEST FOR ADMISSION INTO BORROWING BASE. Borrowers shall provide
each Agent (with copies for each of Lenders) with a written request for a Hotel
to be admitted into the Borrowing Base. Such request shall be accompanied by
information regarding such Hotel, including, without limitation, the following,
in each case acceptable to Agents: (i) a general description of the Hotel's
location, market, and amenities; (ii) a property description; (iii) purchase
information (including any contracts of sale and closing statements); (iv) a
Phase I environmental assessment and, if requested by any Agent based upon
issues identified in the Phase I assessment, additional environmental
assessments; (v) copies of title insurance and any surveys; (vi) operating
statements; (vii) engineering reports; (viii) evidence of insurance; (ix) copies
of all Operating Leases, ground leases, other leases, management agreements, and
franchise agreements; (x) a copy of the most-recent appraisal, if available; and
(xi) such other information requested by any Agent as shall be necessary in
order for Agents and Required Lenders to determine whether such Hotel is a
Qualified Property.
(B) QUALIFIED PROPERTIES. In order for a Hotel to be eligible for
inclusion in the Borrowing Base (an "QUALIFIED PROPERTY"), such Hotel shall have
the following characteristics:
(I) a Borrower or a ninety-nine percent (99%)-owned
Consolidated Affiliate of the Partnership that has executed the
Subsidiary Guaranty (a "SUBSIDIARY GUARANTOR") shall have good and
indefeasible title to such Hotel, free and clear of all Liens (except
for Permitted Liens);
(II) such Hotel is an existing and operating extended stay,
full service, or limited service Hotel located in the United States;
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(III) all Operating Leases shall be substantially in the form
previously approved by Agents or otherwise acceptable to Agents;
(IV) all Lessees shall be a JF Hotel Lessee, a Summerfield
Lessee, or an Affiliate thereof or otherwise acceptable to Agents; and
(V) all ground leases, if any, with respect to such Hotel
shall be acceptable to Agents.
(C) APPROVAL OF REQUIRED LENDERS. Each Hotel shall be subject to
Required Lenders' approval for admission to the Borrowing Base after evaluation
of such Hotel's market area, location, access, and design. Administrative Agent
shall provide Borrowers with written notice of whether Required Lenders have
approved a Hotel for admission into the Borrowing Base.
(D) OTHER REQUIREMENTS RESPECTING THE BORROWING BASE. During the term
hereof, (i) once five (5) Hotels have been admitted into the Borrowing Base,
there shall always be at least five (5) Hotels admitted into the Borrowing Base,
and (ii) the principal balance of the Obligation shall not be less than $1.00,
in each case unless otherwise consented to by Required Lenders.
(E) COMPUTATION OF ADJUSTED NET OPERATING INCOME. Borrowers shall
deliver to each Agent quarterly computations of Adjusted NOI with the Borrowing
Base Report required pursuant to SECTION 7.1(C). Administrative Agent shall
notify Borrowers in writing of any calculation errors or other errors in the
calculation of Adjusted NOI required by Agents pursuant to SECTION 4.1(D) and
corresponding adjustments to the Borrowing Base (if any). If a Hotel is admitted
into the Borrowing Base prior to the last day of any fiscal quarter during the
term of this Agreement, then Administrative Agent shall notify Borrowers and
Lenders in writing of any changes to the Borrowing Base as a result of the
admission of such Hotel into the Borrowing Base.
(F) CERTAIN EVENTS WITH RESPECT TO BORROWING BASE PROPERTIES. If (i)
any Borrowing Base Property is subject to or suffers a Material Environmental
Event, (ii) any Borrowing Base Property no longer satisfies the requirements set
forth in the definition of "Qualified Property," (iii) the occurrence of any
event or circumstance that could result in the failure of the Lessee under the
Operating Lease with respect to such Borrowing Base Property to pay rental
payments under such Operating Lease or otherwise materially and adversely affect
the operation of such Borrowing Base Property, (iv) any Lessee (A) is not
Solvent, (B) fails to pay its Liabilities generally as they become due, (C)
voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor
Relief Law, or (D) becomes a party to or is made the subject of any proceeding
provided for by any Debtor Relief Law, other than as a creditor or claimant
(unless, if the proceeding is involuntary, the applicable petition is dismissed
within sixty (60) days after its filing), or (v) the franchise or license
agreement with respect to any Borrowing Base Property shall be terminated or
canceled or shall expire by its terms and is not replaced with an Approved
Franchise within ninety (90) days after such termination, cancellation, or
expiration, then Required Lenders shall have the right in their sole discretion
at any time and from time to time to notify Borrowers that, effective upon the
giving of such notice, and for so long as such event or condition exists, such
Borrowing Base Property shall no longer be considered a Borrowing Base Property
for purposes of determining the Borrowing Base. If Administrative Agent delivers
a notice with respect to a Borrowing Base Property as set forth in this SECTION,
then at such time as such Borrowing Base Property is no longer subject to any of
the conditions described above,
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Borrowers may give Agents written notice thereof (together with reasonably
detailed evidence of the cure of such condition in a manner reasonably
acceptable to Agents) and such Borrowing Base Property shall, effective with the
delivery by Borrowers of the next Borrowing Base Report, be considered a
Borrowing Base Property for purposes of calculating the Borrowing Base until
such time as any of the conditions set forth above apply thereto.
(G) RELEASE OF BORROWING BASE PROPERTIES. Borrowers may request that a
Borrowing Base Property that has previously been admitted into the Borrowing
Base be removed from the Borrowing Base provided that: (i) Borrowers shall
provide Agents a written request to remove such Borrowing Base Property from the
Borrowing Base, (ii) after giving effect to the removal of such Borrowing Base
Property from the Borrowing Base, the Borrowing Base is equal to or exceeds the
Commitment Usage, and (iii) no Potential Default or Default shall exist prior to
or after giving effect to the removal of such Borrowing Base Property from the
Borrowing Base.
(H) CLOSING DATE BORROWING BASE PROPERTIES. As of the Closing Date, the
Hotels listed on SCHEDULE 4.2 have been admitted into the Borrowing Base and are
Borrowing Base Properties as of the Closing Date.
4.3 NEGATIVE PLEDGE AGREEMENTS. Borrowers shall not, and shall not
permit any Obligor to, enter into or permit to exist any arrangement or
agreement that directly or indirectly prohibits any Obligor from creating or
incurring any Lien (other than Permitted Liens) on any Borrowing Base Property.
4.4 BORROWING BASE COVENANTS.
(A) DEBT SERVICE COVERAGE. As of any date, Borrowers shall not permit,
as of any date of determination, the ratio of (i) Adjusted NOI for the Borrowing
Base Properties in the Borrowing Base as of such date for the twelve (12) month
period ending on the date of determination, to (ii) Implied Debt Service, to be
less than 2.25 to 1.0.
(B) EXTENDED STAY/FULL SERVICE ROOMS. As of any date, Borrowers shall
not permit the ratio of (i) all Rooms in the Borrowing Base Properties that are
extended stay or full service hotel Properties, to (ii) all Rooms in all
Borrowing Base Properties, to be less than .50 to 1.0.
(C) ROOMS IN STATES. As of any date, Borrowers shall not permit the
ratio of (i) all Rooms in the Borrowing Base Properties in any single state, to
(ii) all Rooms in all Borrowing Base Properties, to exceed .30 to 1.0.
(D) ROOMS IN A PROPERTY. As of any date, Borrowers shall not permit the
ratio of (i) all Rooms in any one Borrowing Base Property, to (ii) all Rooms in
all Borrowing Base Properties, to exceed .20 to 1.0.
(E) IMPLIED VALUE OF A PROPERTY. As of any date, Borrowers shall not
permit the ratio of (i) the Implied Value of any one Borrowing Base Property, to
(ii) the Borrowing Base, to exceed .20 to 1.0.
(F) OPERATING LEASE PAYMENTS. The operations of each Borrowing Base
Property must produce cash flow sufficient to cover all minimum base rent
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under the Operating Lease with respect to such Borrowing Base Property.
4.5 FAILURE TO COMPLY WITH BORROWING BASE COVENANTS.
(A) If, as of the last day of any fiscal quarter of Borrowers,
Borrowers shall fail to comply with SECTION 4.1(A), then Borrowers shall add one
(1) or more Borrowing Base Properties to the Borrowing Base in order to comply
with SECTION 4.4(A).
(B) If, as of the last day of any fiscal quarter of Borrowers,
Borrowers shall fail to comply with any of the covenants set forth in SECTION
4.4 (other than SECTION 4.4(A)), then Borrowers shall remove one (1) or more
Borrowing Base Properties from the Borrowing Base in order to comply with
SECTION 4.4. If after giving effect to the removal of any Borrowing Base
Properties from the Borrowing Base, the Commitment Usage exceeds the Borrowing
Base, then Borrowers shall do one or more of the following:
(A) add, pursuant to SECTION 4.2, one (1) or more additional
Borrowing Base Properties that will result in an increase in the
Borrowing Base in an amount equal to such excess, as the case may be;
or
(B) prepay the outstanding Principal Debt in an amount equal
to the excess of the Commitment Usage over the Borrowing Base; or
(C) provide collateral satisfactory in all respects to Agents
and Required Lenders to secure the excess of the Commitment Usage over
the Borrowing Base.
(C) If after giving effect to any adjustments to the Capitalization
Rate pursuant to SECTION 4.1(C), the Commitment Usage exceeds the Borrowing
Base, then Borrowers shall do one or more of the following:
(A) add, pursuant to SECTION 4.2, one (1) or more additional
Borrowing Base Properties that will result in an increase in the
Borrowing Base in an amount equal to such excess, as the case may be;
or
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(B) prepay the outstanding Principal Debt in an amount equal
to the excess of the Commitment Usage over the Borrowing Base; or
(C) provide collateral satisfactory in all respects to Agents
and Required Lenders to secure the excess of the Commitment Usage over
the Borrowing Base.
(D) From the occurrence of any of the events described in SECTIONS
4.5(A), (B), or (C) (a "NONCOMPLIANCE EVENT") until the earlier of (A) the date
that Borrowers remedy such non-compliance, as described above, and (ii) ninety
(90) days after the occurrence of such Non-Compliance Event, a Potential Default
shall exist. If any such Non-Compliance Event remains unremedied after such
ninety (90) day period, then a Default shall exist.
SECTION 5
CONDITIONS PRECEDENT
5.1 CONDITIONS TO INITIAL BORROWING. The obligations of Lenders to make
the initial Borrowing and of Issuing Bank to issue the initial LC is subject to
satisfaction of the following conditions precedent on or before the Closing
Date:
(A) TRUST DOCUMENTS. The Trust shall deliver or cause to be delivered
to each Agent the following, each, unless otherwise noted, dated as of the
Closing Date:
(I) Certified copies of its Articles of Trust, together with a
good standing certificate from the Secretary of State of the State of
Maryland and each other state in which it is qualified to do business
and a certificate or other evidence of good standing as to payment of
any applicable franchise or similar taxes from the appropriate taxing
authority of each of such states, each dated a recent date prior to the
Closing Date;
(II) An Officer's Certificate of the Trust certifying (A) its
Constituent Documents, (B) resolutions of its trustees approving and
authorizing the execution, delivery, and performance of this Agreement
and the other Loan Documents, certified as of the Closing Date as being
in full force and effect without modification or amendment, and (C)
signatures and incumbency of its officers executing this Agreement and
the other Loan Documents;
(III) Executed originals of this Agreement, the Notes, and the
other Loan Documents to be executed by the Trust; and
(IV) Such other documents as any Agent may reasonably request.
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(B) GENERAL PARTNER AND PARTNERSHIP DOCUMENTS. The Partnership shall
deliver or cause to be delivered to each Agent the following, each, unless
otherwise noted, dated as of the Closing Date:
(I) Certified copies of the Partnership's Certificate of
Limited Partnership, together with a good standing certificate from the
Partnership's jurisdiction of formation and each other state in which
it is qualified to do business, and a certificate or other evidence of
good standing as to payment of any applicable franchise or similar
taxes from the appropriate taxing authority of each of such states,
each dated a recent date prior to the Closing Date;
(II) Certified copies of General Partner's Certificate of
Incorporation, together with a good standing certificate from General
Partner's jurisdiction of incorporation and each other state in which
it is qualified to do business, and, to the extent generally available,
a certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing
authority of each of such states, each dated a recent date prior to the
Closing Date;
(III) Officer's Certificate of General Partner certifying (A)
its Constituent Documents, (B) resolutions of its Board of Directors
approving and authorizing the execution, delivery, and performance of
the Loan Documents to which it is a party, certified as of the Closing
Date as being in full force and effect without modification or
amendment, (C) signatures and incumbency of its officers executing the
Loan Documents to which it is a party, and (D) the Constituent
Documents of the Partnership;
(IV) Executed originals of this Agreement, the Notes, and the
other Loan Documents to be executed by General Partner and the
Partnership; and
(V) Such other documents as any Agent may reasonably request.
(C) OPINIONS OF COUNSEL FOR BORROWERS. The Credit Parties and their
respective counsel shall have received originally executed copies of a favorable
written opinion of counsel for Borrowers, in form and substance reasonably
satisfactory to Agents and their counsel, dated as of the Closing Date, and
setting forth substantially the matters in the opinions designated in EXHIBIT F
and as to such other matters as any Agent, acting on behalf of the Credit
Parties, may reasonably request.
(D) FEES. Borrowers shall have paid to Administrative Agent, for
distribution (as appropriate) to the Credit Parties, the fees payable on the
Closing Date referred to in SECTION 3.20.
(E) BORROWING BASE REPORT. Borrowers shall have delivered an Borrowing
Base Report dated as of the Closing Date.
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(F) COMPLETION OF PROCEEDINGS. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incidental thereto not previously found acceptable by any Agent,
acting on behalf of Lenders, and its counsel shall be satisfactory in form and
substance to such Agent and such counsel, and each Agent and its counsel shall
have received all such counterpart originals or certified copies of such
documents as such Agent may reasonably request.
(G) NO MATERIAL ADVERSE CHANGE. No Material Adverse Event has occurred
since September 30, 1997.
5.2 CONDITIONS TO ALL BORROWINGS. The obligations of Lenders on each
Borrowing Date to make all Borrowings (including the initial Borrowing) and
Issuing Bank to issue all LCs (including the initial LC) are subject to the
following conditions precedent:
(A) NOTICE OF BORROWING; LC REQUEST. Each Agent shall have received,
(i) in the case of a Borrowing, in accordance with the provisions of SECTION
2.2, an originally executed Borrowing Request, and (b) in the case of an LC, in
accordance with SECTION 2.3, an LC Request.
(B) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. The
representations and warranties in Loan Documents are true, correct, and complete
in all material respects (unless they speak to a specific date or are based on
facts which have changed by transactions expressly contemplated or permitted by
this Agreement).
(C) NO DEFAULT. No Potential Default, Default, Non-Compliance Event, or
Material Adverse Event exits or would be caused by the making of such Borrowing.
(D) NO INJUNCTION OR RESTRAINING ORDER. No order, judgment, or decree
of any Governmental Authority shall purport to enjoin or restrain any Lender
from making the Borrowing to be made by it.
(E) NO VIOLATION. The making of the Borrowing shall not violate any
Governmental Requirement, including, without limitation, Regulation G,
Regulation T, Regulation U, or Regulation X of the Board of Governors of the
Federal Reserve System.
5.3 CONDITIONS GENERALLY. Each condition precedent in this Agreement is
material to the transactions contemplated by this Agreement, and time is of the
essence with respect to each condition precedent. Lenders may fund any Borrowing
and Issuing Bank may issue any LC without all conditions being satisfied, but,
to the extent permitted by Governmental Requirements, such funding shall not be
deemed to be a waiver of the requirement that each condition precedent be
satisfied as a prerequisite for any subsequent funding or issuance, unless
Lenders specifically waive each item in writing.
SECTION 6
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to the Credit Parties as follows:
6.1 PURPOSE OF CREDIT FACILITY. Borrowers shall use proceeds of the
Borrowings made and any LCs issued hereunder to acquire Qualified Properties,
for construction, development, renovation, and
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rehabilitation costs relating to Qualified Properties, and for general corporate
purposes (including working capital purposes) of the Companies; provided that
the Commitment Usage in respect of construction and development of Qualified
Properties shall not exceed $30,000,000 at any one time outstanding. No Borrower
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended. No part of the proceeds of any Borrowing or any LC
shall be used, directly or indirectly, for a purpose that violates any
Governmental Requirement, including the provisions of Regulation U.
6.2 EXISTENCE, GOOD STANDING, AUTHORITY AND COMPLIANCE. Each Company is
duly formed, validly existing and in good standing under the Governmental
Requirements of the jurisdiction in which it is incorporated or formed as
identified on SCHEDULE 6.2 (as supplemented from time to time). Each Company (a)
is duly qualified to transact business and is in good standing as a foreign
trust, corporation, partnership, limited liability company, or other entity in
each jurisdiction where the nature and extent of its business and properties
require due qualification and good standing, which jurisdictions are identified
on SCHEDULE 6.2 (as supplemented from time to time to reflect changes as a
result of transactions permitted by the Loan Documents), (b) possesses all
requisite authority, permits, and power to conduct its business as is now being,
or is contemplated by this Agreement to be, conducted, and (c) is in compliance
with all applicable Governmental Requirements.
6.3 AFFILIATES. Borrowers have no Consolidated Affiliates or
Unconsolidated Affiliates except as disclosed on SCHEDULE 6.2 (as supplemented
from time to time to reflect changes as a result of transactions permitted by
the Loan Documents).
6.4 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by each
Obligor of each Loan Document or related document to which it is a party, and
the performance by it of its obligations thereunder, (a) are within its trust,
corporate, limited liability company, or partnership power, (b) have been duly
authorized by all necessary trust, corporate, limited liability company, or
partnership action of such Person, (c) require no action by or filing with any
Governmental Authority, (d) do not violate any provision of its Constituent
Documents, (e) do not violate any provision of any Governmental Requirement or
order of any Governmental Authority applicable to it, (f) do not violate any
material agreements to which it is a party, or (g) do not result in the creation
or imposition of any Lien on any asset of any Company, other than pursuant to
the Loan Documents.
6.5 BINDING EFFECT. Upon execution and delivery by all parties thereto,
each Loan Document to which it is a party shall constitute a legal and binding
obligation of each Obligor, enforceable against such Obligor in accordance with
its terms, subject to applicable Debtor Relief Laws and general principles of
equity.
6.6 FINANCIAL STATEMENTS; FISCAL YEAR. The Current Financials were
prepared in accordance with GAAP and present fairly, in all material respects,
the consolidated financial condition, results of operations, and cash flows of
the Companies as of, and for the portion of the fiscal year ending on the date
or dates thereof (subject only to normal audit adjustments). All material
liabilities of the Companies as of the date or dates of the Current Financials
are reflected therein or in the notes thereto. Except for transactions directly
related to, or specifically contemplated by, the Loan Documents or disclosed in
the Current Financials, no subsequent material adverse changes have occurred in
the consolidated financial
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condition of the Companies from that shown in the Current Financials. The fiscal
year of each Company ends on December 31.
6.7 LITIGATION. Except as disclosed on SCHEDULE 6.7, no Company is
subject to, nor is any Responsible Officer of any Company aware of the threat
of, any Litigation that, if adversely determined, could result in a Material
Adverse Event. No outstanding and unpaid final and non-appealable judgments
against any Company exist which could result in a Material Adverse Event.
6.8 TAXES.
(A) All Tax returns of each Company required to be filed have been
filed (or extensions have been granted) before delinquency, and all Taxes
imposed upon each Company that are due and payable have been paid before
delinquency or are being contested in good faith by appropriate proceedings
diligently conducted and for which reserves in accordance with GAAP or otherwise
reasonably acceptable to Agents have been provided.
(B) As of the date hereof, no United States federal income tax returns
of the "affiliated group" (as defined in the Code) of which any Company is a
member have been examined and closed. The members of such affiliated group have
filed all United States Federal income tax returns and all other material tax
returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by or any of
them (except for taxes being contested in good faith by appropriate proceedings
diligently conducted and for which reserves in accordance with GAAP or otherwise
acceptable to Agents have been provided). The charges, accruals, and reserves on
the books of the Companies in respect of taxes or other governmental charges
are, in the opinion of the Companies, adequate.
(C) The Trust qualifies as a REIT.
6.9 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 6.9, (a) to
the best of each Borrower's knowledge, no environmental condition or
circumstance exists that materially and adversely affects any Company's
Properties or operations, (b) no Company has received any report of any
Company's violation of any Environmental Law that has not been remedied, (c) no
Company knows that any Company is under any obligation to remedy any violation
of any Environmental Law, or (d) no facility of any Company is or has been used
for storage, treatment, or disposal of any Hazardous Substance, except for the
storage and use of Hazardous Materials that are customarily stored and used by
the owners and operators of Hotels in the ordinary course of business that are
used and stored in commercially reasonable quantities and in compliance with
applicable Environmental Laws. Each Company has taken prudent steps to determine
that its Properties and operations do not violate any Environmental Law.
6.10 EMPLOYEE PLANS. Except where occurrence or existence could not
result in a Material Adverse Event, to the best of each Borrower's knowledge,
(a) no Employee Plan has incurred an "accumulated funding deficiency" (as
defined in Section 302 of ERISA or Section 412 of the Code), (b) no Company has
incurred liability under ERISA to the PBGC in connection with any Employee Plan
(other than required insurance premiums, all of which have been paid), (c) no
Company has withdrawn in whole or in part from participation in a Multi-employer
Plan, (d) no Company has engaged in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code), and (e) no "reportable event"
(as defined in Section 4043 of ERISA) has occurred, excluding events for which
the notice requirement is waived under applicable PBGC regulations.
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6.11 PROPERTIES; LIENS. To the best of each Borrower's knowledge, each
Company has good and marketable title to all of its Properties reflected in the
Current Financials (except for any Property that is obsolete or that has been
disposed in the ordinary course of business or, after the date of this
Agreement, as otherwise permitted by SECTION 8.7 or SECTION 8.8). Except for
Permitted Liens, no Lien exists on any Borrowing Base Property, and the
execution, delivery, performance, or observance of the Loan Documents shall not
require or result in the creation of any Lien on any Borrowing Base Property.
6.12 LOCATIONS. Each Company's chief executive office is located at the
address set forth on SCHEDULE 6.2 (as supplemented from time to time). Each
Company's books and records are located at its chief executive office.
6.13 GOVERNMENT REGULATIONS. No Company is subject to regulation under
the Investment Company Act of 1940, as amended, or the Public Utility Holding
Company Act of 1935, as amended.
6.14 TRANSACTIONS WITH AFFILIATES. Except as disclosed on SCHEDULE 6.14
(as supplemented from time to time if the disclosures are approved by Agents),
no Company is a party to a material transaction with any of its Affiliates,
other than transactions in the ordinary course of business and upon fair and
reasonable terms not materially less favorable than it could obtain or could
become entitled to in an arm's-length transaction with a Person that was not its
Affiliate.
6.15 INSURANCE. Each Company maintains with financially sound,
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by
self-insurance authorized by the jurisdictions in which it operates) insurance
concerning its properties and businesses against casualties and contingencies
and of types and in amounts (and with co-insurance and deductibles) as is
customary in the case of similar businesses.
6.16 LABOR MATTERS. No actual or, to the knowledge of any Responsible
Officer of any Company, threatened strikes, labor disputes, slow downs,
walkouts, or other concerted interruptions of operations by the employees of any
Company exist. All payments due from any Company for employee health and welfare
insurance have been paid or accrued as a liability on its books.
6.17 SOLVENCY. On each Borrowing Date, each Company is, and after
giving effect to the requested Borrowing will be, Solvent.
6.18 FULL DISCLOSURE. Each material fact or condition relating to the
financial condition or business of the Companies which could result in a
Material Adverse Event has been disclosed to Agents. All information previously
furnished, furnished on the date of this Agreement, and furnished in the future,
by any Company to each Agent in connection with the Loan Documents (a) was, is,
and will be, true and accurate in all material respects or based on good faith
estimates on the date the information is stated or certified, and (b) did not,
does not, and will not, fail to state any material fact the existence of which
or the omission of which could result in a Material Adverse Event
6.19 EXEMPTION FROM ERISA; PLAN ASSETS. The Trust is a "real estate
operating company" within the meaning of 29 C.F.R. ss. 2510.3-101(e) (or any
successor regulation) and the assets of the Companies would not be deemed "plan
assets" as defined in 29 C.F.R. ss. 2510.3-101(a)(1) (or any successor
regulation) of any Employee Plan or Multi-employer Plan.
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SECTION 7
AFFIRMATIVE COVENANTS
So long as Lenders are committed to fund any Borrowings or fund or
issue any LCs under this Agreement and until the Obligation is paid in full,
Borrowers covenant and agree as follows:
7.1 ITEMS TO BE FURNISHED. Borrowers shall cause the following to be
furnished to each Agent (with sufficient copies for each Lender):
(A) ANNUAL FINANCIAL STATEMENTS. Promptly after preparation, and no
later than ninety (90) days after the last day of each fiscal year of the
Companies, consolidated Financial Statements of the Companies showing the
consolidated financial condition and results of operations of the Companies as
of, and for the year ended on, that last day, accompanied by: (A) the
unqualified opinion of the firm of an accounting firm of nationally-recognized
independent certified public accountants, based on an audit using generally
accepted auditing standards, that the Financial Statements of the Companies were
prepared in accordance with GAAP and present fairly, in all material respects,
the consolidated financial condition and results of operations of the Companies;
(B) a Compliance Certificate; and (c) a copy of the Form 10-K filed with the
Securities and Exchange Commission for such fiscal year.
(B) PERIODIC FINANCIAL STATEMENTS. Promptly after preparation, and no
later than forty-five (45) days after the last day of each fiscal quarter of the
Companies: (i) unaudited Financial Statements of the Companies showing the
consolidated financial condition and results of operations of the Companies for
the fiscal quarter and for the period from the beginning of the current fiscal
year to the last day of the fiscal quarter; (ii) a Compliance Certificate; and
(iii) a copy of the Form 10-Q filed with the Securities and Exchange Commission
for such fiscal quarter.
(C) BORROWING BASE REPORT. Promptly after the preparation, and no later
than forty-five (45) days after the last day of each fiscal quarter of
Borrowers, a Borrowing Base Report.
(D) OTHER REPORTS.
(I) Promptly upon its becoming available, and no later than
fifteen (15) days after the filing or receipt thereof, each
registration statement or prospectus filed by any Borrower with, or
received by any Borrower in connection therewith from, any securities
exchange or the Securities and Exchange Commission, or any successor
agency thereof.
(II) Promptly upon its becoming available, each report filed
by any Borrower with any securities exchange or the Securities and
Exchange Commission, or any successor agency thereof, not otherwise
required above; provided, however that the failure to provide any such
report shall not result in a Potential Default or Default.
(III) Promptly after the mailing or delivery thereof, copies
of all material reports or other information from any Borrower to
holders of its Stock.
(E) BORROWING BASE PROPERTY AND OTHER PROPERTY INFORMATION.
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(I) Promptly after the preparation thereof, and no later than
forty-five (45) days after the last day of each fiscal quarter,
quarterly operating statements for each of the Borrowing Base
Properties.
(II) Promptly after the preparation thereof, and no later than
forty-five (45) days after the last day of each fiscal year, annual
Capital Expenditure budgets for each of the Borrowing Base Properties.
(III) Promptly after the preparation thereof, and no later
than forty-five (45) days after the last day of each fiscal year,
operating statements containing a summary detailing the revenues,
expenses, net income, average daily Room rate, occupancy levels, and
revenue per available Room for each of the Hotels owned by the
Companies as of and, if applicable, for the period then ended and for
the corresponding period in the prior fiscal year.
(F) NOTICES. Notice, promptly after a Responsible Officer of any
Borrower knows of (i) the existence and status of any Litigation that, if
determined adversely to any Company, could result in a Material Adverse Event,
(ii) any change in any material fact or circumstance represented or warranted by
any Company in any Loan Document which could result in a Material Adverse Event,
(iii) the receipt by any Company of notice of any violation or alleged violation
of ERISA or any Environmental Law, or (iv) a Default or Potential Default,
specifying the nature thereof and what action Borrowers have taken, are taking,
or propose to take.
(G) CHANGE IN CONTROL. Promptly upon any Change in Control, notice of
such event together with a description of the transaction giving rise thereto.
(H) RATINGS. Promptly upon the receipt of notice thereof, and in any
event within five (5) Business Days after any change in the Moody's Rating, the
S & P Rating, or any other applicable rating notice of such change.
(I) OTHER INFORMATION. Promptly upon reasonable request by any Agent,
information (not otherwise required to be furnished under the Loan Documents)
respecting the business affairs, assets, and liabilities of the Companies
(including, without limitation, cash flow information, asset business plans,
market information, and tax returns) and opinions, certifications, and documents
in addition to those mentioned in this Agreement.
7.2 USE OF PROCEEDS. Borrowers shall use the proceeds of Borrowings
only for the purposes represented in this Agreement.
7.3 BOOKS AND RECORDS. Borrowers shall, and shall cause each Company
to, maintain books, records, and accounts necessary to prepare all Financial
Statements in accordance with GAAP.
7.4 INSPECTIONS. Upon reasonable notice and during normal business
hours, Borrowers shall, and shall cause each Company to, allow each Agent (or
its Representatives) to inspect any of their respective properties (subject to
the inspection rights in any tenant leases), to review reports, files, and other
records and to make and take away copies with Borrowers' permission, such
permission not to be unreasonably withheld), and to discuss in the presence of a
Borrower or such other Company any of its affairs, conditions,
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and finances with its other creditors, directors, officers, employees, or
representatives from time to time, during reasonable business hours.
7.5 TAXES. Borrowers shall, and shall cause each Company to, promptly
pay prior to delinquency any and all Taxes, other than Taxes that are being
contested in good faith by lawful proceedings diligently conducted, against
which reserves or other provisions required by GAAP have been made, and in
respect of which levy and execution of any Lien have been, and continue to be,
stayed.
7.6 PAYMENT OF OBLIGATIONS. Borrowers shall, and shall cause each
Company to, promptly pay (or renew and extend) all of their respective
obligations as they become due (unless any such obligations are being contested
in good faith by appropriate proceedings and against which reserves or other
provisions required by GAAP have been made).
7.7 EXPENSES. Borrowers shall promptly pay following demand (a) all
costs, fees, and expenses paid or incurred by Agents in connection with the
arrangement, syndication, and negotiation of the loan evidenced by this
Agreement and the other Loan Documents and the negotiation, preparation,
delivery, and execution of the Loan Documents and any related amendment, waiver,
or consent (including in each case the reasonable fees and expenses of any
Agent's counsel), and (b) all reasonable costs, fees, and expenses of Agents
and, after a Default, Lenders incurred by any Agent or, after a Default, any
Lender in connection with the enforcement of the obligations of Borrowers
arising under the Loan Documents or the exercise of any Rights arising under the
Loan Documents (including reasonable attorneys' fees, expenses, and costs paid
or incurred in connection with any workout or restructure and any action taken
in connection with any Debtor Relief Laws), all of which shall be a part of the
Obligation and shall bear interest, if not paid within five (5) days following
demand, at the Default Rate until repaid. Without prejudice to the survival of
any other agreement of Borrowers hereunder, the agreements and obligations of
Borrowers contained in this SECTION shall survive the payment in full of the
Total Principal Debt and all other amounts payable under this Agreement.
7.8 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Company shall
(a) maintain its trust, partnership, limited liability company, or corporate
existence in good standing in its state of organization or formation, and (b)
maintain (i) its authority to transact business in good standing in all other
states, (ii) all licenses, permits, franchises, and Governmental Requirements
necessary for its business, and (iii) all of its material assets that are useful
in and necessary to its business in good working order and condition (ordinary
wear and tear excepted) and make all necessary repairs and replacements.
7.9 INSURANCE. Borrowers shall, and shall cause each Company to,
maintain with financially sound, responsible, and reputable insurance companies
or associations (or, as to workers' compensation or similar insurance, with an
insurance fund or by self-insurance authorized by the jurisdictions in which it
operates) insurance reasonably acceptable to each Agent concerning its
properties and businesses against casualties and contingencies and of types and
in amounts (and with co-insurance and deductibles) as is customary in the case
of similar businesses. At any Agent's request, Borrowers shall, and shall cause
each Company to, deliver to such Agent evidence of insurance for each policy of
insurance and evidence of payment of all premiums.
7.10 PRESERVATION AND PROTECTION OF RIGHTS. Borrowers shall, and shall
cause each other Company to, perform the acts and duly authorize, execute,
acknowledge, deliver, file, and record any
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additional writings as any Agent may reasonably deem necessary or appropriate to
preserve and protect the Rights of the Credit Parties under any Loan Document.
7.11 ENVIRONMENTAL LAWS. Borrowers shall, and shall cause each Company
to, (a) operate and manage its businesses and otherwise conduct its affairs in
compliance with all Environmental Laws, (b) promptly deliver to Agents a copy of
any written notice received from any Governmental Authority alleging that any
Company is not in compliance with any Environmental Law, and (c) promptly
deliver to Agents a copy of any written notice received from any Governmental
Authority alleging that any Company has any potential environmental Liability.
7.12 INDEMNIFICATION.
(A) AS USED IN THIS SECTION: (I) "INDEMNITOR" MEANS BORROWERS; (II)
"INDEMNITEE" MEANS EACH CREDIT PARTY, EACH PRESENT AND FUTURE AFFILIATE OF EACH
CREDIT PARTY, EACH PRESENT AND FUTURE REPRESENTATIVE OF EACH CREDIT PARTY OR ANY
OF SUCH AFFILIATES, AND EACH PRESENT AND FUTURE SUCCESSOR AND ASSIGN OF EACH
CREDIT PARTY OR ANY OF SUCH AFFILIATES OR REPRESENTATIVES; AND (III)
"INDEMNIFIED LIABILITIES" MEANS ALL PRESENT AND FUTURE, KNOWN AND UNKNOWN, FIXED
AND CONTINGENT, ADMINISTRATIVE, INVESTIGATIVE, JUDICIAL, AND OTHER CLAIMS,
DEMANDS, ACTIONS, CAUSES OF ACTION, INVESTIGATIONS, SUITS, PROCEEDINGS, AMOUNTS
PAID IN SETTLEMENT, DAMAGES, JUDGMENTS, PENALTIES, COURT COSTS, LIABILITIES, AND
OBLIGATIONS -- AND ALL PRESENT AND FUTURE COSTS, EXPENSES, AND DISBURSEMENTS
(INCLUDING, WITHOUT LIMITATION, ALL REASONABLE ATTORNEYS' FEES AND EXPENSES
WHETHER OR NOT SUIT OR OTHER PROCEEDING EXISTS OR ANY INDEMNITEE IS PARTY TO ANY
SUIT OR OTHER PROCEEDING) IN ANY WAY RELATED TO ANY OF THE FOREGOING -- THAT MAY
AT ANY TIME BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNITEE AND
IN ANY WAY RELATING TO OR ARISING OUT OF ANY (A) LOAN DOCUMENT, TRANSACTION
CONTEMPLATED BY ANY LOAN DOCUMENT, OR ANY PROPERTY, (B) ENVIRONMENTAL LIABILITY
IN ANY WAY RELATED TO ANY COMPANY, ANY PROPERTY, OR ANY ACT, OMISSION, STATUS,
OWNERSHIP, OR OTHER RELATIONSHIP, CONDITION, OR CIRCUMSTANCE CONTEMPLATED BY,
CREATED UNDER, OR ARISING PURSUANT TO OR IN CONNECTION WITH ANY LOAN DOCUMENT,
OR (C) ANY INDEMNITEE'S SOLE OR CONCURRENT ORDINARY NEGLIGENCE.
(B) EACH INDEMNITOR SHALL JOINTLY AND SEVERALLY INDEMNIFY EACH
INDEMNITEE FROM AND AGAINST, PROTECT AND DEFEND EACH INDEMNITEE FROM AND
AGAINST, HOLD EACH INDEMNITEE HARMLESS FROM AND AGAINST, AND ON DEMAND PAY OR
REIMBURSE EACH INDEMNITEE FOR, ALL INDEMNIFIED LIABILITIES.
(C) THE FOREGOING PROVISIONS (I) ARE NOT LIMITED IN AMOUNT EVEN IF THAT
AMOUNT EXCEEDS THE OBLIGATION, (II) INCLUDE, WITHOUT LIMITATION, REASONABLE FEES
AND EXPENSES OF ATTORNEYS AND OTHER COSTS AND EXPENSES OF LITIGATION OR
PREPARING FOR LITIGATION AND DAMAGES OR INJURY TO PERSONS, PROPERTY, OR NATURAL
RESOURCES ARISING UNDER ANY STATUTORY OR COMMON LAW, PUNITIVE DAMAGES, FINES,
AND OTHER PENALTIES, AND (III) ARE NOT AFFECTED BY THE SOURCE OR ORIGIN OF ANY
HAZARDOUS SUBSTANCE, AND (IV) ARE NOT AFFECTED BY ANY INDEMNITEE'S
INVESTIGATION, ACTUAL OR CONSTRUCTIVE KNOWLEDGE, COURSE OF DEALING, OR WAIVER.
(D) No Indemnitee is entitled to be indemnified under the Loan
Documents for its own fraud, gross negligence, or willful misconduct.
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(E) THE PROVISIONS OF AND INDEMNIFICATION AND OTHER UNDERTAKINGS UNDER
THIS SECTION SURVIVE THE SATISFACTION OF THE OBLIGATION AND THE TERMINATION OF
THE LOAN DOCUMENTS.
7.13 REIT STATUS. At all times, the Trust (including its organization
and method of operations and those of its Consolidated Affiliates) shall qualify
as a REIT.
7.14 ERISA EXEMPTIONS. At all times, the Trust shall qualify as a "real
estate operating company" under the 29 C.F.R. ss. 2510.3-101(e) (or any
successor regulation) or other appropriate exemption such that its assets shall
not be deemed "plan assets" as defined in 29 C.F.R. ss. 2510.3-101(a)(1) (or any
successor regulation) of any Employee Plan or Multi-employer Plan.
7.15 LISTED COMPANY. The common Stock of the Trust shall at all times
be listed for trading and be traded on the New York Stock Exchange, the American
Stock Exchange, or the Nasdaq Stock Market.
7.16 PROPERTIES.
(A) Borrowers shall cause all of the Companies' Properties to be
operated, maintained, and managed at all times in a professional manner
(including all marketing, advertising, and promotional programs). Borrowers
shall keep in effect (or cause to be kept in effect) at all times all permits
and contractual arrangements as may be necessary to meet the standards of
operation described in the foregoing sentence.
(B) Borrowers shall cause construction, renovation, and rehabilitation
work with respect to all of the Companies' Properties to be performed in a good
and workmanlike manner substantially in accordance with all Governmental
Requirements and restrictions affecting such Properties.
SECTION 8
NEGATIVE COVENANTS
So long as Lenders are committed to fund any Borrowings or fund or
issue any LCs under this Agreement and until the Obligation is paid in full,
Borrowers covenant and agree as follows:
8.1 PAYMENT OF OBLIGATIONS. Borrowers shall not, and shall not permit
any Company to, voluntarily prepay principal of, or interest on, any Liabilities
other than the Obligation, if a Default has occurred and is continuing at the
time of such voluntary prepayment.
8.2 EMPLOYEE PLANS. Borrowers shall not, and shall not permit any
Company to, permit any of the events or circumstances described in SECTION 6.10
to exist or occur.
8.3 TRANSACTIONS WITH AFFILIATES. Except as disclosed on SCHEDULE 6.14
(as supplemented from time to time to reflect changes as a result of
transactions permitted by this Agreement or approved by Required Lenders),
Borrowers shall not, and shall not permit any Company to, enter into any
material transaction with any of its Affiliates, other than transactions in the
ordinary course of business and upon fair
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and reasonable terms not materially less favorable than it could obtain or could
become entitled to in an arm's-length transaction with a Person that was not its
Affiliate.
8.4 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS AND DOCUMENTS. Borrowers
shall not, and shall not permit any Company to, (a) violate the provisions of
any Governmental Requirements applicable to it or of any material agreement to
which it is a party, (b) violate the provisions of its Constituent Documents, or
(c) repeal, replace, or amend any provision of its Constituent Documents, in
each case where any of the foregoing could result in a Material Adverse Event.
8.5 LOANS, ADVANCES, AND INVESTMENTS. Borrowers shall not permit the
Companies to have or make any investments in:
(A) Properties consisting of raw land, non-income producing Properties,
and other Properties that are not Hotels exceeding in the aggregate fifteen
percent (15%) of Total Assets; or
(B) The Stock of Persons (including corporations, partnerships, joint
ventures, and similar entities) that are not Consolidated Affiliates accounted
for on an equity basis (determined in accordance with GAAP) exceeding in the
aggregate fifteen percent (15%) of Total Assets; or
(C) The investments described in (A) through (B) above exceeding in the
aggregate twenty-five percent (25%) of Total Assets.
8.6 DIVIDENDS AND DISTRIBUTIONS. Borrowers shall not, and shall not
permit any Company to, declare, make or pay any Distribution, other than
Permitted Distributions. Borrowers shall not, and shall not permit any Company
to, enter into or permit to exist any arrangement or agreement (other than this
Agreement) that prohibits it from paying Distributions to the holders of its
Stock.
8.7 SALE OF ASSETS. Borrowers shall not, and shall not permit any
Company to, sell, assign, lease, transfer, or otherwise dispose of all or
substantially all of its assets.
8.8 MERGERS AND DISSOLUTIONS. Borrowers shall not, and shall not permit
any Company to, merge or consolidate with any other Person or liquidate, wind
up, or dissolve (or suffer any liquidation or dissolution).
8.9 ASSIGNMENT. Borrowers shall not, and shall not permit any Company
to, assign or transfer any of its Rights, duties, or obligations under any of
the Loan Documents.
8.10 FISCAL YEAR AND ACCOUNTING METHODS. Borrowers shall not, and shall
not permit any Company to, change its fiscal year or its method of accounting
(other than changes required or allowed by GAAP).
8.11 NEW BUSINESSES. Borrowers shall not, and shall not permit any
Company to, engage in any type of business except the types of businesses in
which they are presently engaged and any other reasonably related business.
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8.12 GOVERNMENT REGULATIONS. Borrowers shall not, and shall not permit
any Company to, conduct its business in a way that it becomes regulated under
the Investment Company Act of 1940, as amended, or the Public Utility Holding
Company Act of 1935, as amended.
8.13 INTEREST RATE AGREEMENTS. Borrowers shall not permit, as of any
date, the amount of Principal Debt that is not either subject to a fixed
interest rate or hedged pursuant to an Interest Rate Agreement acceptable to
each Agent ("VARIABLE RATE DEBT") to exceed twenty-five percent (25%) of the
amount of Principal Debt for more than three (3) Business Days; provided that
Eurodollar Borrowings shall be deemed to be subject to a fixed rate.
8.14 SUBSIDIARY GUARANTORS. No Subsidiary Guarantor shall: (a) create,
incur, assume, guarantee, or suffer to exist any Liabilities, other than (i) the
Obligation, (ii) trade payables created in the ordinary course of business,
(iii) endorsements of negotiable instruments in the ordinary course of business,
(iv) contingent Liabilities covered by reserves or insurance, and (v) equipment
leases incurred in the ordinary course of business; or (b) create, incur, or
suffer or permit to be created or incur or exist any Lien upon any of its
assets, except Permitted Liens.
SECTION 9
FINANCIAL COVENANTS
So long as Lenders are committed to fund Borrowings or fund or issue
any LCs under this Agreement and until the Obligation is paid and performed in
full, Borrowers covenant and agree that Borrowers shall not directly or
indirectly permit:
9.1 INTEREST COVERAGE RATIOS. As of the last day of any fiscal quarter,
the ratio of (a) Adjusted EBITDA, to (b) Interest Expense, in each case for the
Companies, on a consolidated basis and for the twelve (12) month period ending
on the date of determination, to be less than 3.0 to 1.0.
9.2 FIXED CHARGE COVERAGE RATIO. As of the last day of any fiscal
quarter, the ratio of (a) EBITDA, to (b) Fixed Charges, in each case for the
Companies, on a consolidated basis and for the twelve (12) month period ending
on the date of determination, to be less than 2.25 to 1.0.
9.3 ADJUSTED FIXED CHARGE COVERAGE RATIO. As of the last day of any
fiscal quarter, the ratio of (a) EBITDA, to (b) Adjusted Fixed Charges, in each
case for the Companies, on a consolidated basis and for the twelve (12) month
period ending on the date of determination, to be less than 2.0 to 1.0.
9.4 SECURED INDEBTEDNESS. As of the last day of any fiscal quarter, the
ratio of (a) Secured Debt of the Companies, on a consolidated basis, to (b)
Total Assets, in each case as of such date, to exceed .30 to 1.0.
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9.5 TOTAL INDEBTEDNESS TO TOTAL CAPITALIZATION. As of the last day of
any fiscal quarter during the following periods, the ratio of (a) all
Indebtedness of the Companies, on a consolidated basis, to (b) the sum of (i)
all Liabilities of the Companies, on a Consolidated Basis, plus (ii) Tangible
Net Worth, plus (iii) minority interest in Consolidated Affiliates, in each case
as of such date, to exceed the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
PERIOD MAXIMUM RATIO
==============================================================================
<S> <C>
Closing Date through the 0.45 to 1.0
Change Date
- ------------------------------------------------------------------------------
Change Date and thereafter 0.40 to 1.0
- ------------------------------------------------------------------------------
</TABLE>
For purposes of this SECTION 9.5, the term "CHANGE DATE" means the earlier to
occur of (a) December 31, 1998, and (b) the date of the first (1st) Equity
Issuance subsequent to the Closing Date of voting Stock of any Company resulting
in Net Proceeds in excess of $75,000,000 (individually or collectively with
other Equity Issuances of such Company subsequent to the Closing Date).
9.6 TOTAL INDEBTEDNESS TO IMPLIED VALUE. As of the last day of any
fiscal quarter, the Total Indebtedness to Implied Value Ratio to exceed .40 to
1.0.
9.7 MINIMUM TANGIBLE NET WORTH. As of the last day of any fiscal
quarter, Tangible Net Worth to be less than the sum of (a) $300,000,000, and (b)
eighty-five percent (85%) of the amount of Net Proceeds of any Equity Issuances
subsequent to the Closing Date.
SECTION 10
DEFAULT
The term "DEFAULT" means the occurrence of any one or more of the
following events:
10.1 PAYMENT OF OBLIGATION. The failure of any Obligor to pay any
principal of or any interest on the Obligation when it becomes due and payable
under the Loan Documents, and such failure shall continue for three (3) days
after such payment became due.
10.2 COVENANTS. The failure of any Obligor to punctually and properly
perform, observe, and comply with:
(A) any covenant or agreement contained in SECTION 4; or
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(B) any covenant or agreement contained in SECTION 7.1, and such
failure shall continue for ten (10) days after Borrowers receive notice from
Administrative Agent of such failure; or
(C) any covenant or agreement contained in SECTION 9 and such failure
shall continue for ten (10) days after such failure occurred; or
(D) any other covenant or agreement contained in any Loan Document
(other than the covenants to pay the principal of and interest on the Obligation
and the covenants in (A), (B), or (C) preceding) and if such failure is
susceptible to being cured within the appropriate time, then such failure shall
continue for thirty (30) days after the earlier to occur of the date (i) any
Responsible Officer of Borrower knows of, or (ii) Borrowers receive notice from
Administrative Agent of, such failure.
10.3 DEBTOR RELIEF. Any Company (a) is not Solvent, (b) fails to pay
its Liabilities generally as they become due, (c) voluntarily seeks, consents
to, or acquiesces in the benefit of any Debtor Relief Law, or (d) becomes a
party to or is made the subject of any proceeding provided for by any Debtor
Relief Law, other than as a creditor or claimant, that could suspend or
otherwise adversely affect the Rights of any Credit Party granted in the Loan
Documents (unless, if the proceeding is involuntary, the applicable petition is
dismissed within sixty (60) days after its filing).
10.4 JUDGMENTS AND ATTACHMENTS. Any Company fails, within sixty (60)
days after entry, to pay, bond, or otherwise discharge any judgment or order for
the payment of money in excess of $5,000,000 (individually or collectively) or
any warrant of attachment, sequestration or similar proceeding against any
Company's assets having a value (individually or collectively) of $5,000,000
which is neither (a) stayed on appeal nor (b) diligently contested in good faith
by appropriate proceedings and adequate reserves have been set aside on its
books in accordance with GAAP.
10.5 GOVERNMENT ACTION.
(A) A final non-appealable order is issued by any Governmental
Authority (including the United States Justice Department) requiring any Company
to divest all or a substantial portion of its assets under any antitrust,
restraint of trade, unfair competition, industry regulation, or similar
Governmental Requirements, or
(B) any Governmental Authority seizes or otherwise appropriates, or
takes custody or control of, all or any substantial portion of the assets of any
Company, other than through condemnation proceeding.
10.6 MISREPRESENTATION. Any material representation or warranty made by
any Company contained in any Loan Document at any time proves to have been
incorrect in any material respect when made.
10.7 DEFAULT UNDER OTHER AGREEMENTS.
(A) Any Company shall fail to make any payment in respect of any
Indebtedness in excess of $10,000,000 (individual or in the aggregate) when due
or within any applicable grace period, if any; or
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(B) A default shall occur in respect of credit agreement, note,
mortgage, indenture, or other agreement or document evidencing, securing, or
otherwise relating to any Indebtedness in excess of $10,000,000 (individual or
in the aggregate) (other than a failure to make any payment when due in respect
of any such Indebtedness) and such default shall continue for more than the
period of grace, if any, specified therein or otherwise granted by the lender
thereof.
10.8 VALIDITY AND ENFORCEABILITY OF LOAN DOCUMENTS. Any Loan Document
at any time after its execution and delivery ceases to be in full force and
effect in any material respect or is declared by a Governmental Authority to be
null and void or its validity or enforceability is contested by any Company, or
any Company denies that it has any further liability or obligations under any
Loan Document to which it is a party.
10.9 MANAGEMENT CHANGES. Jeffrey Fisher shall cease to be active in the
management of the Trust.
10.10 CHANGE IN CONTROL. A Change in Control shall occur.
10.11 PLAN ASSETS. The assets of any Company at any time constitute
assets, within the meaning of ERISA, the Code, and the respective regulations
promulgated thereunder, of any Employee Plan or Multi-employer Plan.
10.12 DEFAULT UNDER OPERATING LEASES. The failure of any Company to
punctually and properly perform, observe, and comply with any covenant or
agreement contained in any Operating Lease and such default shall continue for
more than any applicable grace period, if any.
SECTION 11
RIGHTS AND REMEDIES
11.1 REMEDIES UPON DEFAULT.
(A) DEBTOR RELIEF. If a Default (i) occurs under SECTION 10.3(C) or
(ii) occurs and is continuing under SECTION 10.3(A), (B) OR (D), the commitment
to extend credit under this Agreement automatically terminates, the entire
unpaid balance of the Obligation automatically becomes due and payable without
any action of any kind whatsoever.
(B) OTHER DEFAULTS. If a Default occurs and is continuing, subject to
the terms of SECTION 13.9(B), then Administrative Agent, upon the request of the
Required Lenders, may do any one or
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more of the following: (i) if the maturity of the Obligation has not already
been accelerated under SECTION 11.1(A), then declare the entire unpaid balance
of all or any part of the Obligation immediately due and payable, whereupon it
is due and payable; (ii) terminate the commitments of Lenders to extend credit
under this Agreement; (iii) reduce any claim to judgment; and (iv) exercise any
and all other legal or equitable Rights afforded by the Loan Documents, the
Governmental Requirements of the Commonwealth of Virginia, or any other
applicable jurisdiction.
(C) COLLATERAL.
(I) If a Default occurs and is continuing at an Applicable
Time, then promptly, and in any event within twenty-one (21) days after
the request of any Agent, at the direction of any Agent or the Required
Lenders, Borrowers shall cause to be executed and delivered to such
Agent all such instruments and documents as either Agent may require in
order to grant, perfect, and protect Liens in favor of Administrative
Agent, for the benefit of the Credit Parties, in Borrowing Base
Properties having an Implied Value as of such date in an amount equal
to the product of (A) the Commitment Usage as of such date, times (B)
one hundred twenty-five percent (125%). Such documents shall include,
without limitation, a Mortgage in substantially the form of EXHIBIT H,
modified to the extent necessary to meet the substantive requirements
of the laws of the state where each Borrowing Base Property is located.
(II) Each Borrower hereby appoints a Responsible Officer of
each Agent (as designated by each such Agent from time to time) as such
Borrower's attorney-in-fact with full power in such Borrower's name and
behalf to do every act which such Borrower is obligated to do or may be
required to do under this SECTION 11.1(C); provided, however, that
nothing in this SECTION shall be construed to obligate any Credit Party
to take any action hereunder nor shall any Credit Party be liable to
any Borrower for failure to take any action hereunder. This appointment
shall be deemed a power coupled with an interest and shall not be
terminable as long as the Obligation is outstanding.
11.2 WAIVERS. To the extent permitted by applicable law, each Company
waives presentment and demand for payment, protest, notice of intention to
accelerate, notice of acceleration, and notice of protest and nonpayment, and
agrees that its liability with respect to all or any part of the Obligation is
not affected by any renewal or extension in the time of payment of all or any
part of the Obligation, by any indulgence, or by any release or change in any
security for the payment of all or any part of the Obligation.
11.3 PERFORMANCE BY ADMINISTRATIVE AGENT. If any covenant, duty, or
agreement of Borrowers are not performed in accordance with the terms of the
Loan Documents, Administrative Agent may, while a Default exists, at its option,
perform, or attempt to perform that covenant, duty, or agreement on behalf of
Borrowers (and any amount expended by Administrative Agent in its performance or
attempted performance is payable by to Administrative Agent on demand, becomes
part of the Obligation, and bears interest at the Default Rate from the date of
Administrative Agent's expenditure until paid). However, neither Administrative
Agent nor any Lender assumes or shall have, except by its express written
consent, any liability or responsibility for the performance of any covenant,
duty, or agreement of Borrowers.
11.4 NOT IN CONTROL. None of the covenants or other provisions
contained in any Loan Document shall, or shall be deemed to, give Agents or
Lenders the Right to exercise control over the assets (including real Property),
affairs, or management of any Company.
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11.5 COURSE OF DEALING. The acceptance by Agents or any Lender of any
partial payment on the Obligation shall not be deemed to be a waiver of any
Default then existing. No waiver by any Credit Party of any Default shall be
deemed to be a waiver of any other then-existing or subsequent Default. No delay
or omission by any Credit Party in exercising any Right under the Loan Documents
will impair that Right or be construed as a waiver thereof or any acquiescence
therein, nor will any single or partial exercise of any Right preclude other or
further exercise thereof or the exercise of any other Right under the Loan
Documents or otherwise.
11.6 CUMULATIVE RIGHTS. All Rights available to the Credit Parties
under the Loan Documents are cumulative of and in addition to all other Rights
granted to the Credit Parties at law or in equity, whether or not the Obligation
is due and payable and whether or not Agents or Lenders have instituted any suit
for collection, foreclosure, or other action in connection with the Loan
Documents.
11.7 APPLICATION OF PROCEEDS. Any and all proceeds ever received by any
Credit Party from the exercise of any Rights pertaining to the Obligation shall
be applied to the Obligation according to SECTION 3.11.
11.8 CERTAIN PROCEEDINGS. Borrowers shall promptly execute and deliver,
or cause the execution and delivery of, all applications, certificates,
instruments, and all other documents and papers any Agent reasonably requests in
connection with the obtaining of any consent, approval, registration,
qualification, permit, license, or authorization of any Governmental Authority
or other Person necessary or appropriate for the effective exercise of any
Rights under the Loan Documents. Because Borrowers agree that Agents' and
Lenders' remedies at law for failure of Borrowers to comply with the provisions
of this paragraph would be inadequate and that failure would not be adequately
compensable in damages, Borrowers agree that the covenants of this SECTION 11.8
may be specifically enforced.
11.9 DOCUMENTATION AGENT. If Borrower inadvertently fails to deliver to
Documentation Agent copies of any notices or documents required to be delivered
to both Agents hereunder, and such failure would be a Potential Default or
Default, then so long as Borrowers shall deliver such notices or documents to
Administrative Agent and such failure does not occur more than two (2) times in
any calendar year, then such failure shall not result in a Potential Default or
Default.
SECTION 12
AGENTS AND LENDERS
12.1 AGENTS.
(A) APPOINTMENT. Each Lender appoints Administrative Agent (including,
without limitation, each successor Agent in accordance with this SECTION 12) as
its nominee and agent to act in its name and on its behalf (and Administrative
Agent and each such successor accepts that appointment): (i) to act as its
nominee and on its behalf in and under all Loan Documents; (ii) to arrange the
means whereby its funds are to be made available to Borrowers under the Loan
Documents; (iii) to take any action that it properly requests under the Loan
Documents (subject to the concurrence of other Lenders as may be required under
the Loan Documents); (iv) to receive all documents and items to be furnished to
it under the Loan Documents; (v) to be the secured party, mortgagee,
beneficiary, recipient, and similar party in respect of any collateral, for the
benefit of Lenders; (vi) to promptly distribute to it all Financial Statements,
Borrowing
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Base Reports, notices received hereunder, and other items specifically required
to be delivered to it hereunder, and, upon request, such other material
information, requests, documents, and items received under the Loan Documents;
(vii) to promptly distribute to it its ratable part of each payment or
prepayment (whether voluntary, as proceeds of collateral upon or after
foreclosure, as proceeds of insurance thereon, or otherwise) in accordance with
the terms of the Loan Documents; and (viii) to deliver to the appropriate
Persons requests, demands, approvals, and consents received from it. However,
Administrative Agent may not be required to take any action that exposes it to
personal liability or that is contrary to any Loan Document or applicable
Governmental Requirement.
(B) SUCCESSOR. Administrative Agent may assign all of its Rights and
obligations as Administrative Agent under the Loan Documents to any of its
Affiliates, which Affiliate shall then be the successor Administrative Agent
under the Loan Documents. Administrative Agent may also voluntarily resign by
giving thirty (30) days' prior written notice to Borrowers and Lenders, and
shall resign upon the request of the Required Lenders for cause (i.e.,
Administrative Agent is continuing to fail to perform its responsibilities as
Administrative Agent under the Loan Documents). If the initial or any successor
Administrative Agent ever ceases to be a party to this Agreement or if the
initial or any successor Administrative Agent ever resigns (whether voluntarily
or at the request of the Required Lenders), then the Required Lenders shall
(which, if no Default or Potential Default exists, is subject to Borrowers'
approval that may not be unreasonably withheld) appoint the successor
Administrative Agent from among Lenders (other than the resigning Administrative
Agent). If the Required Lenders fail to appoint a successor Administrative Agent
within thirty (30) days after the resigning Administrative Agent has given
notice of resignation or the Required Lenders have removed the resigning
Administrative Agent, then the resigning Administrative Agent may, on behalf of
Lenders, appoint a successor Administrative Agent (which, if no Default or
Potential Default exists, is subject to Borrowers' approval that may not be
unreasonably withheld), which must be a commercial bank or other licensed
financial institution having a combined capital and surplus of at least
$1,000,000,000 (as shown on its most recently published statement of condition)
and whose debt obligations (or whose parent's debt obligations) are rated not
less than Baa1 by Moody's or BBB+ by S & P. Upon its acceptance of appointment
as successor Administrative Agent, the successor Administrative Agent succeeds
to and becomes vested with all of the Rights of the prior Administrative Agent,
and the prior Administrative Agent is discharged from its duties and obligations
of Administrative Agent under the Loan Documents, and each Lender shall execute
the documents that any Lender, the resigning or removed Administrative Agent, or
the successor Administrative Agent reasonably request to reflect the change.
After any Administrative Agent's resignation or removal as Administrative Agent
under the Loan Documents, the provisions of this Section inure to its benefit as
to any actions taken or not taken by it while it was Administrative Agent under
the Loan Documents. If Borrowers fail to respond to any written request for any
consent required in this SECTION 12.1(B) within five (5) Business Days after the
date that Borrowers receive such request, then Borrowers shall be deemed to have
given its consent to such request.
(C) RIGHTS AS LENDER. Each Agent, in its capacity as a Lender, has the
same Rights under the Loan Documents as any other Lender and may exercise those
Rights as if it were not acting as an Agent. The term "Lender," unless the
context otherwise indicates, includes Agents. Administrative Agent's resignation
or removal does not impair or otherwise affect any Rights that it has or may
have in its capacity as an individual Lender. Each Lender and Borrowers agree
that Agents are not a fiduciary for Lenders or for Borrowers but are simply
acting in the capacities described in this Agreement to alleviate administrative
burdens for Borrowers and Lenders, that Agents have no duties or
responsibilities to Lenders or Borrowers
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except those expressly set forth in the Loan Documents, and that each Agent in
its capacity as a Lender has the same Rights as any other Lender.
(D) OTHER ACTIVITIES. Any Credit Party may now or in the future be
engaged in one or more loan, letter of credit, leasing, or other financing
transactions with Borrowers or another Company, act as trustee or depositary for
Borrowers or another Company, or otherwise be engaged in other transactions with
Borrowers (collectively, the "OTHER ACTIVITIES") not the subject of the Loan
Documents. Without limiting the Rights of Lenders specifically set forth in the
Loan Documents, no Credit Party is responsible to account to the other Credit
Parties for those other activities, and no Credit Party shall have any interest
in any other Credit Party's activities, any present or future guaranties by or
for the account of Borrowers that are not contemplated by or included in the
Loan Documents, any present or future offset exercised by any Credit Party in
respect of those other activities, any present or future Property taken as
security for any of those other activities, or any Property now or hereafter in
any Credit Party's possession or control that may be or become security for the
obligations of Borrowers arising under the Loan Documents by reason of the
general description of indebtedness secured or of Property contained in any
other agreements, documents, or instruments related to any of those other
activities (but, if any payments in respect of those guaranties or that Property
or the proceeds thereof is applied by any Credit Party to reduce the Obligation,
then each Lender is entitled to share ratably in the application as provided in
the Loan Documents).
(E) DOCUMENTATION AGENT. Documentation Agent, solely in such capacity,
shall have no Rights, duties, or obligations hereunder, except as specifically
provided in this Agreement. Each Lender appoints Documentation Agent (including,
without limitation, each successor Documentation Agent in accordance with this
SECTION 12) to take any action that it properly requests under the Loan
Documents (subject to the concurrence of other Lenders as may be required under
the Loan Documents), and to be the secured party, mortgagee, beneficiary,
recipient, and similar party in respect of any collateral, for the benefit of
Lenders. Documentation Agent (a) may voluntarily resign by notice to
Administrative Agent, Lenders, and Borrowers, and (b) shall resign upon the
request of the Required Lenders for cause. Upon the resignation of Documentation
Agent, the Required Lenders may elect to designate a successor Documentation
Agent (which, if no Default or Potential Default exists, is subject to
Borrowers' approval that may not be unreasonably withheld), which must be a
Lender who is a commercial bank or other licensed financial institution having a
combined capital and surplus of at least $1,000,000,000 (as shown on its most
recently published statement of condition) and whose debt obligations (or whose
parent's debt obligations) are rated not less than Baa1 by Moody's or BBB+ by
S & P.
12.2 EXPENSES. Should Administrative Agent commence any proceeding or
in any way seek to enforce its Rights under the Loan Documents, irrespective of
whether as a result thereof Administrative Agent shall acquire title to any
collateral, either through foreclosure, deed in lieu of foreclosure, or
otherwise, each Lender, upon demand therefor from time to time, shall contribute
its share (based on its Pro Rata Share) of the reasonable costs and/or expenses
of any such enforcement or acquisition, including, but not limited to, fees of
receivers or trustees, court costs, title company charges, filing and recording
fees, appraisers' fees and fees and expenses of attorneys to the extent not
otherwise reimbursed by Borrowers. Without limiting the generality of the
foregoing, each Lender shall contribute its share (based on its Pro Rata Share)
of all reasonable costs and expenses incurred by Administrative Agent (including
reasonable attorneys' fees and expenses) if Administrative Agent employs counsel
for advice or other representation (whether or not any suit has been or shall be
filed) with respect to any collateral or any part thereof, or any of the Loan
Documents, or the attempt to enforce any Lien in any of the collateral, or to
enforce any Rights of Administrative Agent or any of Borrowers' or any other
Company's obligations under any of the Loan
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Documents, but not with respect to any dispute between Administrative Agent and
any other Lender(s). Any loss of principal and interest resulting from any
Default shall be shared by Lenders in accordance with their respective Pro Rata
Share. It is understood and agreed that if Administrative Agent determines that
it is necessary to engage counsel for Lenders from and after the occurrence of a
Potential Default or Default, then said counsel shall be selected by
Administrative Agent and written notice of the same shall be delivered to
Lenders.
12.3 PROPORTIONATE ABSORPTION OF LOSSES. Except as otherwise provided
in the Loan Documents, nothing in the Loan Documents gives any Lender any
advantage over any other Lender insofar as the Obligation is concerned or
relieves any Lender from ratably absorbing any losses sustained with respect to
the Obligation (except to the extent unilateral actions or inactions by any
Lender result in Borrowers or any other Company on the Obligation having any
credit, allowance, setoff, defense, or counterclaim solely with respect to all
or any part of that Lender's Pro Rata Share of the Obligation).
12.4 DELEGATION OF DUTIES; RELIANCE. Lenders may perform any of their
duties or exercise any of their Rights under the Loan Documents by or through
any Agent, and Lenders and any Agent may perform any of their duties or exercise
any of their Rights under the Loan Documents by or through their respective
Representatives. Each Agent, Lenders, and their respective Representatives (a)
are entitled to rely upon (and shall be protected in relying upon) any written
or oral statement believed by it or them to be genuine and correct and to have
been signed or made by the proper Person and, with respect to legal matters,
upon opinion of counsel selected by such Agent or that Lender (but nothing in
this CLAUSE (A) permits any Agent to rely on (i) oral statements if a writing is
required by this Agreement or (ii) any other writing if a specific writing is
required by this Agreement), (b) are entitled to deem and treat each Lender as
the owner and holder of its portion of the Obligation for all purposes until
written notice of the assignment or transfer is given to and received by
Administrative Agent (and any request, authorization, consent, or approval of
any Lender is conclusive and binding on each subsequent holder, assignee, or
transferee of or Participant in that Lender's portion of the Obligation until
that notice is given and received), (c) are not deemed to have notice of the
occurrence of a Default unless a Responsible Officer of such Agent, who handles
matters associated with the Loan Documents and transactions thereunder, has
actual knowledge or such Agent has been notified by a Lender or Borrowers, and
(d) are entitled to consult with legal counsel (including counsel for Borrower),
independent accountants, and other experts selected by such Agent and are not
liable for any action taken or not taken in good faith by it in accordance with
the advice of counsel, accountants, or experts.
12.5 LIMITATION OF AGENTS' LIABILITY.
(A) EXCULPATION. No Agent nor any of their Affiliates or
Representatives will be liable for any action taken or omitted to be taken by it
or them under the Loan Documents in good faith and believed by it or them to be
within the discretion or power conferred upon it or them by the Loan Documents
or be responsible for the consequences of any error of judgment (except for
fraud, gross negligence, or willful misconduct), and no Agent nor any of its
Affiliates or Representatives has a fiduciary relationship with any Lender by
virtue of the Loan Documents (but nothing in this Agreement negates the
obligation of Administrative Agent to account for funds received by it for the
account of any Lender).
(B) INDEMNITY. Unless indemnified to its satisfaction against loss,
cost, liability, and expense, no Agent may be compelled to do any act under the
Loan Documents or to take any action toward the execution or enforcement of the
powers thereby created or to prosecute or defend any suit in respect of the Loan
Documents. If an Agent requests instructions from Lenders, or the Required
Lenders, as the case may
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be, with respect to any act or action in connection with any Loan Document, then
such Agent is entitled to refrain (without incurring any liability to any Person
by so refraining) from that act or action unless and until it has received
instructions. In no event, however, may any Agent or any of its Representatives
be required to take any action that it or they determine could incur for it or
them criminal or onerous civil liability. Without limiting the generality of the
foregoing, no Lender has any Right of action against any Agent as a result of
such Agent's acting or refraining from acting under this Agreement in accordance
with instructions of the Required Lenders.
(C) RELIANCE. No Agent is responsible to any Lender or any Participant
for, and each Lender represents and warrants that it has not relied upon any
Agent in respect of, (i) the creditworthiness of any Company and the risks
involved to that Lender, (ii) the effectiveness, enforceability, genuineness,
validity, or the due execution of any Loan Document (except by such Agent),
(iii) any representation, warranty, document, certificate, report, or statement
made therein (except by such Agent) or furnished thereunder or in connection
therewith, (iv) the adequacy of any collateral now or hereafter securing the
Obligation or the existence, priority, or perfection of any Lien now or
hereafter granted or purported to be granted on any collateral under any Loan
Document, or (v) observation of or compliance with any of the terms, covenants,
or conditions of any Loan Document on the part of any Company. EACH LENDER
AGREES TO INDEMNIFY EACH AGENT AND ITS REPRESENTATIVES AND HOLD THEM HARMLESS
FROM AND AGAINST (BUT LIMITED TO SUCH LENDER'S PRO RATA SHARE OF) ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, REASONABLE EXPENSES, AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER THAT MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THEM IN ANY
WAY RELATING TO OR ARISING OUT OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED BY THEM UNDER THE LOAN DOCUMENTS IF SUCH AGENT AND ITS REPRESENTATIVES
ARE NOT REIMBURSED FOR SUCH AMOUNTS BY ANY COMPANY. ALTHOUGH EACH AGENT AND ITS
REPRESENTATIVES HAVE THE RIGHT TO BE INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR
THEIR OWN ORDINARY NEGLIGENCE, EACH AGENT AND ITS REPRESENTATIVES DO NOT HAVE
THE RIGHT TO BE INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN FRAUD,
GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT.
12.6 DEFAULT. While a Default exists, Lenders agree to promptly confer
in order that the Required Lenders or Lenders, as the case may be, may agree
upon a course of action for the enforcement of the Rights of Lenders. Each Agent
is entitled to act or refrain from taking any action (without incurring any
liability to any Person for so acting or refraining) unless and until it has
received instructions from the Required Lenders. In actions with respect to any
Company's Property, each Agent is acting for the ratable benefit of each Lender.
12.7 LIMITATION OF LIABILITY. No Lender or any Participant will incur
any liability to any other Lender or Participant except for acts or omissions in
bad faith, and neither Administrative Agent nor any Lender or Participant will
incur any liability to any other Person for any act or omission of any other
Lender or any Participant.
12.8 RELATIONSHIP OF LENDERS. The Loan Documents do not create a
partnership or joint venture among the Credit Parties.
12.9 BENEFITS OF AGREEMENT. None of the provisions of this SECTION
inure to the benefit of any Company or any other Person except the Credit
Parties. Therefore, no Company nor any other Person is
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responsible or liable for, entitled to rely upon, or entitled to raise as a
defense -- in any manner whatsoever -- the failure of any Credit Party to comply
with these provisions.
12.10 APPROVAL OF LENDERS.
(A) All communications from Administrative Agent to Lenders requesting
Lenders' determination, consent, approval, or disapproval (i) shall be given in
the form of a written notice to each Lender, (ii) shall be accompanied by a
description of the matter or thing as to which such determination, approval,
consent, or disapproval is requested, or shall advise each Lender where such
matter or thing may be inspected, or shall otherwise describe the matter or
issue to be resolved, (iii) shall include, if reasonably requested by a Lender
and to the extent not previously provided to such Lender, written materials and
a summary of all oral information provided to Administrative Agent by Borrowers
in respect of the matter or issue to be resolved, and (iv) shall include
Administrative Agent's recommended course of action or determination in respect
thereof. Each Lender shall reply promptly, but in any event (x) within thirty
(30) days (or such lesser period as may be required under the Loan Documents for
Administrative Agent to respond) for those matters requiring the consent by all
Lenders, and (y) within fifteen (15) Business Days (or such lesser period as may
be required under the Loan Documents for Administrative Agent to respond) for
those matters requiring the consent by the Majority Lenders or the Required
Lenders, in each instance, after receipt of the request therefore by
Administrative Agent (in either event, the "LENDER REPLY PERIOD").
(B) If the Lender Reply Period is conspicuously set forth in a written
notice from Administrative Agent to a Lender, then unless such Lender shall give
written notice to Administrative Agent that it objects to the recommendation or
determination of Administrative Agent within the Lender Reply Period, such
Lender shall be deemed to have approved of or consented to such recommendation
or determination if such written notice from Administrative Agent shall
conspicuously state that such approval or consent shall be deemed given unless a
response is received within the Lender Reply Period.
SECTION 13
MISCELLANEOUS
13.1 HEADINGS. The headings, captions and arrangements used in any of
the Loan Documents are, unless specified otherwise, for convenience only and
shall not be deemed to limit, amplify, or modify the terms of the Loan
Documents, nor affect the meaning thereof.
13.2 NONBUSINESS DAYS; TIME. Any payment or action that is due under
any Loan Document on a non-Business Day may be delayed until the next-succeeding
Business Day (but interest shall continue to accrue on any applicable payment
until payment is in fact made) unless the payment concerns a Eurodollar
Borrowing, in which case if the next-succeeding Business Day is in the next
calendar month, then such payment shall be made on the next-preceding Business
Day.
13.3 COMMUNICATIONS. Unless otherwise specifically provided, whenever
any Loan Document requires or permits any consent, approval, notice, request,
demand, or other communication from one party to another, communication must be
in writing (which may be by telex or telecopy) to be effective and shall be
deemed to have been given (a) if by telex, when transmitted to the appropriate
telex number and the appropriate answerback is received, (b) if by telecopy,
when transmitted to the appropriate telecopy number (and all communications sent
by telecopy must be confirmed promptly thereafter by telephone; but any
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requirement in this parenthetical shall not affect the date when the telecopy
shall be deemed to have been delivered), (c) if by mail, on the fifth (5th)
Business Day after it is enclosed in an envelope and properly addressed,
stamped, sealed, certified mail, return receipt requested, and deposited in the
appropriate official postal service, or (d) if by any other means, when actually
delivered. Until changed by notice pursuant to this Agreement, the address (and
telecopy number) for each party to a Loan Document is set forth on SCHEDULE 1.
13.4 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of
counterparts of each writing to be furnished under this Agreement must be
satisfactory to Agents and their counsel.
13.5 SURVIVAL. All covenants, agreements, undertakings,
representations, and warranties made in any of the Loan Documents survive all
closings under the Loan Documents and, except as otherwise indicated, are not
affected by any investigation made by any party.
13.6 GOVERNING LAW. Except as expressly provided in a Loan Document,
the Governmental Requirements (other than conflict-of-laws provisions) of the
Commonwealth of Virginia and of the United States of America govern the Rights
and duties of the parties to the Loan Documents and the validity, construction,
enforcement, and interpretation of the Loan Documents.
13.7 INVALID PROVISIONS. Any provision in any Loan Document held to be
illegal, invalid, or unenforceable is fully severable; the appropriate Loan
Document shall be construed and enforced as if that provision had never been
included; and the remaining provisions shall remain in full force and effect and
shall not be affected by the severed provision. Agents, Lenders, and Borrowers
agree to negotiate, in good faith, the terms of a replacement provision as
similar to the severed provision as may be possible and be legal, valid and
enforceable. However, if the provision held to be illegal, invalid, or
unenforceable is a material part of this Agreement, such invalid, illegal, or
unenforceable provision shall be, to the extent permitted by applicable law,
replaced by a clause or provision judicially construed and interpreted to be as
similar in substance and content to the original terms of such illegal, invalid,
or unenforceable clause or provision as the context thereof would reasonably
allow, so that such clause or provision would thereafter be legal, valid, and
enforceable.
13.8 VENUE; SERVICE OF PROCESS; JURY TRIAL. EACH PARTY TO ANY LOAN
DOCUMENT, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS (AND IN THE CASE
OF BORROWERS, FOR EACH OF ITS CONSOLIDATED AFFILIATES), (a) IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE
COMMONWEALTH OF VIRGINIA, (b) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THE LOAN
DOCUMENTS AND THE OBLIGATION BROUGHT IN DISTRICT COURTS OF FAIRFAX COUNTY,
VIRGINIA, OR IN THE UNITED STATES DISTRICT COURT IN FAIRFAX COUNTY, VIRGINIA,
(c) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY OF THE
AFOREMENTIONED COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (d) IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THOSE COURTS IN ANY LITIGATION
BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
POSTAGE PREPAID, BY HAND-DELIVERY, OR BY DELIVERY BY A NATIONALLY RECOGNIZED
COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL
PROCESS AT ITS ADDRESS SET FORTH IN THIS
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AGREEMENT, (e) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY TO
ANY LOAN DOCUMENT ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE
OBLIGATION MAY BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (f)
IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
LOAN DOCUMENT. The scope of each of the foregoing waivers is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including contract claims,
tort claims, breach of duty claims, and all other common law and statutory
claims. Each Borrower (for itself and on behalf of each of its Consolidated
Affiliates) acknowledges that these waivers are a material inducement to each
Credit Party's agreement to enter into a business relationship, that each Credit
Party has already relied on these waivers in entering into this Agreement, and
that each Credit Party will continue to rely on each of these waivers in related
future dealings. Each Borrower (for itself and on behalf of each of its
Consolidated Affiliates) further warrants and represents that it has reviewed
these waivers with its legal counsel, and that it knowingly and voluntarily
agrees to each waiver following consultation with legal counsel. THE WAIVERS IN
THIS SECTION 13.8 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, SUPPLEMENTS, OR REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN
DOCUMENT. In the event of Litigation, this Agreement may be filed as a written
consent to a trial by the court.
13.9 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS.
(A) REQUIRED LENDERS. Unless otherwise specifically provided, the
provisions of this Agreement may be amended, modified, or waived, only by an
instrument in writing executed by Borrowers and the Required Lenders and
supplemented only by documents delivered or to be delivered in accordance with
the express terms of this Agreement.
(B) ALL LENDERS. Except as specifically otherwise provided in this
SECTION 13.9, any amendment to or consent or waiver under this Agreement or any
Loan Document that purports to accomplish any of the following must be by an
instrument in writing executed by Borrowers and executed (or approved, as the
case may be) by each Lender (other than any Defaulting Lender): (i) extends the
Maturity Date or the Termination Date; (ii) extends the due date or decreases
the amount of any scheduled payment or amortization of the Obligation or any
fees or other amounts payable hereunder beyond the date specified in the Loan
Documents; (iii) decreases any rate or amount of interest, fees, principal, or
other sums payable to the Credit Parties under this Agreement (except such
reductions as are contemplated by this Agreement); (iv) changes the definition
of "Adjusted NOI," "Approved Costs," "Capitalization Rate," "Change in Control,"
"Commitment," "Eligible Assignee," "Implied Value," "Pro Rata," "Pro Rata
Share," "Required Lenders," "Qualified Property," "Total Commitment," or "Total
Indebtedness to Implied Value Ratio;" or (v) increases any one or more Lenders'
Commitment; (vi) waives compliance with, amends, or fully or partially releases
(or waives the requirement of) any guaranty, if any, or any collateral, if any;
(vii) permits any Borrower to assign any of its Rights hereunder; (viii) amends
SECTION 4; (ix) change the percentage of the Commitments or of the unpaid
principal amount of the Notes, or the number of Lenders, which shall be required
for Lenders or any of them to take any action under this SECTION or any other
provision of this Agreement; or (x) changes this SECTION 13.9(B) or any other
matter specifically requiring the consent of all Lenders under this Agreement.
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(C) AGENTS OR ISSUING BANK. Any amendment or supplement to, or waiver
or consent under, any Loan Document that purports to accomplish any of the
following must be by a writing executed by Borrowers and executed (or approved
in writing, as the case may be) by the affected Agent or Issuing Bank, as the
case may be (in addition to the Required Lenders or all Lenders, as the case may
be, as required by this SECTION 13.9): (i) extends the due date for, decreases
the amount or rate of calculation of, or waives the late or non-payment of, any
fees payable to such Agent or Issuing Bank under any Loan Document, except, in
each case, any adjustments or reductions that are contemplated by any Loan
Document; (ii) increases such Agent's or Issuing Bank's, as the case may be,
obligations beyond its commitments under any Loan Document; or (iii) changes
this CLAUSE (C) or any other matter specifically requiring the consent of such
Agent or Issuing Bank, as the case may be, under any Loan Document.
(D) LCS. Any LC may be renewed, extended, amended, replaced, or
canceled consistent with the terms of this Agreement by a writing executed by
Issuing Bank and Borrowers if such writing is first approved in writing by
Administrative Agent.
(E) CONFLICTS. Any conflict or ambiguity between the terms and
provisions of this Agreement and terms and provisions in any other Loan Document
is controlled by the terms and provisions of this Agreement.
(F) COURSE OF DEALING. No course of dealing or any failure or delay by
any Credit Party or any of its Representatives with respect to exercising any
Right of any Credit Party under this Agreement operates as a waiver thereof. A
waiver must be in writing and signed by the Required Lenders or Lenders, as
appropriate, to be effective, and a waiver will be effective only in the
specific instance and for the specific purpose for which it is given.
13.10 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in a
number of identical counterparts, each of which shall be deemed an original for
all purposes and all of which constitute, collectively, one agreement; but, in
making proof of thereof, it shall not be necessary to produce or account for
more than one counterpart. Each Lender need not execute the same counterpart of
this Agreement so long as identical counterparts are executed by each Borrower
and each Credit Party. This Agreement shall become effective when counterparts
of this Agreement have been executed and delivered to Administrative Agent by
each Credit Party and each Borrower, or, in the case only of Lenders, when
Administrative Agent has received telecopied, telexed, or other evidence
satisfactory to it that each Lender has executed and is delivering to
Administrative Agent a counterpart of this Agreement.
13.11 ASSIGNMENTS AND PARTICIPATIONS.
(A) ASSIGNMENTS. Each Lender may assign to one or more Eligible
Assignees all or a portion of its Rights and obligations under this Agreement
(including, without limitation, all or a portion of its Borrowings, its Note,
and its Commitment); provided, however, that:
(I) each such assignment shall be to an Eligible Assignee;
(II) except in the case of an assignment to an Affiliate of
such Lender to another Lender or an assignment of all of a Lender's
Rights and obligations under this Agreement, any such partial
assignment shall be in an amount at least equal to $10,000,000 or a
greater integral multiple of $1,000,000;
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(III) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its Rights and obligations under
this Agreement and the Note; and
(IV) the parties to such assignment shall execute and deliver
to Administrative Agent for its acceptance an Assignment and Acceptance
(herein so called) in the form of EXHIBIT G, together with any Note
subject to such assignment and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, Rights, and benefits of a Lender hereunder and
the assigning Lender shall, to the extent of such assignment, relinquish its
Rights and be released from its obligations under this Agreement. Upon the
consummation of any assignment pursuant to this SECTION, the assignor,
Administrative Agent, and Borrowers shall make appropriate arrangements so that,
if required, new Notes are issued to the assignor and the assignee. If the
assignee is not incorporated under the laws of the United States of America or a
state thereof, it shall deliver to Borrowers and Administrative Agent
certification as to exemption from deduction or withholding of Taxes in
accordance with SECTION 3.19.
(B) REGISTER. Administrative Agent shall maintain at its address
referred to in SECTION 13.3, a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the names and
addresses of Lenders and the Commitment of, and principal amount of the
Borrowings owing to, each Lender from time to time (the "REGISTER"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and Borrowers and the Credit Parties may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by Borrowers or any
Credit Party at any reasonable time and from time to time upon reasonable prior
notice.
(C) ACCEPTANCE OF ASSIGNMENT. Upon its receipt of an Assignment and
Acceptance executed by the parties thereto, together with any Note subject to
such assignment and payment of the processing fee, Administrative Agent shall,
if such Assignment and Acceptance has been completed and is in substantially the
form of EXHIBIT G, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register, and (iii) give prompt notice
thereof to the parties thereto.
(D) PARTICIPATIONS. Each Lender may sell participations to one or more
Persons in all or a portion of its Rights and obligations under this Agreement
(including all or a portion of its Commitment and its Borrowings); provided,
however, that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the participant shall be
entitled to the benefit of the yield protection provisions contained in SECTION
3.14 and the Right of setoff contained in SECTION 3.12, and (iv) Borrowers shall
continue to deal solely and directly with such Lender in connection with such
Lender's Rights and obligations under this Agreement, and such Lender shall
retain the sole Right to enforce the obligations of Borrowers relating to its
Borrowings and its Note and to approve any amendment, modification, or waiver of
any provision of this Agreement (other than amendments, modifications, or
waivers decreasing the amount of principal of or the rate at which interest is
payable on such Borrowings or Note, waiving or decreasing any fees payable to
such Lender, extending any scheduled principal payment date or date fixed for
the payment of interest on such Borrowings or Note, or extending its
Commitment).
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(E) COLLATERAL ASSIGNMENTS. Notwithstanding any other provision set
forth in this Agreement, any Lender may at any time assign and pledge all or any
portion of its Borrowings and its Note to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any Operating Circular issued by such
Federal Reserve Bank. No such assignment shall release the assigning Lender from
its obligations hereunder.
(F) INFORMATION. Any Lender may furnish any information concerning the
Companies in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants).
(G) RIGHT OF FIRST REFUSAL. Documentation Agent agrees that if
Documentation Agent desires to assign all or a portion of its Rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Borrowings, its Note, and its Commitment), then prior to agreeing
to any such assignment, Documentation Agent shall give Administrative Agent
prior written notice thereof (including the terms and conditions for such
proposed assignment). Administrative Agent shall have the right to purchase any
such Rights and obligations from Documentation Agent on the same terms and
conditions by notifying Documentation Agent within ten (10) Business Days of
receipt of such notice. The assignment to Administrative Agent hereunder shall
be effected in accordance with the terms of this SECTION 13.11 (except that such
assignment shall not be subject to the processing fee described in (A)(IV)
above).
(H) ASSIGNMENT APPROVALS. Each Agent agrees that if the other Agent
requires the approval or consent to an assignment by such other Agent under this
SECTION 13.11, then such Agent's consent shall not be unreasonably withheld by
such Agent.
(I) AGENTS. Notwithstanding anything contained herein to the contrary,
each Agent shall, at all times prior to its resignation or replacement as an
Agent hereunder, retain a minimum Commitment of $20,000,000, or if the Total
Commitments have been terminated, then Notes having outstanding Principal Debt
of at least $20,000,000.
13.12 DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. Borrower's obligations under the Loan Documents remain in full
force and effect until the Total Commitment is terminated and the Obligation is
paid in full (except for provisions under the Loan Documents which by their
terms expressly survive payment of the Obligation and termination of the Loan
Documents). If at any time any payment of the principal of or interest on any
Note or any other amount payable by Borrowers or any other obligor on the
Obligation under any Loan Document is rescinded or must be restored or returned
upon the insolvency, bankruptcy, or reorganization of any Borrower or otherwise,
then the obligations of Borrowers under the Loan Documents with respect to that
payment shall be reinstated as though the payment had been due but not made at
that time.
13.13 ENTIRETY. THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
(EACH AS AMENDED IN WRITING FROM TIME TO TIME) EXECUTED BY BORROWERS AND/OR ANY
CREDIT PARTY REPRESENT THE FINAL AGREEMENT AMONG BORROWERS AND THE CREDIT
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
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13.14 AMENDMENT AND RESTATEMENT. The parties hereto agree that, on the
Closing Date, after all conditions precedent set forth herein have been
satisfied or waived:
(A) the Obligation represents, among other things, the amendment,
extension, consolidation, and modification of the Obligations outstanding under
the Existing Agreement;
(B) this Agreement is intended to, and does hereby, restate, renew,
extend, amend, modify, supersede, and replace the Existing Agreement; and
(C) the Notes executed pursuant to this Agreement amend, renew, extend,
modify, replace, substitute, and supersede in their entirety (but do not
extinguish the Indebtedness arising under) the promissory notes issued pursuant
to the Existing Agreement.
[Remainder of Page Intentionally Left Blank;
Signature Page Follows.]
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SIGNATURE PAGE TO CREDIT AGREEMENT BETWEEN
INNKEEPERS USA TRUST, INNKEEPERS USA LIMITED PARTNERSHIP,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
NOMURA ASSET CAPITAL CORPORATION, AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
EXECUTED as of the day and year first mentioned.
INNKEEPERS USA TRUST, a Maryland real
estate investment trust, as a Borrower
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
INNKEEPERS USA LIMITED PARTNERSHIP, a
Virginia limited partnership, as a Borrower
By: INNKEEPERS FINANCIAL CORPORATION, a
Virginia corporation, General Partner
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.
This instrument was acknowledged before me on this ____ day of
February, 1998, by _______________, _______________ of INNKEEPERS USA TRUST, a
Maryland real estate investment trust, on behalf thereof.
-----------------------------------------
Notary Public Signature
<PAGE> 74
(PERSONALIZED SEAL)
STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.
This instrument was acknowledged before me on this ____ day of
February, 1998, by _______________, _______________ of INNKEEPERS FINANCIAL
CORPORATION, a Virginia corporation, as General Partner of INNKEEPERS USA
LIMITED PARTNERSHIP, a Virginia limited partnership, on behalf of said
partnership.
---------------------------------
Notary Public Signature
(PERSONALIZED SEAL)
<PAGE> 75
SIGNATURE PAGE TO CREDIT AGREEMENT BETWEEN
INNKEEPERS USA TRUST, INNKEEPERS USA LIMITED PARTNERSHIP,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
NOMURA ASSET CAPITAL CORPORATION, AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
NATIONSBANK, N.A.,
as Administrative Agent and a Lender
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
STATE OF ss.
ss.
COUNTY OF ss.
This instrument was acknowledged before me on this ____ day of
_________, 1998, by _______________, _______________ of NATIONSBANK, N.A., on
behalf thereof.
------------------------------------
Notary Public Signature
(PERSONALIZED SEAL)
<PAGE> 76
SIGNATURE PAGE TO CREDIT AGREEMENT BETWEEN
INNKEEPERS USA TRUST, INNKEEPERS USA LIMITED PARTNERSHIP,
NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT,
NOMURA ASSET CAPITAL CORPORATION, AS DOCUMENTATION AGENT,
AND THE LENDERS DEFINED THEREIN
NOMURA ASSET CAPITAL CORPORATION,
as Documentation Agent and a Lender
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
STATE OF ss.
ss.
COUNTY OF ss.
This instrument was acknowledged before me on this ____ day of
_________, 1998, by _______________, _______________ of NOMURA ASSET CAPITAL
CORPORATION, on behalf thereof.
---------------------------------------
Notary Public Signature
(PERSONALIZED SEAL)
<PAGE> 1
Exhibit 13.1
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Period from
September 30,
1994
(Inception)
Years ended December 31, through
(unaudited) -------------------------------------------------- December 31,
(in thousands, except per share data) 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Total revenue $ 66,813 $ 28,377 $ 11,465 $ 1,519
Income before minority interest 29,213 9,749 3,864 420
Minority interest, common (1,879) (531) (397) (52)
Minority interest, preferred (4,551) (729) -- --
Net income $ 22,783 $ 8,489 $ 3,467 $ 368
Basic earnings per share (1) $ 0.85 $ 0.66 $ 0.57 $ 0.08
Diluted earnings per share (1) $ 0.85 $ 0.66 $ 0.57 $ 0.08
OTHER DATA:
Funds from operations ("FFO") (2) $ 47,518 $ 17,170 $ 7,015 $ 900
FFO per share (1) (2) $ 1.43 $ 1.20 $ 1.03 $ 0.17
Cash provided by operating activities 49,203 17,194 4,925 670
Cash used by investing activities (246,744) (114,114) (90,929) (172)
Cash provided (used) by financing activities 161,430 135,166 86,642 (1,764)
At December 31,
---------------------------------------------------------------
1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Investment in hotels, at cost $ 601,508 $ 326,620 $146,524 $55,089
Total assets 592,607 360,357 143,339 50,247
Long-term debt 160,455 100,740 45,636 3,772
Minority interest in Partnership 74,552 45,880 6,124 5,462
Shareholder's equity 342,638 207,605 88,246 38,895
</TABLE>
(1) The per share amounts prior to 1997 have been restated as required to comply
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." See notes to the consolidated financial statements.
(2) See "Funds From Operations" in management's discussion and analysis of
financial condition and results of operations.
Information for five hotels (which are considered to be the predecessor of the
Company) is presented below.
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
September 30, December 31,
1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING DATA:
Total revenue $8,741 $10,653
Hotel operating expenses 5,048 6,458
Depreciation and amortization 814 1,337
Interest expense 1,435 2,204
Other corporate expenses 948 1,177
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 496 $ (523)
===================================================================================================================================
</TABLE>
Innkeepers USA Trust 9
<PAGE> 2
QUARTERLY RESULTS OF OPERATIONS AND OTHER DATA
<TABLE>
<CAPTION>
(unaudited) First Second Third Fourth
(in thousands, except per share data) Quarter Quarter Quarter Quarter Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
OPERATING DATA:
Total revenue $12,725 $15,144 $20,831 $18,113 $66,813
Income before minority interest 5,581 6,902 9,248 7,482 29,213
Net income $ 4,230 $ 5,439 $ 7,353 $ 5,761 $22,783
Basic earnings per share (1) $ 0.19 $ 0.24 $ 0.25 $ 0.18 $ 0.85
Diluted earnings per share (1) $ 0.19 $ 0.24 $ 0.25 $ 0.17 $ 0.85
OTHER DATA:
FFO (2) 8,798 10,684 14,856 13,180 47,518
FFO per share (1) (2) (3) $ 0.32 $ 0.38 $ 0.41 $ 0.33 $ 1.43
- ---------------------------------------------------------------------------------------------------------------
1996
OPERATING DATA:
Total revenue $ 5,790 $ 6,507 $ 6,999 $ 9,081 $28,377
Income before minority interest 2,262 2,214 2,350 2,923 9,749
Net income $ 2,115 $ 2,070 $ 2,197 $ 2,107 $ 8,489
Basic earnings per share (1) $ 0.20 $ 0.19 $ 0.20 $ 0.11 $ 0.66
Diluted earnings per share (1) $ 0.20 $ 0.19 $ 0.20 $ 0.11 $ 0.66
OTHER DATA:
FFO (2) 3,717 3,773 4,080 5,600 17,170
FFO per share (1) (2) (3) $ 0.32 $ 0.33 $ 0.35 $ 0.25 $ 1.20
- ---------------------------------------------------------------------------------------------------------------
1995
OPERATING DATA:
Total revenue $ 2,312 $ 2,289 $ 2,418 $ 4,446 $11,465
Income before minority interest 1,159 700 668 1,337 3,864
Net income $ 1,016 $ 614 $ 586 $ 1,251 $ 3,467
Basic earnings per share (1) $ 0.22 $ 0.13 $ 0.12 $ 0.12 $ 0.57
Diluted earnings per share (1) $ 0.22 $ 0.13 $ 0.12 $ 0.12 $ 0.57
OTHER DATA:
FFO (2) 1,679 1,309 1,340 2,687 7,015
FFO per share (1) (2) $ 0.31 $ 0.24 $ 0.25 $ 0.24 $ 1.03
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The per share amounts prior to 1997 have been restated as required to comply
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." See notes to the consolidated financial statements.
(2) See "Funds From Operations" in management's discussion and analysis of
financial condition and results of operations.
(3) Due to the common share issuances in 1996 and 1997, the sum of the quarters
do not equal the weighted average for the year.
10 Innkeepers USA Trust
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes thereto.
GENERAL
Note 1 of the Consolidated Financial Statements of Innkeepers USA Trust
included herein contains essential information relating to the Company and the
definitions of certain capitalized terms used herein. For additional information
relating to the JF Lessee, reference is made to the Combined Financial
Statements of the JF Lessee included in the Company's Annual Report on Form
10-K.
The Company acquired the following hotel properties during the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Number of Date Purchase
Hotel Suites/Rooms Acquired Price
- ----- -----------------------------------------------
<S> <C> <C> <C>
Residence Inn-Eden Prairie, MN 126 1/4/97 $11,250,000
Residence Inn-Addison, TX 150 2/1/97 14,500,000
Residence Inn-Arlington, TX 114 2/1/97 10,500,000
Summerfield Suites-Belmont, CA 132 6/20/97 (a)
Summerfield Suites-El Segundo, CA 122 6/20/97 (a)
Summerfield Suites-West Hollywood, CA 109 6/20/97 (a)
Summerfield Suites-Mount Laurel, NJ 116 6/20/97 (a)
Summerfield Suites-Addison, TX 132 6/20/97 (a)
Summerfield Suites-Irving (Las Colinas), TX 148 6/20/97 (a)
Sunrise Suites-Eatontown (Tinton Falls), NJ 96 6/20/97 (a)
Sierra Suites-Phoenix (Camelback), AZ 113 6/20/97 (a)
Sierra Suites-Atlanta (Cumberland), GA 89 6/20/97 (a)
Hampton Inn-Schaumburg (Chicago), IL 128 6/26/97 (b)
Hampton Inn-Westchester (Chicago), IL 112 6/26/97 (b)
Hampton Inn-Lombard (Chicago), IL 128 6/26/97 (b)
Residence Inn-Shelton, CT 96 10/31/97 11,150,000
Residence Inn-Ontario, CA 200 12/30/97 (c)
Residence Inn-Altamonte Springs, FL 128 12/30/97 (c)
Residence Inn-Fort Wayne, IN 80 12/30/97 (c)
Residence Inn-Indianapolis, IN 88 12/30/97 (c)
Residence Inn-Lexington, KY 80 12/30/97 (c)
Residence Inn-Louisville, KY 96 12/30/97 (c)
Residence Inn-Columbus, OH 80 12/30/97 (c)
Residence Inn-Winston-Salem, NC 88 12/30/97 (c)
</TABLE>
(a) Aggregate purchase price of $118,547,000
(b) Aggregate purchase price of $19,100,000
(c) Aggregate purchase price of $59,500,000
THE HOTELS
The following chart summarizes information regarding the Hotels at December
31, 1997.
<TABLE>
<CAPTION>
Number of Number of
Hotel Rooms/
Franchise Affiliation Properties Suites
- --------------------------------------------------------------
<S> <C> <C>
Upscale, extended-stay hotels:
Residence Inn 32 3,649
Summerfield Suites 6 759*
Sunrise Suites 1 96
- --------------------------------------------------------------
39 4,504
Mid-priced extended-stay hotels:
Sierra Suites 2 202
- --------------------------------------------------------------
Limited service hotels:
Hampton Inn 12 1,527
Comfort Inn 1 127
Holiday Inn Express 1 204
- --------------------------------------------------------------
14 1,858
Full service hotels:
Sheraton Inn 1 139
- --------------------------------------------------------------
Total 56 6,703
==============================================================
* contains a total of 1,057 bedrooms
</TABLE>
Average daily rate ("ADR"), occupancy and revenue per available room
("RevPAR") for 46 of the Hotels are presented in the following table. Results
were excluded for such comparison for two newly developed hotels and the eight
Residence Inn hotels that were purchased on December 30, 1997. Management
believes that growth in RevPAR at the Hotels reflects the results of the
Company's focused acquisition strategy, the continued implementation of
professional management techniques by the Lessee and third party management and
improving industry conditions. No assurance can be given that the trends
reflected in the following table will continue or that occupancy, ADR and RevPAR
will not decrease due to changes in national or local economic, hospitality or
other industry conditions.
Innkeepers USA Trust 11
<PAGE> 4
<TABLE>
<CAPTION>
Year ended
December 31, Percentage
---------------- increase
1997 1996 (decrease)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
The Hotels (1):
Occupancy 79.60% 79.90% (0.4)%
Average Daily Rate $ 93.74 $83.87 11.8
RevPAR $ 74.60 $66.97 11.4
Upscale, Extended-Stay
Hotels (2):
Occupancy 85.10% 84.50% 0.7%
Average Daily Rate $104.02 $93.14 11.7
RevPAR $ 88.47 $78.70 12.4
Limited Service Hotels (3):
Occupancy 69.70% 71.40% (2.4)%
Average Daily Rate $ 70.98 $63.92 11.1
RevPAR $ 49.47 $45.64 8.4
</TABLE>
(1) Excludes two newly developed hotels and eight Residence Inn hotels purchased
on December 30, 1997
(2) 31 hotels, excludes eight Residence Inn hotels purchased on December 30,
1997
(3) 15 hotels
RESULTS OF OPERATIONS
The following paragraphs discuss the results of operations for the Company.
Comparison of the Year Ended December 31, 1997 ("1997") to the Year Ended
December 31, 1996 ("1996")
The Company had revenues for 1997 of $66,813,000, consisting of $65,433,000 of
Percentage Lease revenue from the Lessee and $1,380,000 of other revenue,
compared with $28,377,000, $27,466,000 and $911,000, respectively, for 1996. The
increase in Percentage Lease revenue is due, primarily, to the strong RevPAR
growth at the Company's Hotels and the number of hotels owned increasing from 18
at January 1, 1996, to 32 at December 31, 1996 and to 56 at December 31, 1997.
Depreciation, amortization of franchise costs, amortization of loan
origination fees, and amortization of unearned compensation ("Depreciation and
Amortization") were $19,951,000 in the aggregate for 1997 compared with
$8,424,000 for 1996. The increase in Depreciation and Amortization was primarily
due to the increase in the number of hotels owned as discussed previously. Also
contributing to the increase in Depreciation and Amortization was the
depreciation of renovations completed at the Hotels, amortization of loan
origination costs and fees for the Line of Credit, the Interim Loan and the
Second Term Loan and amortization of the restricted share awards in 1997.
Real estate and personal property taxes and property insurance were $5,645,000
for 1997 compared with $2,803,000 for 1996. This increase was primarily due to
the increase in the number of hotels owned as discussed previously and the
reassessment of the taxable value of certain Hotels for real estate tax
assessment purposes.
Interest expense for 1997 was $9,255,000 compared with $5,839,000 for 1996.
Interest expense for 1997 consisted primarily of interest incurred on borrowings
outstanding under the Company's Line of Credit, the First Term Loan, the Second
Term Loan and borrowings under various mortgage notes. Interest expense for 1996
consisted primarily of interest incurred on borrowings outstanding under the
Line of Credit, the First Term Loan and borrowings under a mortgage note.
General and administrative expenses for 1997 was $2,347,000 compared with
$1,186,000 for 1996. This increase is due primarily to increases in certain
expenses as a result of the increase in the number of hotels owned, the addition
of new employees and increases in the salaries of existing employees.
Net income for 1997 was $22,783,000, or $0.85 per share, compared with
$8,489,000, or $0.66 per share, for 1996.
Comparison of the Year Ended December 31, 1996 ("1996") to the Year Ended
December 31, 1995 ("1995")
The Company had revenues for 1996 of $28,377,000, consisting of $27,466,000 of
Percentage Lease revenue from the Lessee and $911,000 of other revenue, compared
with $11,465,000, $11,268,000, and $197,000, respectively, for 1995.
Depreciation and Amortization were $8,424,000 in the aggregate for 1996 compared
with $3,661,000 for 1995. Real estate and personal property taxes and property
insurance were $2,803,000 for 1996 compared with $1,105,000 for 1995. Interest
expense for 1996 was $5,839,000 compared with $1,989,000 for 1995. Interest
expense for 1996 consisted primarily of interest incurred on borrowings
outstanding under the Line of Credit, the First Term Loan and a mortgage note.
Interest expense for 1995 consisted primarily of interest incurred on borrowings
outstanding under the Line of Credit and a mortgage note. Net income was
$8,489,000, or $0.66 per share, for 1996 compared with $3,467,000, or $0.57 per
share, for 1995.
Percentage Lease revenue, Depreciation and Amortization, interest expense and
real estate and personal property taxes and property insurance increased
substantially for 1996 compared with 1995, primarily due to the number of hotels
owned increasing from seven at January 1, 1995 to 18 at January 1, 1996 and to
32 at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is rent payments from the Lessee
under the Percentage Leases, and the Company is dependent on the Lessee to make
such payments to provide cash for debt service, distributions, capital
expenditures on the Hotels, and working capital. The Company believes that its
cash provided by operating activities will be adequate to meet some of its
liquidity needs, which primarily include distributions, debt service and
operating expenses. The Company currently expects to fund its growth objectives
primarily by accessing the capital markets, borrowing on its Line of Credit or
other facilities, and exchanging equity for hotel properties.
12 Innkeepers USA Trust
<PAGE> 5
Cash and cash equivalents at December 31, 1997, were $10,976,000, including
approximately $1,925,000 which the Company is required, under the Percentage
Leases, to make available to the Lessee for the replacement and refurbishment of
furniture and equipment. Additionally, restricted cash and cash equivalents
includes approximately $4,823,000 that is held in escrow to pay for insurance,
real estate taxes, and certain capital expenditures for certain Hotels.
Net cash provided by operating activities for the year ended December 31, 1997
was $49,203,000.
Net cash used in investing activities was $246,744,000 for the year ended
December 31, 1997. This was comprised primarily of the Company (a) acquiring a
Residence Inn hotel in Eden Prairie, Minnesota for approximately $10,630,000,
(b) acquiring a Residence Inn hotel in Arlington, Texas for $10,500,000, (c)
acquiring a Residence Inn hotel in Addison, Texas for approximately $10,194,000,
(d) acquiring three Hampton Inn hotels in Schaumburg, Westchester and Lombard,
Illinois for approximately $19,100,000, (e) acquiring six Summerfield Suites
hotels located in Belmont, California, El Segundo, California, West Hollywood,
California, Mount Laurel, New Jersey, Addison, Texas, Irving (Las Colinas),
Texas, two Sierra Suites hotels located in Phoenix (Camelback), Arizona and
Atlanta (Cumberland), Georgia, and one Sunrise Suite hotel located in Eatontown
(Tinton Falls), New Jersey for approximately $89,478,000, (f) acquiring a
Residence Inn hotel in Shelton, Connecticut for approximately $11,150,000 and
(g) acquiring eight Residence Inn hotels located in Ontario, California,
Altamonte Springs, Florida, Fort Wayne, Indiana, Indianapolis, Indiana,
Lexington, Kentucky, Louisville, Kentucky, Columbus, Ohio and Winston-Salem,
North Carolina for approximately $59,500,000. The purchase prices of certain
hotels also included the issuance of Common Units in addition to the cash
portion described above.
Net cash provided by financing activities was $161,430,000 for the year ended
December 31, 1997 consisting primarily of net proceeds from the issuance of
10,285,421 Common Shares for $135,305,000, borrowings under the Line of Credit
of $60,300,000 and distributions paid of $29,860,000.
In March of 1997, the Company declared an increase in its quarterly
distribution to $0.25 per Common Share from $0.225 per Common Share and, in
September 1997, declared another increase in the quarterly distribution to $0.26
per Common Share. Quarterly preferred distributions of $0.285 are payable on
each Preferred Unit, which may increase up to $0.28875 for each Preferred Unit,
based on increases in distributions payable on the Common Shares. On or after
November 1, 1998, the holders of the Preferred Units may redeem their Units for
cash or, at the election of Innkeepers, Common Shares on a one-for-one basis.
Under federal income tax law provisions applicable to REITs, the Company is
required to distribute at least 95% of its taxable income to maintain its REIT
status.
The Company's consolidated indebtedness was 26.7% of its investment in hotels,
at cost, at December 31, 1997. At December 31, 1997, the Company had outstanding
indebtedness of approximately $160,455,000, of which approximately 56% bore
interest at a fixed rate. In making future investments in hotel properties, the
Company may incur additional indebtedness. The Company may also incur
indebtedness to meet distribution requirements imposed on a REIT under the
Internal Revenue Code to the extent that working capital and cash flow from the
Company's investments are insufficient to make such distributions. The Company's
Declaration of Trust limits aggregate indebtedness to 50% of the Company's
investment in hotel properties, at cost, after giving effect to the Company's
use of proceeds from any indebtedness.
The Company's Line of Credit bears interest based on the 30-day LIBOR rate and
increases or decreases in the LIBOR rate will increase or decrease the Company's
cost of borrowings outstanding under the Line of Credit. Based on the borrowings
outstanding under the Line of Credit at December 31, 1997, a one percent
increase in the LIBOR rate would increase annual interest charges $603,000.
The Company, in the future, may seek to increase the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt
instruments, all in compliance with the Debt Limitation. Any debt incurred or
issued by the Company may be secured or unsecured, short-term or long-term,
fixed or variable interest rate and may be subject to such other terms as
management or the Board of Trustees of the Company deems prudent.
The Company has a shelf registration statement for $250,000,000 of common
stock, preferred stock or warrants to purchase stock of the Company. The shelf
registration statement was declared effective by the Securities and Exchange
Commission on April 11, 1997. The terms and conditions of the securities issued
thereunder are determined by the Company based on market conditions at the time
of issuance. In July and August of 1997, the Company issued 10,284,000 Common
Shares raising gross proceeds of $143,976,000, leaving $106,024,000 available
under the shelf registration statement.
The Percentage Leases require the Company to make available to the Lessee an
amount equal to 4.0% of room revenues from the Hotels, on a monthly basis, for
the periodic replacement or refurbishment of furniture and equipment at the
Hotels. The Second Term Loan requires that the Company make available for such
purposes, at the eight Hotels collateralizing that loan, an additional 1.0% (for
a total of 5%) of room revenues from such Hotels. The Company intends to cause
the expenditure of amounts in excess of such obligated amounts if necessary to
comply with the reasonable requirements of any franchise agreement and otherwise
to the extent that the Company deems such expenditures to be in the best
interest of the Company.
Management believes that the amounts required to be made available by the
Company will be sufficient to meet required expenditures for furniture and
equipment at the Hotels. The Company currently intends to pay for the cost of
capital improvements and any additional furniture and equipment requirements
from undistributed cash or, to the extent that undistributed cash is
insufficient to pay such costs, the Line of Credit.
Innkeepers USA Trust 13
<PAGE> 6
SEASONALITY OF HOTEL BUSINESS
The hotel industry is seasonal in nature. Historically, the Hotels' operations
have generally reflected higher occupancy rates and ADR during the second and
third quarters. To the extent that cash flow from the Percentage Leases for a
quarter is insufficient to fund all of the distributions for such quarter due to
seasonal and other factors, the Company may maintain the annual distribution
rate by funding quarterly distributions with available cash or borrowings under
the Line of Credit.
INFLATION
Operators of hotels, including the Lessee and any third-party managers
retained by the Lessee, in general possess the ability to adjust room rates
quickly. However, competitive pressures have limited and may in the future limit
the ability of the Lessee and any third-party manager retained by the Lessee to
raise room rates in response to inflation.
IMPACT OF YEAR 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer program that
has date sensitive software may recognize a date using "00" as the year 1900
rather than as the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has recently assessed its internal computer systems and believes
that the current systems used will properly utilize dates beyond December 31,
1999. The Company has been informed that companies that manage the Hotels are in
the process of studying the year 2000 issue, including inquiries of their
vendors. Upon completion of the management companies' studies, which is expected
in late 1998, the Company will determine the extent to which it is vulnerable to
the third parties' failure to remediate their own year 2000 issues and the costs
associated with resolving this issue.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
containing the words "believes," "anticipates," "expects" and words of similar
import. Such forward-looking statements relate to future events and the future
financial performance of the Company, and involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from the results or
achievements expressed or implied by such forward-looking statements. The
Company is not obligated to update any such factors or to reflect the impact of
actual future events or developments on such forward-looking statements.
FUNDS FROM OPERATIONS
The Company considers Funds From Operations ("FFO") a widely used and
appropriate measure of performance for an equity REIT. FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), is income
(loss) before minority interest (determined in accordance with generally
accepted accounting principles), excluding gains (losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. FFO is presented to assist investors in analyzing the performance of
the Company. The Company's method of calculating FFO may be different from
methods used by other REITs and, accordingly, may not be comparable to such
other REITs. FFO (i) does not represent cash flows from operating activities as
defined by generally accepted accounting principles, (ii) is not indicative of
cash available to fund all cash flow and liquidity needs, including its ability
to make distributions, and (iii) should not be considered as an alternative to
net income (as determined in accordance with generally accepted accounting
principles) for purposes of evaluating the Company's operating performance.
The following presents the Company's calculation of FFO and FFO per share (in
thousands, except share and per share data):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 22,783 $ 8,489 $ 3,467
Minority interest,
common 1,879 531 397
Minority interest,
preferred 4,551 729 --
Depreciation 18,305 7,421 3,151
- -------------------------------------------------------------------------
FFO $ 47,518 $ 17,170 $ 7,015
=========================================================================
Denominator for diluted
earnings per share 26,933,351 12,931,327 6,135,957
Weighted average
Common Units 2,207,155 766,945 680,392
Weighted average
Preferred Units 4,063,329 666,119 --
- -------------------------------------------------------------------------
Denominator for
FFO per share 33,203,835 14,364,391 6,816,349
=========================================================================
FFO per share $ 1.43 $ 1.20 $ 1.03
=========================================================================
</TABLE>
14 Innkeepers USA Trust
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in hotel properties:
Land $ 71,508 $ 42,565
Buildings and improvements 449,813 246,274
Furniture and equipment 63,439 32,644
Renovations in process 14,837 5,137
Hotels under development 1,911 --
- --------------------------------------------------------------------------------
601,508 326,620
Accumulated depreciation (35,865) (17,560)
- --------------------------------------------------------------------------------
Net investment in hotel properties 565,643 309,060
Cash and cash equivalents 4,228 40,339
Restricted cash and cash equivalents 6,748 4,400
Due from Lessee 4,417 3,541
Deferred expenses, net 5,235 2,718
Deposits under purchase agreements 5,050 --
Other assets 1,286 299
- --------------------------------------------------------------------------------
Total assets $ 592,607 $ 360,357
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 160,455 $ 100,740
Accounts payable and other accrued expenses 4,461 915
Distributions payable 10,501 5,217
Minority interest in Partnership 74,552 45,880
- --------------------------------------------------------------------------------
Total liabilities 249,969 152,752
- --------------------------------------------------------------------------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred shares, $0.01 par value, 20,000,000
shares authorized, no shares issued or outstanding
Common shares, $0.01 par value, 100,000,000
shares authorized, 32,848,608 and 22,322,498
shares issued and outstanding at
December 31, 1997 and 1996, respectively 328 223
Additional paid-in capital 355,828 213,692
Unearned compensation (1,812) (138)
Distributions in excess of net earnings (11,706) (6,172)
- --------------------------------------------------------------------------------
Total shareholders' equity 342,638 207,605
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 592,607 $ 360,357
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Innkeepers USA Trust 15
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1997, 1996 and 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Percentage Lease revenue $ 65,433 $ 27,466 $ 11,268
Other revenue 1,380 911 197
- ---------------------------------------------------------------------------------------------------
Total revenue 66,813 28,377 11,465
- ---------------------------------------------------------------------------------------------------
Expenses:
Depreciation 18,305 7,421 3,151
Amortization of franchise costs 37 89 31
Ground rent 402 376 336
Interest expense 9,255 5,839 1,989
Amortization of loan origination fees 1,185 867 439
Real estate and personal property taxes and property insurance 5,645 2,803 1,105
General and administrative 2,347 1,186 510
Amortization of unearned compensation 424 47 40
- ---------------------------------------------------------------------------------------------------
Total expenses 37,600 18,628 7,601
- ---------------------------------------------------------------------------------------------------
Income before minority interest 29,213 9,749 3,864
Minority interest, common (1,879) (531) (397)
Minority interest, preferred (4,551) (729) --
- ---------------------------------------------------------------------------------------------------
Net income $ 22,783 $ 8,489 $ 3,467
===================================================================================================
Basic earnings per share $ 0.85 $ 0.66 $ 0.57
===================================================================================================
Diluted earnings per share $ 0.85 $ 0.66 $ 0.57
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16 Innkeepers USA Trust
<PAGE> 9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1997, 1996, and 1995
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Shares
------------- Additional Distributions Total
Par Paid-In Unearned in Excess of Shareholders'
Shares Value Capital Compensation Net Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 4,717,883 $ 47 $ 39,620 $ (225) $ (547) $ 38,895
Amortization of
unearned compensation -- -- -- 40 -- 40
Distributions declared -- -- -- -- (5,256) (5,256)
Common share offering, net 6,100,000 61 51,039 -- -- 51,100
Net income -- -- -- -- 3,467 3,467
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 10,817,883 108 90,659 (185) (2,336) 88,246
==================================================================================================================================
Amortization of
unearned compensation -- -- -- 47 -- 47
Distributions declared -- -- -- -- (12,325) (12,325)
Common share offering, net 11,500,000 115 116,905 -- -- 117,020
Dividend reinvestment and
share purchase plan, net 804 -- (38) -- -- (38)
Conversion of common units 3,811 -- 38 -- -- 38
Allocation from minority interest -- -- 6,128 -- -- 6,128
Net income -- -- -- -- 8,489 8,489
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 22,322,498 223 213,692 (138) (6,172) 207,605
==================================================================================================================================
Issuance of restricted shares 150,964 1 2,097 (2,098) -- --
Amortization of
unearned compensation -- -- -- 424 -- 424
Distributions declared -- -- -- -- (28,317) (28,317)
Common share offering, net 10,284,000 103 135,183 -- -- 135,286
Dividend reinvestment and
share purchase plan, net 1,421 -- 19 -- -- 19
Shelf registration statement costs -- -- (88) -- -- (88)
Conversion of common units 89,725 1 1,190 -- -- 1,191
Allocation from minority interest -- -- 3,735 -- -- 3,735
Net income -- -- -- -- 22,783 22,783
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 32,848,608 $ 328 $ 355,828 $ (1,812) $ (11,706) $ 342,638
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Innkeepers USA Trust 17
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
(in thousands, except supplemental non-cash financing activities)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 22,783 $ 8,489 $ 3,467
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19,951 8,424 3,661
Minority interest 6,430 1,260 397
Changes in operating assets and liabilities:
Due from Lessee (876) (1,493) (1,955)
Deferred expenses, net -- (182) 49
Other assets (632) 212 (75)
Accounts payable and other accrued expenses 1,547 484 (619)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 49,203 17,194 4,925
- ---------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in hotel properties (239,180) (109,104) (90,485)
Net deposits into restricted cash accounts (2,348) (4,400) --
Payments for franchise fees (166) (610) (344)
Deposits under purchase agreements (5,050) -- (100)
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (246,744) (114,114) (90,929)
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 221,628 46,307 53,842
Payments on long-term debt (161,913) (16,139) (11,978)
Dividend reinvestment plan and
shelf registration costs paid (88) (38) --
Distributions paid to unit holders (5,062) (1,395) (539)
Distributions paid to common shareholders (24,798) (9,630) (3,858)
Proceeds from issuance of common shares, net 135,305 116,641 51,490
Loan origination fees and costs paid (3,642) (580) (2,315)
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 161,430 135,166 86,642
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (36,111) 38,246 638
Cash and cash equivalents at beginning of year 40,339 2,093 1,455
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,228 $ 40,339 $ 2,093
===================================================================================================
Supplemental cash flow information:
Interest paid $ 9,256 $ 5,704 $ 1,884
===================================================================================================
</TABLE>
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
The Company issued 91,991 Common Units, with a value at the time of issuance
of $850,000, for the acquisition of a hotel property during the year ended
December 31, 1995.
The Company issued 119,473 of Common Units, with a value at the time of
issuance of $1,359,000, and 4,063,329 of Preferred Units, with a value at the
time of issuance of $44,697,000, for the acquisition of eight hotel properties
during the year ended December 31, 1996.
The Company assumed $24,936,000 of long-term indebtedness in connection with
the acquisition of three hotel properties during the year ended December 31,
1996.
The Company issued 2,307,763 Common Units, with a value at the time of
issuance of $33,995,000, for the acquisition of 11 hotel properties during the
year ended December 31, 1997.
The accompanying notes are an integral part of these consolidated financial
statements.
18 Innkeepers USA Trust
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION
Innkeepers USA Trust ("Innkeepers") is a self-administered real estate
investment trust ("REIT"), which commenced operations on September 30, 1994.
Innkeepers initially acquired an 87.7% equity interest in Innkeepers USA Limited
Partnership (with its subsidiary partnerships, the "Partnership" and
collectively with Innkeepers, the "Company") which owned seven hotels with an
aggregate of 851 rooms. At December 31, 1997, Innkeepers owned interests in 56
hotels with an aggregate of 6,703 rooms (the "Hotels") through its 82.1%
interest in the Partnership. The Hotels are comprised of 32 Residence Inn by
Marriott hotels, 12 Hampton Inn hotels, 6 Summerfield Suites hotels, 2 Sierra
Suites hotels, 1 Comfort Inn hotel, 1 Sheraton Inn hotel, 1 Holiday Inn Express
hotel and 1 Sunrise Suites hotel. The Hotels are located in 22 states, with ten
hotels located in California.
The Company leases 47 of the Hotels to JF Hotel, Inc. (or other entities under
common ownership, collectively the "JF Lessee") and nine of the Hotels to
affiliates of Summerfield Hotel Corporation (the "Summerfield Lessee" and
collectively with the JF Lessee, the "Lessee") pursuant to leases which provide
for rent based on the room revenues of the Hotels ("Percentage Leases"). Two
officers of the Company are the shareholders of the JF Lessee. A trustee of the
Company is a principal owner of the Summerfield Lessee.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Innkeepers and
the Partnership after elimination of all significant intercompany accounts and
transactions.
INVESTMENT IN HOTEL PROPERTIES
Hotel properties are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (5 years for
furniture and equipment and 40 years for buildings and improvements). The
Company periodically evaluates the carrying value of hotel properties to measure
and recognize the possible impairment of these assets. The Company believes that
no such impairment existed at December 31, 1997.
Costs directly related to the acquisition and development of hotels are
capitalized. Real estate taxes, insurance and interest incurred during the
development period are also capitalized.
Routine repairs and maintenance at the Hotels are the responsibility of the
Lessee and are charged to expense as incurred; major renewals and betterments
are capitalized. Upon sale or disposition, the asset and related accumulated
depreciation are removed from the accounts, and the gain or loss is included in
operations.
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. Cash equivalents are
placed with reputable institutions and the balances may at times exceed federal
depository insurance limits.
Restricted cash and cash equivalents include amounts the Company must make
available to the Lessee for the replacement and refurbishment of furniture and
equipment and amounts held in escrow by certain lenders for the payment of
insurance, real estate taxes and certain capital expenditures.
DEFERRED EXPENSES
Deferred expenses are recorded at cost and consist primarily of loan
origination fees and costs and franchise fees. Amortization of franchise fees is
computed using the straight-line method over the original lives of the franchise
agreements which range from approximately 3 to 13 years. Loan origination fees
and costs are amortized using the interest method over the original terms of the
related indebtedness, which is 3 to 12 years.
DEPOSITS UNDER PURCHASE AGREEMENTS
Deposits under purchase agreements represent payments made by the Company to
the sellers of certain hotels under purchase and sale agreements. Generally,
these amounts are held in escrow until the closing of the purchase of the hotel
properties.
MINORITY INTEREST
Minority interest represents the limited partners' proportionate share in the
equity of the Partnership. Income is allocated to the preferred unit holders
based on their priority in net income of the Partnership; then, income is
allocated to the common unit holders based on their weighted average percentage
ownership in the Partnership.
REVENUE RECOGNITION
Percentage Lease revenue is recognized as earned from the Lessee under each
Percentage Lease agreement. The Company must rely on the Lessee to generate
sufficient cash flow from the operation of the Hotels to enable the Lessee to
meet the rent obligations under the Percentage Leases. The obligations of the
Lessee under the Percentage Leases are unsecured. The Lessee has only nominal
assets, other than working capital, and has met all rent obligations under the
Percentage Leases.
Innkeepers USA Trust 19
<PAGE> 12
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements.
DISTRIBUTIONS
The Company intends to pay regular quarterly distributions which, at a
minimum, will be sufficient for the Company to maintain its REIT status.
INCOME TAXES
The Company has elected to be taxed as a real estate investment trust under
the Internal Revenue Code. Accordingly, no provision for federal income taxes
has been reflected in the financial statements. Earnings and profits, which
determine the taxability of distributions to shareholders, will differ from net
income reported for financial reporting purposes primarily due to the
differences in the estimated useful lives and methods used to compute
depreciation for federal tax purposes.
The following table sets forth certain per share information regarding its
distributions for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Total distribution $1.02 $0.90 $0.84
Ordinary income $0.88 $0.71 $0.69
Return of capital $0.14 $0.19 $0.15
</TABLE>
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value due
to the short maturity of these instruments.
The fair value of long-term debt approximates the carrying amount and is
estimated based on current rates offered to the Company for similar debt.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. The reclassifications
had no effect on reported net income or total assets, liabilities or
shareholder's equity.
2. ACQUISITIONS
The Company acquired the following hotel properties during the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Number of Date Purchase
Hotel Suites/Rooms Acquired Price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Residence Inn-Eden Prairie, MN 126 1/4/97 $11,250,000
Residence Inn-Addison, TX 150 2/1/97 14,500,000
Residence Inn-Arlington, TX 114 2/1/97 10,500,000
Summerfield Suites-Belmont, CA 132 6/20/97 (a)
Summerfield Suites-El Segundo, CA 122 6/20/97 (a)
Summerfield Suites-West Hollywood, CA 109 6/20/97 (a)
Summerfield Suites-Mount Laurel, NJ 116 6/20/97 (a)
Summerfield Suites-Addison, TX 132 6/20/97 (a)
Summerfield Suites-Irving (Las Colinas), TX 148 6/20/97 (a)
Sunrise Suites-Eatontown (Tinton Falls), NJ 96 6/20/97 (a)
Sierra Suites-Phoenix (Camelback), AZ 113 6/20/97 (a)
Sierra Suites-Atlanta (Cumberland), GA 89 6/20/97 (a)
Hampton Inn-Schaumburg (Chicago), IL 128 6/26/97 (b)
Hampton Inn-Westchester (Chicago), IL 112 6/26/97 (b)
Hampton Inn-Lombard (Chicago), IL 128 6/26/97 (b)
Residence Inn-Shelton, CT 96 10/31/97 11,150,000
Residence Inn-Ontario, CA 200 12/30/97 (c)
Residence Inn-Altamonte Springs, FL 128 12/30/97 (c)
Residence Inn-Fort Wayne, IN 80 12/30/97 (c)
Residence Inn-Indianapolis, IN 88 12/30/97 (c)
Residence Inn-Lexington, KY 80 12/30/97 (c)
Residence Inn-Louisville, KY 96 12/30/97 (c)
Residence Inn-Columbus, OH 80 12/30/97 (c)
Residence Inn-Winston-Salem, NC 88 12/30/97 (c)
</TABLE>
(a) Aggregate purchase price of $118,547,000
(b) Aggregate purchase price of $19,100,000
(c) Aggregate purchase price of $59,500,000
These acquisitions have been accounted for under the purchase method of
accounting. The results of operations have been included in the accompanying
financial statements since the date of acquisition.
3. LONG-TERM DEBT
Long-term debt at December 31, 1997 consists of (a) mortgage notes
collateralized by the Hampton Inn hotel located in West Palm Beach, Florida (the
"Florida Mortgage Note"), a Residence Inn hotel located in Sunnyvale, California
(the "California Mortgage Note") and two Residence Inn hotels located in East
Lansing and Grand Rapids, Michigan (the "Michigan Mortgage Note"), (b)
outstanding borrowings under the Company's $190 million line of credit (the
"Line of Credit"), and (c) outstanding borrowings under two term loans (the
"First Term Loan" and "Second Term Loan").
The Florida Mortgage Note is payable in equal monthly installments of $23,526,
including interest at a fixed rate of 5.0% per annum through January 2002, at
which time all outstanding principal and interest is due. The outstanding
principal balance on the Florida Mortgage Note was approximately $3.5 million
and $3.6 million at December 31, 1997 and 1996, respectively.
The California Mortgage Note is payable in equal monthly installments of
$141,331, including interest at a fixed rate of 10.35% per annum through June
2010, at which time all outstanding principal and interest is due. The
outstanding principal balance on the California Mortgage Note was approximately
$14.8 million and $14.9 million at December 31, 1997 and 1996, respectively.
20 Innkeepers USA Trust
<PAGE> 13
The Michigan Mortgage Note is payable in monthly interest only payments, at a
variable interest rate (3.8% and 3.9% at December 31, 1997 and 1996,
respectively), which is based upon the 30-day yield of a group of tax exempt
securities selected by an independent party, through December 2014, at which
time all outstanding principal and interest is due. The Michigan Mortgage Note
is also collateralized by irrevocable letters of credit. The outstanding
principal balance on the Michigan Mortgage Note was $10.0 million at December
31, 1997 and 1996.
Outstanding borrowings under the Line of Credit bear interest at the 30-day
LIBOR rate plus 175 basis points for collateralized borrowings and at the 30-day
LIBOR rate plus 195 basis points for uncollateralized borrowings. The Line of
Credit has $40.0 million available on an uncollateralized basis. The interest
rate on borrowings under the Line of Credit at December 31, 1997 and 1996 was
7.34% and 7.1%, respectively. The Line of Credit expires in May 2000. The
Company has the option to extend the term of the Line of Credit for an
additional one year period upon the satisfaction of certain conditions and the
payment of an extension fee. The outstanding principal balance on the Line of
Credit was approximately $60.3 million and $42.2 million at December 31, 1997
and 1996, respectively.
The First Term Loan, in the principal amount of $30.0 million, bears interest
at an 8.17% fixed annual rate. The First Term Loan has scheduled principal
amortization over a twenty-year term, with equal monthly payments of $256,250
commencing on November 11, 1997. Interest on the outstanding principal balance
of the First Term Loan will accrue at 13.17% if the outstanding principal
balance is not paid in full by October 11, 2007. The Company anticipates
repaying the remaining principal balance of the First Term Loan on or before
October 11, 2007. The outstanding principal balance on the First Term Loan was
$29.9 million and $30.0 million at December 31, 1997 and 1996, respectively.
In March 1997, $42.0 million of the outstanding principal balance on the Line
of Credit was refinanced with the Second Term Loan, which bears interest at an
8.15% fixed annual rate. The Second Term Loan has scheduled principal
amortization over a twenty-year term, with equal monthly payments of $355,236
commencing on April 11, 1999. Interest on the outstanding principal balance of
the Second Term Loan will accrue at 13.15% if the outstanding principal balance
is not paid in full by March 11, 2009. The Company anticipates repaying the
remaining principal balance of the Second Term Loan on or before March 11, 2009.
The outstanding principal balance on the Second Term Loan was $42.0 million at
December 31, 1997.
In June 1997, the Company borrowed approximately $89,380,000 on an interim
loan (the "Interim Loan") to partially finance the purchase of nine existing
Hotels from affiliates of Summerfield Hotel Corporation. The Interim Loan bore
interest at the 30-day LIBOR rate plus 171 basis points (which was 7.4%). The
Interim Loan was repaid in July 1997 from the proceeds of the common share
offering completed on July 29, 1997.
At December 31, 1997, 40 of the Company's hotel properties collateralized the
long-term debt described previously. Under the loan agreements relating to that
long-term debt, the Company is required to satisfy various affirmative and
negative covenants. The Company was in compliance with these covenants at
December 31, 1997 and 1996.
Aggregate annual principal payments for the Company's long-term debt at
December 31, 1997 are due as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 942
1999 1,596
2000 62,330
2001 2,203
2002 5,255
Thereafter 88,129
- ---------------------------------------------------------------
$160,455
===============================================================
</TABLE>
4. SHARE OPTION AND RESTRICTED COMMON SHARE PLAN
In May 1997, the Company's shareholders approved an amended share incentive
plan (the "Amended 1994 Plan") which covers employees and officers of the
Company. The Amended 1994 Plan increased from 800,000 to 2,700,000 the number of
Common Shares reserved for issuance (a) upon the exercise of incentive share
options and non-qualified options or (b) as restricted shares and performance
shares. Options granted under the Amended 1994 Plan expire not more than ten
years from the date of grant. The Company may grant up to 900,000 restricted
shares and performance shares under the Amended 1994 Plan.
The exercise price of common share options may not be less than fair market
value of the common shares at the date of grant. The table below delineates
information concerning outstanding common share options granted under the
Amended 1994 Plan.
<TABLE>
<CAPTION>
Granted Common Shares Option Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
1994 250,000 $10.00
1995 20,000 8.875
1996 156,000 9.75
1997 1,192,500 13.25
1997 100,000 14.0625
</TABLE>
Of the 1,718,500 common share options granted, 242,310 are incentive share
options and 1,476,190 are non-qualified options. As of December 31, 1997,
727,250 common share options were vested and no common share options have been
exercised. The incentive share options and non-qualified options vest over
varying periods, not exceeding ten and five years, respectively.
The Company granted 116,250 restricted shares which vest equally over a
seven-year period commencing February 1997. Common share dividends are payable
on the restricted shares. The Company has also issued 116,250 performance
shares, of which 29,063 shares were earned in January 1998 based on the
achievement of a shareholder total return target for 1997. Additional
performance shares will be earned in January 1999 if a total shareholder return
target is met for 1998. Performance shares that were eligible to be earned, but
that were not earned in January 1998, may be earned in January 1999 if a total
shareholder return target is met for the two-year period 1997/1998. Restricted
shares will be issued
Innkeepers USA Trust 21
<PAGE> 14
equal to the number of performance shares earned, and will vest equally over six
years commencing January 1998 for the shares earned in 1998 and five years
commencing January 1999 for the shares earned in 1999.
In August 1997, the Company granted an additional 2,500 restricted shares and
2,500 performance shares with vesting and other provisions similar to the
previously described grants. In January 1998, 625 performance shares were
earned.
In May 1997, the Company's shareholders approved an amended non-employee
trustees share incentive plan which provides for the granting of incentive share
options and restricted shares. The amended trustees plan provides for awards
beyond the year 2000 and increased awards to its non-employee trustees. Options
granted under the amended trustees plan expire not more than ten years from the
date of grant.
The Company has granted an aggregate of 26,000 non-qualified options to
non-employee trustees. The table below delineates information concerning
outstanding common share options granted under its amended trustees plan.
<TABLE>
<CAPTION>
Granted Common Shares Option Price Per Share
- --------------------------------------------------------------------------------
<C> <C> <C>
1994 15,000 $10.00
1996 3,000 11.75
1997 8,000 13.25 - 16.69
</TABLE>
The non-qualified options vest over varying periods not to exceed five years.
As of December 31, 1997, 14,000 common share options were vested and no common
share options have been exercised.
The Company has also granted 56,214 restricted shares to its non-employee
trustees, which vest over varying periods not to exceed five years. Common share
dividends are payable on the restricted shares.
The following unaudited pro forma net income and net income per share of the
Company are presented as if compensation cost for the Company's share option
grants were recorded in the statements of income. The pro forma net income and
net income per share are not necessarily indicative of the operating results of
the Company, nor do they purport to represent the results of operations of
future periods.
The fair value of each share option granted in 1997 is estimated on the date
of grant using the Black-Scholes Option-Pricing Model with the following
assumptions: (1) dividend of 7.0% on the common shares, (2) expected volatility
of approximately 25% in the Company's common share price, (3) a risk-free
interest rate of 5.9% to 6.4%, and (4) an expected option life of the vesting
period plus three years. Compensation cost, on a pro forma basis, was
$1,416,000, $60,000 and $6,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------
AS PRO As Pro As Pro
REPORTED FORMA Reported Forma Reported Forma
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $22,783 $21,458 $8,489 $8,432 $3,467 $3,462
Diluted
earnings
per share $ 0.85 $ 0.80 $ 0.66 $ 0.65 $ 0.57 $ 0.56
</TABLE>
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share for the years ended December 31, 1997, 1996 and 1995 (in thousands,
except share and per share data):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income Numerator
for basic and diluted
earnings per share $ 22,783 $ 8,489 $ 3,467
Denominator:
Denominator for basic
earnings per share
weighted-average shares 26,653,835 12,891,993 6,135,643
Effect of dilutive securities:
Stock options 260,318 37,696 176
Restricted shares 19,198 1,638 138
- -------------------------------------------------------------------------
Denominator for diluted
earnings per share --
adjusted weighted-
average shares and
assumed conversions 26,933,351 12,931,327 6,135,957
=========================================================================
Basic earnings per share $ 0.85 $ 0.66 $ 0.57
=========================================================================
Diluted earnings per share $ 0.85 $ 0.66 $ 0.57
=========================================================================
</TABLE>
6. COMMITMENTS, CONTINGENCIES AND
RELATED PARTY TRANSACTIONS
Pursuant to the partnership agreement, limited partners who hold common units
of limited partnership interest in the Partnership ("Common Units") have
redemption rights ("Redemption Rights") which enable them to redeem their Common
Units for cash or, at Innkeeper's option, common shares on a one-for-one basis.
The Redemption Rights become effective as follows:
<TABLE>
<CAPTION>
Number of Common Units Effective Date
----------------------------------------------
<S> <C>
654,906 September 30, 1995
280,091 July 31, 1997
91,991 October 7, 1997
119,474 November 1, 1997
1,572,861 June 20, 1998
365,086 June 20, 1999
----------------------------------------------
3,084,409
==============================================
</TABLE>
Additionally, limited partners who hold preferred units of limited partnership
interest in the Partnership ("Preferred Units" and collectively with the Common
Units, "Units") at December 31, 1997 have Redemption Rights which enable them to
redeem their Preferred Units for cash or, at Innkeeper's option, common shares
on a one-for-one basis at any time after November 1, 1998. The aggregate number
of Preferred Units outstanding was 4,063,329 at December 31, 1997 and 1996.
Minimum annual preferred distributions of $1.10 are payable on each Preferred
Unit, which may increase up to $1.155 for each Preferred Unit, based on
increases in dividends payable on the common shares. At December 31, 1997, the
quarterly preferred distribution rate is $0.285 for
22 Innkeepers USA Trust
<PAGE> 15
each Preferred Unit ($1.14 on an annualized basis). The Preferred Units have a
preference value of $11.00 per unit, may be converted into Common Units at any
time on a one-for-one basis and will be converted into Common Units on November
1, 2006 unless previously converted or redeemed.
The Hotels are operated under franchise or management agreements as Residence
Inn by Marriott, Summerfield Suites, Sierra Suites, Sunrise Suites, Hampton Inn,
Sheraton Inn, Holiday Inn Express or Comfort Inn hotels. The Company has paid
the cost of obtaining or transferring certain franchise license agreements to
the JF Lessee. For hotels which do not require a franchise transfer fee, the
Company has advanced to the JF Lessee the working capital deposit required under
the JF Lessee's management agreements with Residence Inn by Marriott. The
franchise and management agreements require the payment of fees based on a
percentage of hotel revenue. These fees are paid by the Lessee, which holds the
franchise licenses. The Company has guaranteed the JF Lessee's payments under
the franchise licenses, generally, in exchange for certain rights to substitute
replacement lessees as the franchisees if the Company terminates the related
Percentage Lease.
The Company has a Sierra Suites hotel in Westborough, Massachusetts under
development. The Company has committed to fund the development costs of this
hotel which are approximately $7,900,000.
Under the Percentage Leases, the Company generally is obligated to pay the
costs of certain capital improvements, real estate and personal property taxes
and property insurance. Additionally, the Company must make available to the
Lessee an amount equal to 4.0% of room revenues from the Hotels, on a monthly
basis, for the periodic replacement or refurbishment of furniture and equipment
at the Hotels. The Second Term Loan requires that the Company make available for
such purposes, at the eight Hotels collateralizing that loan, an additional 1.0%
(for a total of 5%) of room revenues from such Hotels.
The Lessee has future minimum base rent commitments under the Percentage Lease
agreements to the Company. Minimum future base rent revenue, under the
Percentage Lease agreements, are as follows through the year 2012 (in
thousands):
<TABLE>
<CAPTION>
Year Amount
- ---------------------------------------------------------------
<S> <C>
1998 $ 47,581
1999 42,583
2000 42,583
2001 42,583
2002 42,583
Thereafter 261,279
- ---------------------------------------------------------------
$479,192
===============================================================
</TABLE>
The Company's Declaration of Trust limits the consolidated indebtedness of the
Company to 50.0% of the Company's investment in hotels, at cost, after giving
effect to the Company's use of proceeds from any indebtedness. The Company's
consolidated indebtedness was approximately $160,455,000, or 26.7% of its
investment in hotels, at cost, at December 31, 1997.
The Company has two fifty-year term ground leases expiring July 2034 and May
2035, respectively, and a 98-year term ground lease expiring October 2083, on
the land underlying three of its hotel properties. Minimum annual rent payable
under these leases is approximately $455,000 in the aggregate.
The Company has paid $100,000, $100,000 and $40,000 to the Lessee for usage of
office facilities for the years ended December 31, 1997, 1996 and 1995,
respectively. This amount has been recorded in general and administrative
expense in the statements of income.
7. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma statements of income of the Company are presented as
if the acquisition of the Hotels and the hotels acquired in January 1998, as
described in Note 8, and the equity offerings in 1996 and 1997 had occurred at
the beginning of the periods presented and all of the Hotels had been leased to
the Lessee pursuant to Percentage Leases throughout the periods presented. Such
pro forma information is based in part on the consolidated statements of income
of the Company and the JF Lessee. In management's opinion, all adjustments
necessary to reflect the effects of these transactions have been made.
The unaudited pro forma statements of income of the Company for the periods
presented are not necessarily indicative of what the results of the 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.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Revenue:
Percentage lease revenue $93,551 $83,556
Other revenue 1,380 916
- ---------------------------------------------------------------
Total revenue 94,931 84,472
- ---------------------------------------------------------------
Expenses:
Depreciation 26,878 24,762
Amortization of franchise costs 70 89
Ground rent 402 397
Interest expense 19,303 19,005
Amortization of loan
origination fees 1,185 1,375
Real estate and personal
property taxes and
property insurance 8,192 8,045
General and administrative 2,347 2,250
Amortization of
unearned compensation 424 47
- ---------------------------------------------------------------
Total expenses 58,801 55,970
- ---------------------------------------------------------------
Income before minority interest 36,130 28,502
Minority interest, common (2,716) (2,067)
Minority interest, preferred (4,551) (4,470)
- ---------------------------------------------------------------
Net income $28,863 $21,965
===============================================================
Diluted earnings per share $ 0.87 $ 0.67
===============================================================
</TABLE>
Innkeepers USA Trust 23
<PAGE> 16
The following unaudited pro forma consolidated balance sheet is presented as
if the acquisition of the hotels described in Note 8 had occurred on December
31, 1997. Such pro forma information is based on, 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 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 December 31, 1997, nor does it purport to
represent the future financial position of the Company.
PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
- --------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Net investment in
hotel properties $ 565,643 $ 97,092 $ 662,735
Cash and
cash equivalents 4,228 -- 4,228
Restricted cash
and cash equivalents 6,748 -- 6,748
Due from Lessee 4,417 -- 4,417
Deferred expenses, net 5,235 -- 5,235
Deposits under
purchase agreements 5,050 (5,050) --
Other assets 1,286 -- 1,286
- -------------------------------------------------------------------------
Total assets $ 592,607 $ 92,042 $ 684,649
=========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 160,455 $ 92,042 $ 252,497
Accounts payable
and other
accrued expenses 4,461 -- 4,461
Distributions payable 10,501 10,501
Minority interest
in Partnership 74,552 -- 74,552
- -------------------------------------------------------------------------
Total liabilities 249,969 92,042 342,011
- -------------------------------------------------------------------------
Shareholders' equity:
Preferred shares
Common shares 328 -- 328
Additional paid-in capital 355,828 -- 355,828
Unearned compensation (1,812) -- (1,812)
Distributions in excess
of net earnings (11,706) -- (11,706)
- -------------------------------------------------------------------------
Total shareholders' equity 342,638 -- 342,638
- -------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 592,607 $ 92,042 $ 684,649
=========================================================================
</TABLE>
8. SUBSEQUENT EVENTS
On January 11, 1998, the Company purchased a 120-room Residence Inn hotel
located in Bothell (Seattle Northeast), Washington for a cash price of
$11,750,000. The purchase price was funded through the Line of Credit.
On January 14, 1998, the Company purchased five Residence Inn hotels located
in Lynnwood (Seattle North), Washington, Vancouver (Portland North), Washington,
Bellevue (Seattle East), Washington, Lake Oswego (Portland South), Oregon and
Tukwila (Seattle South), Washington with an aggregate of 616 rooms for a cash
price of approximately $83,000,000. The purchase price was funded through the
Line of Credit and the assumption of a $59,320,000 loan. On February 19, 1998,
the Company obtained a new line of credit (the "New Line of Credit"). The New
Line of Credit is uncollateralized and has a maximum borrowing amount of
$250,000,000. The interest rate was reduced from LIBOR plus 175 basis points to
LIBOR plus 122.5 to 162.5 basis points. The Company utilized the New Line of
Credit to repay the $59,320,000 loan assumed described previously. The Line of
Credit was extinguished. The Company was amortizing loan origination fees and
costs incurred in connection with the Line of Credit over its original
three-year term. When the Line of Credit was extinguished and replaced with the
New Line of Credit, those loan origination fees and costs were expensed
immediately and recognized as an extraordinary loss of approximately $2,750,000
in February 1998.
On February 19, 1998, the Company refinanced $40,000,000 of borrowings
outstanding under the Line of Credit with a new term loan (the "Third Term
Loan"). The terms of the Third Term Loan are similar to the First and Second
Term Loans, except that the interest rate is fixed at 7.02%. At February 19,
1998, 28 of the Company's hotel properties collateralize the long-term debt.
REPORT OF
INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Innkeepers USA Trust
We have audited the accompanying consolidated balance sheets of Innkeepers USA
Trust as of December 31, 1997 and 1996, and the related consolidated statements
of income, shareholders' equity and cash flows for the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Innkeepers USA
Trust as of December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Memphis, Tennessee
February 20, 1998
24 Innkeepers USA Trust
<PAGE> 17
CORPORATE INFORMATION
<TABLE>
<CAPTION>
Board of Directors Executive Officers
<S> <C> <C> <C>
[PICTURE] JEFFREY H. FISHER [PICTURE] FREDERIC M. SHAW
Chairman of the Board, Chief Operating Officer and
Chief Executive Officer Executive Vice President
and President
Innkeepers USA Trust
[PICTURE] MILES BERGER [PICTURE] DAVID BULGER
Vice Chairman of the Board Chief Financial Officer and
Heitman Financial Treasurer
Services, Ltd.
[PICTURE] THOMAS J. CROCKER [PICTURE] MARK A. MURPHY
Chairman General Counsel and
Crocker Realty Trust Secretary
[PICTURE] JACK P. DEBOER [PICTURE] GREGORY M. FAY
Chief Executive Officer Vice President of Accounting
Candlewood Hotel
Company, Inc.
[PICTURE] C. GERALD GOLDSMITH
Chairman
Property Corp. International
[PICTURE] ROLF E. RUHFUS
Chairman and
Chief Executive Officer
Summerfield Hotel
Corporation
[PICTURE] BRUCE ZENKEL
Principal
Zenkel Schoenfeld
<CAPTION>
Shareholder and
Investor Information
<S> <C>
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders
will be held on Wednesday,
May 6, 1998 at 9 a.m. EDT at:
Hampton Inn West Palm Beach
1505 Belvedere Road
West Palm Beach, Florida 33406
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P.
50 North Front Street, Suite 1000
Memphis, Tennessee 38103
(901) 529-1100
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank
311 West Monroe, 11th Floor
Chicago, Illinois 60690
(312) 461-6001
STOCK LISTING
Innkeepers USA Trust is traded on the
New York Stock Exchange under the symbol
KPA. The number of shareholders on
March 2, 1998 was approximately 7,292.
STOCK PRICE
1997 High Low Dividend
------------------------------------------------
Fourth Quarter $17.500 $ 14.125 $0.260
Third Quarter 17.188 13.625 0.260
Corporate Address Second Quarter 15.000 12.875 0.250
Innkeepers USA Trust First Quarter 15.500 13.000 0.250
306 Royal Poinciana Plaza
Palm Beach, Florida 33480 1996
(561) 835-1800 ------------------------------------------------
(561) 835-0457 FAX Fourth Quarter $13.875 $ 10.500 $0.225
Third Quarter 11.250 9.500 0.225
www.innkeepersusa.com Second Quarter 10.250 9.000 0.225
First Quarter 10.250 8.875 0.225
For faxed information call
1-800 PRO-INFO and enter 1995
the ticker symbol KPA. ------------------------------------------------
Fourth Quarter $9.625 $ 8.625 $0.215
Third Quarter 9.500 8.375 0.215
Second Quarter 9.125 8.000 0.215
First Quarter 8.625 7.125 0.194
1994 High Low Dividend
------------------------------------------------
Fourth Quarter $ 9.750 $ 7.125 $0.194
Sept. 23, 1994 to
Sept. 30, 1994 10.125 9.625 --
Residence Inn by Marriott is a registered
trademark of Marriott International Inc.
Printed on Recycled Paper.
</TABLE>
<PAGE> 18
[INNKEEPERS USA LOGO]
306 Royal Poinciana Plaza
Palm Beach, Florida 33480
Tel: (561) 835-1800
Fax: (561) 835-0457
www.innkeepersusa.com
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Innkeepers USA Trust, a Maryland real estate investment trust (the
"Company"), operates principally through two entities, (i) Innkeepers Financial
Corporation, a Virginia corporation ("IFC"), which is a wholly-owned subsidiary
of the Company, and (ii) Innkeepers USA Limited Partnership, a Virginia limited
partnership (the "Partnership"), of which IFC owns an approximately 82.1%
interest. All of the Company's hotels are owned by the Partnership or
subsidiary limited partnerships which are owned 99% by the Partnership and 1%
by either the Company directly or corporations which are wholly-owned by the
Company.
<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. 333-37505), Form S-3 (File No.
333-01026), Form S-3 (FILE No. 333-31923), Form S-3 (File No. 333-20309) and
Form S-3 (File No. 333-97932) of our report dated February 20, 1998 on our
audits of the consolidated financial statements of Innkeepers USA Trust as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and
1995; our report dated March 23, 1998 on our audit of the financial statement
schedule of Innkeepers USA Trust as of December 31, 1997; and our report dated
March 23, 1998 on our audits of the combined financial statements of JF Hotel,
Inc., JF Hotel II, Inc. and JF Hotel III, Inc. as of December 31, 1997 and 1996,
and for the years ended December 31, 1997, 1996 and 1995, which reports are
included in, or incorporated by reference, in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Memphis, Tennessee
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,976
<SECURITIES> 0
<RECEIVABLES> 4,417
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,729
<PP&E> 601,508
<DEPRECIATION> 35,865
<TOTAL-ASSETS> 592,607
<CURRENT-LIABILITIES> 14,962
<BONDS> 160,455
0
0
<COMMON> 328
<OTHER-SE> 342,310
<TOTAL-LIABILITY-AND-EQUITY> 592,607
<SALES> 0
<TOTAL-REVENUES> 66,813
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,440
<INCOME-PRETAX> 29,213
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,783
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
