<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 0-25060
HUMPHREY HOSPITALITY TRUST, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Virginia 52-1889548
(State of Incorporation) (I.R.S. employer
identification no.)
12301 Old Columbia Pike, Silver Spring MD 20904 (301) 680-4343
(Address of principal executive offices) (Registrant's telephone number)
</TABLE>
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
NASDAQ NATIONAL MARKET
(Name of Market)
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 and (2) has been subject to such filing
requirements for the past 90 days.
YES __X____ NO _______
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 10K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $39,369,450 based on the last sale price in the
NASDAQ National Market for such stock on March 15, 1999.
The number of shares of the registrant's common stock outstanding was 4,631,700
as of March 15, 1999.
Documents Incorporated by Reference
Certain of the exhibits to the Company's Registration Statement on Form S-11
(SEC File No. 333-48583) are incorporated by reference into Part IV.
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Form 10-K
Report
Item No. Page
- --------- ---------
<S> <C> <C>
PART I
1. Description of Business.........................................................3
2. Properties.....................................................................10
3. Legal Proceedings..............................................................15
4. Submission of Matters to a Vote of Security Holders............................15
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters........................................................16
6. Selected Financial Data........................................................17
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................21
7A. Quantitative and Qualitative Disclosures about Market Risk......................25
8. Financial Statements and Supplementary Data....................................26
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................................26
PART III
10. Directors and Executive Officers of the Registrant.............................26
11. Executive Compensation.........................................................28
12. Security Ownership of Certain Beneficial Owners and Management.................28
13. Certain Relationships and Related Transactions.................................30
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K..............32
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
Humphrey Hospitality Trust, Inc. was incorporated under the laws of
the Commonwealth of Virginia on August 23, 1994 and is a self-administered real
estate investment trust ("REIT") for federal income tax purposes. Humphrey
Hospitality Trust, Inc., through its wholly-owned subsidiary, Humphrey
Hospitality REIT Trust (collectively, the "Company"), owns a controlling
partnership interest in Humphrey Hospitality Limited Partnership (the
"Partnership") and through the Partnership owns interests in twenty-six
existing limited service hotels (the "Hotels") as of December 31, 1998
(including seven hotels acquired during 1998). The Partnership owns a 99%
general partnership interest and the Company a 1% limited partnership interest
in Solomons Beacon Inn Limited Partnership (the "Subsidiary Partnership"). As
of December 31, 1998, the Company owns an 84.21% interest in the Partnership.
The Company began operations on November 29, 1994.
During the fourth quarter of 1994, the Company completed an initial
public offering ("IPO") of 1,321,700 shares of $.01 par value common stock (the
"Common Stock"). The offering price per share was $6.00, resulting in gross
proceeds of $7,930,200, and, net of underwriters discount and offering
expenses, the Company received proceeds of $6,949,899. Upon completion of the
IPO, the Company contributed substantially all of the net proceeds of the
offering to Humphrey Hospitality Limited Partnership in exchange for a 71.46%
general partnership interest in the Partnership. The Partnership used the
proceeds from the Company to acquire 100% of the equity interests in seven
existing hotel properties and a general partnership interest in the Subsidiary
Partnership (such interests, collectively, the "Initial Hotels") and to retire
certain indebtedness relating to the Initial Hotels. The Partnership acquired
the Initial Hotels in exchange for (i) approximately $4.8 million in cash, (ii)
units of limited partnership interest in the Partnership ("Units"), which are
redeemable, subject to certain limitations, for an aggregate of 527,866 shares
of Common Stock, with a value of approximately $3.2 million based on the IPO
offering price, and (iii) the assumption of approximately $15.5 million of
indebtedness. James I. Humphrey, Jr., the Chairman and President of the
Company and Humphrey Associates, Inc. received Units aggregating a 28.54%
equity interest in the Partnership. Hotel properties are carried at the lower
of cost or net realizable value.
Subsequent to the IPO, the Company completed three additional
public offerings totaling 3,310,000 shares of Common Stock at a price of $7.75
per share for 1,010,000 shares, $8.25 per share for 1,150,000 shares and $10.50
per share for the remaining 1,150,000 shares. The Company contributed
substantially all of the net proceeds of the offerings to the Partnership for
additional general partnership interests. The Partnership used the net
proceeds to repay existing indebtedness and to purchase additional hotels for
cash. Additionally, during 1995 the Partnership acquired the Days Inn Hotel in
Farmville, VA, from Farmville Lodging Associates, LLC (the "LLC"), a Maryland
limited liability company in which Mr. Humphrey owned a 98% equity interest, in
exchange for Units which are redeemable for an aggregate of 95,484 shares of
Common Stock of the Company, and the assumption of approximately $1,231,000 of
indebtedness. During 1997, in connection with the acquisition of the Best
Western Hotel in Key Largo, FL, the Partnership issued Units to Humphrey-Key
Largo Associates, L.P. ("Humphrey Key Largo") a partnership substantially owned
by Mr. Humphrey, which are redeemable for an aggregate of 34,023 shares of
common stock of the Company. As of December 31, 1998, the Company owned an
84.21% partnership interest and Mr. Humphrey, Humphrey Associates, Inc. and
Humphrey Development, Inc. (collectively the "Humphrey Affiliates"), employees
of the Humphrey Affiliates and the sellers of the Hampton Inn, Jackson, TN
Hotel, which was acquired by the Partnership on August 18, 1998, collectively
own a 15.79% interest in the Partnership.
In April 1996, the Company established a secured credit facility (the
"Mercantile Credit Facility") in the initial amount of $6.5 million with
Mercantile Safe Deposit and Trust Company ("Mercantile"). Available borrowings
under the Mercantile Credit Facility have been increased several times and are
currently at $25.5 million. The term of the Mercantile Credit Facility is
three years with two one-year extensions at the option of Mercantile. The
Mercantile Credit Facility bears interest at the prime rate plus 25 basis
points, presently 8%, and is cross-collateralized by liens on thirteen of the
Company's hotels.
On October 30, 1996, the Common Stock began to trade on The Nasdaq
National Market. Prior to that date, the Common Stock was traded on The Nasdaq
SmallCap Market. The Company believes that by trading on The Nasdaq National
Market, shares of the Common Stock may become more liquid, the shareholder base
of the Company may expand geographically and structurally with the potential
for the Common Stock to be held by residents of almost every state and by
institutional investors.
3
<PAGE> 4
During the summer of 1998, the Company, in an attempt to continue its
steady growth, initiated a proposed 5th public offering. Due to unstable
conditions in the stock market, the proposed offering was postponed. During
the third quarter, the Company expensed the costs incurred in connection with
the proposed offering resulting in a $138,596 charge to current earnings, which
is included in general and administrative expense.
On June 1, 1998, the Company issued 70,936 Units, valued at
$720,000 based on an average price of $10.15 per share, to Humphrey
Development, Inc. ("HDI") in exchange for the option to repurchase the Dover,
DE Hotel, which was granted to HDI as compensation for development services
rendered pursuant to the restated and amended Development Services Agreement.
On June 1, 1998, the Company issued 17,734 Units, valued at $180,000 based on
an average price of $10.15 per share, to Humphrey Hospitality Management, Inc.
the "Lessee" as an incentive to enter into a Percentage Lease with the
Partnership for the Dover, DE Hotel. These Units were re-assigned by the
Lessee to Randy P. Smith, President of the Lessee.
On June 30, 1998, the Company closed on the sale of the Comfort Inn,
Elizabethton, TN for $1,550,000. The Company realized a gain on the sale of
this asset of approximately $179,000.
On August 5, 1998, the Company closed on mortgage financing for the
Hampton Inn in Brandon, FL, with Regions Bank in the amount of $3,000,000. The
loan is a twenty year mortgage loan and the interest rate is fixed at 8% for
five years.
On August 18, 1998, the Company obtained a $35 million credit facility
from BankBoston (the "BankBoston Credit Facility"). The term of the BankBoston
Credit Facility is three years and bears interest at LIBOR plus between 165 and
215 basis points. The Company entered into an interest rate swap agreement
that fixes the interest rate on the current balance of approximately $11.2 at a
ceiling of 7.79%. The rate at December 31, 1998 was 7.67%. The BankBoston
Credit Facility is cross-collaterized by the Company hotels located in Jackson,
TN; Ellenton, FL (2 hotels); Shelby, NC; Cleveland, TN; Dahlgren, VA;
Princeton, WV; Dover, DE; and Key Largo, FL.
On December 30, 1998, the Company executed an agreement to sell the
Rodeway Inn in Wytheville, VA for $1,450,000. In connection with the
execution of the agreement, the Company determined that the carrying value of
the hotel exceeded its fair value. Accordingly, an impairment loss of
approximately $622,000, which represents the excess of the carrying value of
approximately $2,004,000 over the fair value, net of costs to sell, of
approximately $1,382,000 was charged to operations in 1998.
The purchaser subsequently refused to fulfill their obligations under
the agreement and, on March 19, 1999 the Company filed an action in the Circuit
Court of Wythe County, VA against the purchasers to, among other things compel
specific performance under the contract. (See "Item 3. Legal Proceedings.")
On February 8, 1999, the Company obtained a $5.054 million, ten year,
7.75% fixed rate mortgage, from Susquehanna Bank on the Company's Comfort Inn
and Holiday Inn Express hotels located in Gettysburg, PA.
On February 26, 1999, the Company satisfied the bonds secured by it's
Comfort Inn hotel located in Morgantown, WV. This hotel was subsequently
placed as additional collateral on the Mercantile Credit Facility.
4
<PAGE> 5
The following table shows hotels that have been acquired during 1998
by the Company. Each hotel is leased pursuant to a Percentage Lease.
<TABLE>
<CAPTION>
CONTRACT
DATE NUMBER OF PURCHASE
ACQUIRED ROOMS PRICE
<S> <C> <C> <C>
COMFORT INN:
Rocky Mt., VA September 2, 1998 60 $2,850,000
BEST WESTERN:
Ellenton, FL June 25, 1998 73 2,900,000
HAMPTON INNS:
Brandon, FL June 26, 1998 51 5,350,000
Cleveland, TN August 19, 1998 60 2,850,000
Jackson, TN (1) August 19, 1998 62 4,700,000
Shelby, NC August 19, 1998 51 2,950,000
SHONEY'S INN:
Ellenton, FL June 25, 1998 63 2,500,000
-- ---------
Totals 534 $24,100,000
=== ===========
</TABLE>
(1) The Company issued 122,261 Units to the sellers of the
Hampton Inn-Jackson, TN as part of the purchase price. The
Units are redeemable for shares of Common Stock payment on a
one-for-one basis and are valued at approximately $1,202,074,
based on an average price of $9.83 per share as of the 10
trading days prior to August 19, 1998.
(b) Financial Information About Industry Segments
The Company is engaged solely in the business of acquiring equity
interests in existing hotel properties, therefore, presentation of information
about industry segments is not applicable. See the Consolidated Financial
Statements and notes thereto included in Item 14 of this Annual Report on Form
10-K for certain financial information required in Item 1.
(c) Narrative Description of Business
General. At December 31, 1998, the Company owned, through the
Partnership and the Subsidiary Partnership, 26 hotels containing 1,787 rooms
located in Virginia (7), West Virginia (2), Maryland (1), Pennsylvania (5),
North Carolina (2), Kentucky (2), Delaware (1), Florida (4), and Tennessee (2).
The Hotels are leased to the Lessee, a corporation wholly owned by Mr.
Humphrey. The Company's primary objectives are to increase amounts
distributable to shareholders and enhance shareholder value by participating in
increased revenue from the hotels through leases that provide for rent payments
based on the revenue from the Hotels (the "Percentage Leases"). The Company
also seeks to increase amounts distributable to shareholders by acquiring
equity interests in additional existing hotels that meet the Company's
investment criteria and by developing new nationally franchised hotels.
Internal Growth Strategy. The Company's use of Percentage Leases
allows the Company to participate in increased revenue from the hotels. The
Percentage Leases provide for the Lessee to pay monthly base rent ("Base Rent")
plus percentage rent ("Percentage Rent"). The Percentage Rent for each hotel
is comprised of (i) a set percentage of quarterly and semi-annual room revenue,
which is payable quarterly and semi-annually, respectively, (ii) a set
percentage of annual room revenue in excess of a threshold amount
("Threshold"), which is payable annually, and (iii) 8% of monthly revenue other
than room revenue (including, but not limited to, telephone charges, movie
rental fees and, in the case of the Comfort Inn-Beacon Marina, Solomons, MD,
Dublin, VA and Morgantown, WV Hotels, rental payments under third party leases
of its
5
<PAGE> 6
restaurant and, in the case of the Comfort Inn-Beacon Marina, Solomons, MD and
Best Western Suites-Key Largo, FL Hotels, marina revenue), which is payable
monthly. The portion of Percentage Rent that is based on annual room revenue
does not apply to amounts under the Threshold and is designed to allow the
Company to participate in any future increases in room revenue. The Base Rent
and Percentage Rents are hereinafter referred to collectively as "Rent". Under
the Percentage Leases, the principal determinant of Percentage Rent is room
revenue.
Acquisition Strategy. The Board of Directors has adopted a policy
that governs the Company's investment in hotel properties (the "Investment
Policy"), including the acquisition and development of hotels. Under the
Investment Policy, the Company will not acquire a hotel property unless the
Company can demonstrate that it can reasonably expect an annual return on its
investment (calculated as Rent less insurance, real estate and personal
property taxes and reserves for furniture, fixtures and equipment of 4% of room
revenues ("FFE Reserves")), that is equal to or greater than 12% of the total
purchase price to be paid by the Company for such property. Under the
Company's bylaws, the approval of a majority of the Board of Directors,
including a majority of the Independent Directors, is required for the Company
to acquire any property. The Investment Policy is applied to a hotel property
prior to its acquisition by the Company. There can be no assurance that
increases in insurance rates, real estate or personal property taxes or FFE
Reserves, which are based on room revenues, will not decrease the Company's
annual return on its investment in any Hotel to a level below that set out in
the Investment Policy. The Company intends to acquire equity interests in
hotel properties that meet the Company's investment criteria described below.
- - nationally franchised hotels in locations with relatively high demand
for rooms, relatively low supply of competing hotels and significant
barriers to entry into the hotel business, such as a scarcity of
suitable hotel sites or zoning restrictions;
- - poorly managed hotels, which the Company believes could benefit from
new management, new marketing strategy and association with a national
franchisor;
- - hotels in a deteriorated physical condition, which the Company believes
could benefit significantly from renovations; and
- - hotels in attractive locations that the Company believes could benefit
significantly by changing franchises to a grade the Company believes is
more appropriate for the location and clientele.
Development Strategy. Although the Company expects to primarily grow
through the acquisition of existing hotels, the Company may selectively grow
through the development of new limited-service hotels located in secondary and
tertiary markets, typically with under 150 rooms, that are similar to the
Company's present hotels. The Company is interested in sites that offer the
potential to attract a diverse mix of potential market segments.
Because a development project has no prior revenues on which the
Company's Investment Policy can be applied, the Company intends to invest only
in developments where it reasonably believes it will receive an annual return
on its investment that is consistent with the Investment Policy.
The Company's site selection criteria is expected to include some or
all of the following characteristics:
- - relatively low land costs, particularly as compared with major
metropolitan areas;
- - sites that exist on or near major highways;
- - areas that have strong industrial bases with the potential for future
growth;
- - communities with state or federal installations, colleges or
universities; and
- - sites that currently have an aging hotel presence.
These criteria describe the basic characteristics that the Company
looks for prior to committing to the development of a new hotel. Sites that
are selected may have some or all of the market characteristics as described
above, as well as
6
<PAGE> 7
characteristics that are not specifically described herein.
It is not anticipated that all sites selected by the Company will possess all
of the characteristics described herein.
The Company's Investment Policy may be changed by the Board of
Directors without shareholder approval.
Replacement Reserves. The Percentage Leases obligate the Partnership
or the Subsidiary Partnership, as applicable, to make available to the Lessee
an amount equal to 6% of room revenue per quarter, on a cumulative basis, for
upgrading and maintaining the Hotels ("Replacement Reserve Deposits"). The
Company increased its capital reserves set-aside from 4% to 6% of room revenue
upon the completion of its fourth offering of Common Stock on April 24, 1998.
The additional 2% of room revenue was initially held in a special reserve fund
(the "Additional Reserve Fund"). However the Company determined that a 6%
reserve set-aside represented a conservative and prudent reserve given the
Company Hotel's level of occupancy. Accordingly, the Company merged the
Additional Reserve Fund with the Replacement Reserve Deposits effective back to
the day the Additional Reserve Fund was established.
Operating Practices. The Lessee utilizes a centralized accounting and
data processing system, which facilitates financial statement and budget
preparation, payroll management, internal auditing and other support functions
for the on-site hotel management team. The Lessee provides centralized control
over purchasing and project management (which can create economies of scale in
purchasing) while emphasizing local discretion within specific guidelines.
Each hotel managed by the Lessee employs a general manager who is
responsible for the overall operations of the hotel. General managers report
to regional managers, who generally have responsibility for three to eight
hotels. Daily operations are managed using a centralized approach through
regional operations managers who report to the Lessee's central office as
applicable. The Lessee's strategy is to encourage decision-making by those
people closest to the hotel operation level at the lowest administrative cost.
Property Management. In order for the Company to qualify as a REIT,
neither the Company, the Partnership nor the Subsidiary Partnership can operate
hotels. Therefore, each of the hotels is leased to the Lessee under Percentage
Leases. Mr. Humphrey, Chairman of the Board and President of the Company, is
the sole shareholder of the Lessee.
The Lessee's President, Randy P. Smith, has been employed in the hotel
business since 1978 and has operated a variety of hotels under many franchise
brands. He joined Humphrey Hotels, Inc. (the Lessee's predecessor) in 1989 as
Director of Operations and in 1991, he was appointed Vice President of
Operations. He was appointed President of Humphrey Hotels, Inc. in 1994. He
has been appointed to the Comfort Inn Advisory Council, the International
Operators Council for Choice Hotels ("IOC") National Marketing Committee, the
IOC National Operations and Standards Committee, the IOC National Awards
Committee, the Region 4 (Virginia) Regional Advisory Board for Choice Hotels
and numerous boards for the IOC. Mr. Smith received an M.B.A. Degree from
Loyola College in 1995.
The Lessee's Vice President, Bethany H. Hooper, joined Humphrey
Associates, Inc. in 1988 after working for the accounting firm of Reznick
Fedder & Silverman as a certified public accountant. In 1991, she was
appointed Vice President of Accounting and Administration of Humphrey
Associates, Inc. and Humphrey Hotels, Inc. Ms. Hooper continues to work for
both the Lessee and Humphrey Associates, Inc. She received a B.S. degree in
Business Administration from Lewis and Clark College in 1986 and an M.B.A.
degree in Finance from Loyola College in 1991.
The Lessee's Controller, Hoa N. Moe, has been employed in the hotel
business since 1978. From 1978 to 1989, she was employed by Ramada Inn's
Washington Regional Office and Coakley & Williams, Inc., a hotel management
company, primarily as a credit investigator and Controller . She joined
Humphrey Hotels, Inc. in 1989 and served as Internal Auditor until she was
appointed Controller in 1992.
The Lessee's Senior Director of Operations, David Yakes, has been
employed in the hotel business since 1985. Mr. Yakes has an extensive
background in hotel operations and joined the Lessee in 1995. Prior to his
current position, Mr. Yakes was a regional Director of Operations as well as
the General Manager of the Comfort Inn-Beacon Marina, Solomons, Maryland hotel.
Before joining the Lessee, Mr. Yakes worked for several years for Winegardner
and Hammons, Inc., a Cincinnati, Ohio based hotel management company. He
received a B.S. degree in Hospitality and Tourism Management from Grand Valley
State University in 1991.
7
<PAGE> 8
Competition. The hotel industry is highly competitive. Each of the
hotels is located in a developed area that includes other hotel properties.
The number of competitive hotel properties in a particular area could have a
material adverse effect on revenues, occupancy and the average daily room rate
("ADR") of the hotels or at hotel properties acquired in the future.
The Company may be competing for investment opportunities with
entities that have substantially greater financial resources than the Company.
These entities generally may be able to accept more risk than the Company can
prudently manage. Competition in general may reduce the number of suitable
investment opportunities offered to the Company and increase the bargaining
power of property owners seeking to sell. Further, the Company believes that
competition from entities organized for purposes substantially similar to the
Company's objectives could increase significantly.
Employees. The Company has an agreement between it and the Lessee
(the "Services Agreement") to provide accounting and securities reporting
services for the Company. The Services Agreement provides that the Lessee
shall perform such services for an annual fee of $30,000 per year for as long
as the Company's portfolio includes the Initial hotels and the Comfort
Suites-Dover, DE hotel. The fee will increase $10,000 per year (prorated from
the time of acquisition) for each additional hotel added to the Company's
portfolio, not to exceed $100,000 in any year. During 1998, the Company paid
$99,996 pursuant to the Services Agreement. The Lessee employs approximately
850 people in operating the hotels. The Lessee has advised the Company that
its relationship with its employees is good.
Business Risks. The hotels are subject to all operating risks common
to the hotel industry. These risks include, among other things, competition
from other hotels; recent over-building in the hotel industry, which has
adversely affected occupancy and room rates; 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;
significant dependence on business and commercial travelers and tourism;
increases in energy costs and other expenses of travel; and adverse effects of
general and local economic conditions. These factors could adversely affect
the Lessee's ability to make lease payments and, therefore, the Company's
ability to make expected distributions to shareholders. Further, decreases in
room revenue at the hotels will result in decreased revenue to the Partnership
and the Subsidiary Partnership, as applicable, under the Percentage Leases.
The Company must rely on the Lessee to generate sufficient cash flow
from the operations of the hotels to enable the Lessee to meet the rent
obligations under the Leases. The obligations of the Lessee are unsecured.
The Lessee has only nominal assets, consisting primarily of working capital.
The Company's investments are subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
the Company's real estate investments, as well as the Company's income and
ability to make distributions to its shareholders, is dependent upon the
ability of the Lessee to operate the hotels in a manner sufficient to maintain
or increase revenue and to generate sufficient income in excess of operating
expenses to make rent payments under the Leases. Income from the hotels may be
adversely affected by changes in national economic conditions, changes in local
market conditions, changes in general or local economic conditions, changes in
neighborhood characteristics, competition from other hotel properties, changes
in present or future environmental legislation and laws, changes in the ongoing
need for capital improvements, changes in real estate tax rates and other
operating expenses, changes in governmental rules and fiscal policies, civil
unrest, acts of God (including earthquakes and other natural disasters), which
may result in uninsured losses, acts of war, changes in zoning laws and other
factors that are beyond the control of the Company and the Lessee.
Environmental Risks. Under various federal, state, and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances, on, under or in such property. Such laws
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability to
borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of asbestos-containing materials
("ACMs") into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with exposure to
released ACMs. In connection with the ownership of the hotels, the Company,
the Partnership or the Subsidiary Partnership may be potentially liable for any
such costs.
8
<PAGE> 9
Phase I environmental site assessments were obtained on all of the
hotels prior to their acquisition by the Company. The Phase I environmental
assessments were intended to identify potential environmental contamination for
which the hotels may be responsible. The Phase I environmental assessments
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 Phase
I environmental assessments did not include invasive procedures, such as soil
sampling or ground water analysis.
The Phase I site assessments have not revealed any environmental
liability that the Company believes would have a material adverse effect on the
Company's business, assets, results of operations or liquidity, nor is the
Company aware of any such liability. Nevertheless, it is possible that the
Phase I site assessments do not reveal environmental liabilities or that there
are material environmental liabilities of which the Company is unaware.
Moreover, no assurance can be given that (i) future laws, ordinances or
regulations will not impose any material environmental liability, or (ii) the
current environmental condition of the hotels will not be affected by the
condition of other properties in the vicinity of the hotels (such as the
presence of leaking underground storage tanks) or by third parties unrelated to
the Company, the Partnership, the Subsidiary Partnership or the Lessee.
The Company believes that the hotels are in compliance in all material
respects with all federal, state and local ordinances and regulations regarding
hazardous or toxic substances or other environmental matters. Neither the
Company nor, to the knowledge of the Company, the LLC or the LLC's predecessor
in interest or any of the former owners of the Hotels have been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental matters in
connection with any of the hotels.
No assurance can be given that the Phase I site assessments identified
all significant environmental problems or that no additional liabilities exist.
Franchise Agreements
The Lessee, which is owned by Mr. Humphrey, holds all of the
franchise licenses for each of the Hotels currently owned by the Partnership
and is expected to hold all of the franchise licenses for any subsequently
acquired hotel properties. During 1998, the Lessee paid franchise fees in the
aggregate amount of approximately $1,232,000.
Thirteen of the Hotels operate as Comfort Inn hotels, one Hotel
operates as a Comfort Suites hotel and one Hotel operates as a Rodeway Inn
hotel. Comfort Inn(R), Comfort Suites(R) and Rodeway Inns(R) are registered
trademarks of Choice Hotels International, Inc. Two of the Hotels operate as a
Best Western hotel and one of the Hotels operates as a Best Western Suites
hotel. Best Western was established in 1946 as a reservation referral system
by hoteliers and has developed into the world's largest hotel chain. One of
the Hotels operates as a Days Inn hotel. Days Inn has been operating for more
than 20 years. Days Inn(R) is a registered trademark of HFS Incorporated.
Three of the Hotels operate as Holiday Inn Express hotels. Holiday Inn
Express(R) is a registered trademark of Holiday Inns, Inc. Four of the Hotels
operate as Hampton Inn hotels. Hampton Inn(R) is a registered of Promus Hotel
Corporation.
Tax Status. The Company made an election to be taxed as a REIT under
Section 856 through 860 of the Internal Revenue Code ("Code"), commencing with
its taxable year ending December 31, 1994. As long as the Company qualifies
for taxation as a REIT, it generally will not be subject to Federal income tax
to the extent it distributes at least 95% of its REIT taxable income to its
shareholders. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate tax rates.
Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property and to
Federal income and excise taxes on its undistributed income.
Earnings and profits, which will determine the taxability of dividends
to shareholders, will differ from net income reported for financial reporting
purposes due to the differences for federal tax purposes in the estimated
useful lives and methods used to compute depreciation. Of the total 1998
distributions to the Company's shareholders, 86.52% are considered ordinary
income and 13.48% are considered return of capital.
9
<PAGE> 10
ITEM 2. PROPERTIES
The following table sets forth certain historical information with
respect to the hotels for the year (or period of ownership, if less) ended
December 31, 1998.
<TABLE>
<CAPTION>
Number Percentage
Of Room Other Lease Avg.
Rooms Revenue Revenue Payment Occpy ADR REVPAR (1)
----- ------- ------- ------- ----- --- ------
<S> <C> <C> <C> <C> <C> <C> <C>
COMFORT INN
Culpeper, VA 49 $ 722,117 $ 13,867 $ 166,097 77.36% $ 52.19 $40.38
Chambersburg, PA 65 $ 809,988 $ 19,767 $ 185,449 61.77% $ 55.27 $34.14
Dahlgren, VA 59 $ 872,959 $ 26,027 $ 231,427 81.62% $ 49.67 $40.54
Dublin, VA 100 $ 1,418,065 $ 28,889 $ 435,199 69.79% $ 55.66 $38.85
Elizabethton, TN (2) 58 $ 255,044 $ 8,424 $ 56,777 56.47% $ 43.02 $24.29
Farmville, VA 51 $ 784,129 $ 15,540 $ 241,433 81.38% $ 51.76 $42.12
Gettysburg, PA 81 $ 1,362,064 $ 18,392 $ 328,367 65.90% $ 69.91 $46.07
Morgantown, WV 80 $ 1,352,702 $ 65,838 $ 479,323 79.59% $ 58.21 $46.33
Murphy, NC 56 $ 834,450 $ 14,714 $ 189,635 73.17% $ 55.79 $40.82
New Castle, PA 79 $ 1,168,505 $ 30,914 $ 286,450 69.33% $ 58.45 $40.52
Princeton, WV 51 $ 786,030 $ 13,320 $ 214,079 80.03% $ 52.76 $42.23
Rocky Mount, VA (3) 60 $ 268,806 $ 4,841 $ 62,095 67.17% $ 54.67 $36.72
Beacon Marina,
Solomons, MD 60 $ 1,166,655 $310,340 $ 588,752 76.83% $ 69.34 $53.27
COMFORT SUITES
Dover, DE 64 $ 1,275,245 $ 23,705 $ 123,666 76.46% $ 71.40 $54.59
BEST WESTERN
Harlan, KY 63 $ 779,989 $ 48,517 $ 226,178 64.30% $ 53.60 $34.47
Ellenton, FL (4) 73 $ 403,291 $ 11,121 $ 100,879 60.04% $ 48.43 $29.08
BEST WESTERN SUITES
Key Largo, FL 40 $ 1,191,423 $ 61,481 $ 290,861 79.43% $102.74 $81.60
RODEWAY INN
Wytheville, VA 100 $ 448,607 $ 5,389 $ 60,993 28.52% $ 43.09 $12.29
DAYS INN
Farmville, VA 60 $ 731,429 $ 23,166 $ 188,367 69.63% $ 47.97 $33.40
HAMPTON INN
Brandon, FL (5) 80 $ 585,288 $ 16,295 $ 143,158 63.53% $ 60.93 $38.71
Cleveland, TN (6) 60 $ 356,581 $ 5,611 $ 75,147 75.46% $ 58.34 $44.02
Jackson, TN (6) 120 $ 511,490 $ 13,711 $ 112,052 56.84% $ 55.55 $31.57
Shelby, NC (6) 78 $ 352,066 $ 8,715 $ 74,451 63.22% $ 52.89 $33.43
SHONEY'S INN
Ellenton, FL (4) 63 $ 368,300 $ 8,459 $ 98,294 73.35% $ 41.95 $30.77
HOLIDAY INN EXPRESS
Allentown, PA 82 $ 1,171,531 $ 21,841 $ 267,686 63.91% $ 60.51 $38.67
Danville, KY 62 $ 1,047,357 $ 37,237 $ 258,854 78.00% $ 58.39 $45.55
Gettysburg, PA 51 $ 889,156 $ 15,060 $ 210,155 67.98% $ 70.26 $47.77
----- ----------- -------- ----------
TOTALS 1,845 $21,913,267 $871,181 $5,695,824
===== =========== ======== ==========
</TABLE>
10
<PAGE> 11
- ------------
(1) "REVPAR" is defined as room revenue per available room and is
determined by dividing room revenue by available rooms for the
applicable period.
(2) Sold June 30, 1998.
(3) Acquired September 2, 1998.
(4) Acquired June 25, 1998.
(5) Acquired June 26, 1998.
(6) Acquired August 19, 1998.
THE FIXED LEASE
The lease for the Comfort Suites-Dover, DE hotel, previously required
a fixed rent payment, which was payable in equal monthly installments (the
"Fixed Lease"). The lease was amended from a Fixed Lease to a Percentage Lease
on June 1, 1998. As long as the Investment Policy remains in effect, the
Company intends to enter into Fixed Leases on any new hotel developments
because the Company believes that this type of lease mitigates the risks
associated with the initial startup of a hotel. The Company anticipates that
material terms of the Fixed Leases, if any, except for the payment terms, will
be substantially similar to the terms of the Percentage Leases described below.
THE PERCENTAGE LEASES
Each hotel is separately leased by the Partnership to the Lessee under
a Percentage Lease. The Lessee is wholly owned by Mr. Humphrey. Other than
working capital sufficient to operate the hotels, the Lessee has only nominal
assets in addition to its rights and benefits under the Percentage Leases.
Each Percentage Lease contains the provisions described below. The Company
intends that future leases with respect to its hotel property investments will
contain substantially similar provisions. The Company's Board of Directors may,
in its discretion, alter any of these provisions with respect to any particular
lease, depending on the purchase price paid, economic conditions and other
factors deemed relevant at the time.
Lease Terms. Each Lease has a non-cancelable term of ten years, which
may be renewed for an additional term of five years at the Lessee's option,
subject to earlier termination upon the occurrence of defaults thereunder and
certain other events described therein.
Amounts Payable under the Percentage Leases. During the term of each
Percentage Lease, the Lessee will be obligated to pay (i) Base Rent and
Percentage Rent, and (ii) interest accrued on any late payments or charges.
Base Rent accrues and is required to be paid monthly. The Percentage Rent for
each hotel is comprised of (i) a set percentage of quarterly and semi-annual
room revenue, which is payable quarterly and semi-annually, respectively, (ii)
a set percentage of annual room revenue, in excess of a specified Threshold for
each Percentage Lease, which is payable annually, and (iii) 8% of monthly
revenue other than room revenue (including, but not limited to, telephone
charges, movie rental fees, rental payments under the third party leases of
restaurants in the hotels located in Solomons, MD; Dublin, VA; and Morgantown,
WV and, in the case of the Comfort Inn-Beacon Marina, Solomons, MD and the Best
Western Suites-Key Largo, FL Hotels, marina revenue) which is payable
monthly. Annual Percentage Rent does not apply to amounts under the Threshold.
The portion of Percentage Rent that is based on annual room revenue is designed
to allow the Company to participate in any future increases in room revenue.
11
<PAGE> 12
The following table sets forth (i) the annual Base Rent, (ii) the
Percentage Rent formulas and (iii) the rent that was paid for each hotel
pursuant to the terms of the Leases based on historical revenues for the year
ended December 31, 1998. With respect to the hotels acquired in 1998, the
information presented relates to the period from the date of acquisition to
December 31, 1998.
<TABLE>
<CAPTION>
Aggregate
Aggregate Percentage
Annual Percentage Hotel Percentage Rent Plus
Base Rent Rent Formula Revenue Rent Base Rent
--------- ------------ ------- ---- ---------
Comfort Inns
- ------------
<S> <C> <C> <C> <C>
Culpeper, VA $133,000 11% of quarterly room revenues up Rooms - $ 722,117 $164,987 $299,097
to $675,000 per year, plus 11% of Other - $ 13,867 1,110
semi-annual revenues up to $675,000 --------
per year, plus 35% of annual revenues $166,097
in excess of $675,000, plus 8% of --------
monthly other revenues
Chambersburg, PA $183,750 14.2% of quarterly room revenues up Rooms - $ 809,988 $183,868 $369,199
to $960,000 per year, plus 8.5% of semi- Other - $ 19,767 1,581
annual room revenues up to $960,000 --------
per year plus 35% of annual revenues $185,449
in excess of $960,000, plus 8% of --------
monthly other revenues
Dahlgren, VA $153,096 14% of quarterly room revenues, Rooms - $ 872,959 $229,345 $384,523
plus 6.5 % of semi-annual room Other - $ 26,027 2,082
revenues, plus 30% of annual room --------
revenues in excess of $705,000, $231,427
plus 8% of monthly other revenues --------
Dublin, VA $253,344 17.5% of quarterly room revenues, Rooms $1,418,065 $432,888 $688,543
plus 10 % of semi-annual room Other $ 28,889 2,311
revenues, plus 30% of annual room --------
revenues in excess of $1,275,000, $435,199
plus 8% of monthly other revenues --------
(1) Elizabethton, TN $48,475 14.5% of quarterly room revenues, Rooms - $ 255,044 $56,109 $105,252
plus 7.5% of semi-annual room Other - $ 8,424 668
revenues, plus 30% of annual room --------
revenues in excess of $560,000, $56,777
plus 8% of monthly other revenues --------
Farmville, VA $132,432 16% of quarterly room revenues, Rooms- $ 784,129 $240,190 $373,865
plus 9.5% of semi-annual room Other - $ 15,540 1,243
revenues, plus 30% of annual room --------
revenues in excess of $650,000, plus $241,433
8% of monthly other revenues --------
Gettysburg, PA $302,750 14.5% of quarterly room revenues up Rooms $1,362,064 $326,895 $631,117
to $1,400,000 per year, plus 9.5% of Other - $ 18,392 1,472
semi-annual room revenues up to --------
$1,400,000 per year, plus 35% of room $328,367
revenues in excess of $1,400,000, plus --------
8% of total other revenues
Morgantown, WV $210,136 6.1% of quarterly room revenues, Rooms - $1,352,702 $474,056 $689,459
plus 24% of semi-annual room Other - $ 65,838 5,267
revenues, plus 33% of annual room --------
revenues in excess of $1,150,000, $479,323
plus 8% of monthly other revenues --------
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
Murphy, NC $138,250 11% of quarterly room revenues up Rooms - $ 834,450 $188,458 $327,885
to $740,000 per year, plus 10% of Other - $ 14,714 1,177
semi-annual room revenues up to --------
$740,000 per year, plus 35% of annual $189,635
revenues in excess of $740,000, --------
plus 8% of monthly other revenues
New Castle, PA $216,996 7.5% of quarterly room revenues up Rooms - $1,168,505 $283,977 $503,446
to $1,000,000 per year, plus 15% of Other - $ 30,914 2,473
semi-annual room revenues up to --------
$1,000,000 per year, plus 35% of $286,450
annual room revenues in excess of --------
$1,000,000, plus 8% of monthly other
revenues
Princeton, WV $208,608 11.1% of quarterly room revenues Rooms - $ 786,030 $213,014 $422,687
plus 16% of semi-annual room Other - $ 13,320 1,065
revenues, plus 33% of annual room --------
revenues in excess of $875,000, $214,079
plus 8% of monthly other revenues --------
(2) Rocky Mount, VA $52,932 14% of quarterly room revenues, Rooms- $ 268,806 $61,708 $115,027
up to $825,000, plus 7.25% of semi Other - $ 4,841 387
-annual room revenues up to $825,000, --------
plus 35% of annual room revenues $62,095
in excess of $825,000, plus 8% --------
of monthly other revenues
Beacon Marina,
Solomons, MD $288,397 17.6% of quarterly room revenues, Rooms- $1,166,655 $563,925 $877,149
plus 25% of semi-annual room Other - $ 310,340 24,827
revenues, plus 25.1% of annual --------
room revenues in excess of $588,752
$900,000, plus 8% of monthly other --------
revenues
Comfort Suites
- --------------
Dover, DE $378,840 8.33% of quarterly room revenues, Rooms - $1,275,245 $122,657 $502,506
plus 6% of semi-annual room Other - $ 23,705 1,009
revenues, plus 35% of annual --------
room revenues in excess of $123,666
$1,100,000, plus 8% of monthly --------
other revenues
Rodeway Inn
- -----------
(3) Wytheville, VA $210,000 6.5% of quarterly room revenues, Rooms - $ 448,607 $ 60,562 $270,993
plus 7% of semi-annual room Other - $ 5,389 431
revenues, plus 30% of annual --------
room revenues in excess of $ 60,993
$815,000, plus 8% of monthly --------
other revenues
Days Inn
- --------
Farmville, VA $125,376 16% of quarterly room revenues, Rooms - $ 731,429 $186,514 $313,743
plus 9.5% of semi-annual room Other - $ 23,166 1,853
revenues, plus 30% of annual --------
room revenues in excess of $760,000, $188,367
plus 8% of monthly other revenues --------
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C> <C>
Best Westerns
- -------------
Harlan, KY $183,750 14.5% of quarterly room revenues up Rooms - $ 779,989 $222,297 $409,928
to $800,000 per year, plus 14% of semi- Other - $ 48,517 3,881
annual room revenues up to $800,000 per --------
year, plus 35% of room revenues in excess $226,178
of $800,000, plus 8% of monthly other --------
revenues
(4) Ellenton, FL $105,671 15% of quarterly room revenues up Rooms - $ 403,291 $ 99,989 $206,550
to $940,000 per year, plus 10% of semi- Other - $ 11,121 890
annual room revenues up to $940,000 per --------
year, plus 35% of room revenues in excess $100,879
of $940,000, plus 8% of monthly other --------
revenues
Best Western Suites
- -------------------
Key Largo, FL $224,000 14% of quarterly room revenues up Rooms - $1,191,423 $285,943 $514,861
to $1,225,000 per year, plus 10% of Other - $ 61,481 4,918
semi-annual room revenues up to --------
$1,225,000 per year, plus 35% of annual $290,861
room revenues in excess of $1,225,000, --------
plus 8% of monthly other revenues
Hampton Inn
- -----------
(6) Brandon, FL $193,919 14.5% of quarterly room revenues up Rooms - $ 585,288 $141,854 $337,077
to $1,700,000 per year, plus 10% of Other - $ 16,295 1,304
semi-annual room revenues up to --------
$1,700,000 per year, plus 35% of annual $143,158
room revenues in excess of $1,700,000, --------
plus 8% of monthly other revenues
(5) Cleveland, TN $75,082 11% of quarterly room revenues up Rooms - $ 356,581 $74,698 $150,229
to $1,000,000 per year, plus 10% of Other - $ 5,611 449
semi-annual room revenues up to --------
$1,000,000 per year, plus 35% of annual $75,147
room revenues in excess of $1,000,000, --------
plus 8% of monthly other revenues
(5) Jackson, TN $119,096 11.75% of quarterly room revenues up Rooms - $ 511,490 $110,955 $231,148
to $1,725,000 per year, plus 10% of Other - $ 13,711 1,097
semi-annual room revenues up to --------
$1,725,000 per year, plus 35% of annual $112,052
room revenues in excess of $1,725,000, --------
plus 8% of monthly other revenues
(5) Shelby, NC $72,493 11% of quarterly room revenues up Rooms - $ 352,066 $73,754 $146,944
to $960,000 per year, plus 10% of Other - 8,715 697
semi-annual room revenues up to --------
$960,000 per year, plus 35% of annual $74,451
room revenues in excess of $960,000, --------
plus 8% of monthly other revenues
Shoney's Inn
- ------------
(4) Ellenton, FL $91,096 16.7% of quarterly room revenues up Rooms - $ 368,300 $97,617 $189,390
to $700,000 per year, plus 10% of Other - $ 8,459 677
semi-annual room revenues up to --------
$700,000 per year, plus 35% of annual $98,294
room revenues in excess of $700,000, --------
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
plus 8% of monthly other revenues
Holiday Inn Express
- -------------------
Allentown, PA $262,500 14.2% of quarterly room revenues up Rooms - $1,171,531 $265,938 $530,186
to $1,250,000 per year, plus 8.5% of Other - $ 21,841 1,748
semi-annual room revenues up to --------
$1,250,000 per year, plus 35% of annual $267,686
room revenues in excess of $1,250,000, --------
plus 8% of monthly other revenues
Danville, KY $190,750 14.2% of quarterly room revenues up Rooms - $1,047,357 $255,875 $449,604
to $900,000 per year, plus 8.5% of semi- Other - $ 37,237 2,979
annual room revenues up to $900,000 --------
per year, plus 35% of annual room $258,854
revenues in excess of $900,000, plus 8% --------
of monthly other revenues
Gettysburg, PA $190,750 14.5% of quarterly room revenues up to Rooms - $ 889,156 $208,952 $400,905
-------- $940,000 per year, plus 9% of semi- Other - $ 15,060 1,203 --------
annual room revenues up to $940,000 --------
per year, plus 35% of annual room $210,155
revenues in excess of $940,000, plus --------
8% of monthly other revenues
Total $4,745,489 $5,695,824 $10,441,313
========== ========== ===========
</TABLE>
(1) The Comfort Inn, Elizabethton, TN was sold by the Company on
June 30, 1998.
(2) Acquired September 2, 1998.
(3) The Rodeway Inn, Wytheville, VA is under contract to be sold (See Item
3. Legal Proceedings).
(4) Acquired June 25, 1998.
(5) Acquired August 18, 1998.
(6) Acquired June 26, 1998.
ITEM 3. LEGAL PROCEEDINGS
On March 19, 1999 the Company filed an action in the Circuit Court of
Wythe County, VA against Mr. Dhirubhai (Dick) Patel of Wytheville, VA and
Ramesh Sanghani, Mahesh Patel, Ramnik Sanghani, Jerambhai Patel and Kirin Patel
of Wilkesboro, NC (collectively, the "Defendants"). The action seeks $500,000
in damages from the Defendants as well as specific performance of a purchase
contract related to the sale of the Company's hotel located in Wytheville, VA,
which the Company and the Defendants entered into on December 30, 1998. The
Company's complaint alleges that the Defendants refused to engage in settlement
negotiations (as required under the contract) and breached their obligations
under the contract to purchase the hotel. The claim also alleges that the
Defendants' breach was committed purposefully, with malice, and constituted an
improper, intentional and willful act intended to benefit the Defendants'
competing businesses to the Company's detriment.
With the exception of the litigation noted above, the Company is not
presently involved in any material litigation, nor to it's knowledge, is any
material litigation threatened against the Company or it's 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.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
(a) Market Information
Prior to October 30, 1996, the Common Stock was listed on The Nasdaq
SmallCap Market ("Small Cap"). On October 30, 1996, the Common stock was
approved for listing and began trading on The Nasdaq National Market ("NASDAQ")
under the symbol "HUMP". The closing sales price for the shares on NASDAQ as
of March 15, 1999 was $8.50 per share. The table below sets forth the high and
low bid range for each of the fiscal quarters during 1997 and 1998.
<TABLE>
<CAPTION>
Dividends
Low High Declared
--- ---- --------
<S> <C> <C> <C>
1997
----
First Quarter 8.00 9.75 .19
Second Quarter 8.75 10.75 .19
Third Quarter 10.50 11.375 .19
Fourth Quarter 10.25 12.00 .2025
1998
----
First Quarter 10.75 12.06 .2025
Second Quarter 9.75 11.00 .2175
Third Quarter 8.75 10.00 .225
Fourth Quarter 8.75 9.56 .225
</TABLE>
(b) Holders
As of March 15, 1999, the approximate number of holders of record of
the shares was 124 and the approximate number of beneficial owners was 1,502.
(c) Dividends
The Company paid quarterly dividends from the first quarter of the
fiscal year ended December 31, 1995 through the end of the third quarter of
1997. During 1997, the Company began paying monthly dividends and intends to
continue to pay regular monthly dividends to its shareholders.
The Company announced a monthly dividend of $.075 per share for each
shareholder of record as of February 4, 1999, February 26, 1999 and March 31,
1999, payable on February 26, 1999, March 31, 1999 and April 30, 1999,
respectively.
Of the dividends paid during the year ended December 31, 1998, 13.48%
represented a return of capital based upon earnings per share determined for
income tax purposes.
The Company expects to maintain its current dividend rate for 1999,
unless actual results of operations, economic conditions or other factors
differ from the assumptions used in its estimates. The actual cash flow that
the Company will realize will be affected by a number of factors, including the
revenue received from Leases and unanticipated capital expenditures. No
assurance can be given that the Company's estimate will prove accurate.
Future dividends paid by the Company will be at the discretion of the
Board of Directors of the Company. The dividends will depend on the actual
cash flow of the Company, its financial condition, capital requirements, the
annual dividend requirements under the REIT provisions of the Code and such
other factors as the Directors of the Company deem relevant.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth (i) audited historical revenues and
expenses and financial data for the Company and the Lessee for the period from
November 29, 1994 (date of IPO) through December 31, 1994, and for each of the
years in the four year period ended December 31, 1998, (ii) audited selected
historical balance sheet data for the Company as of December 31, 1994, 1995,
1996, 1997 and 1998, and (iii) selected combined historical operating and
financial data for the Combined Selling Partnerships-Initial Hotels purchased
in connection with the Company's IPO for the eleven month period ended November
29, 1994, and pro forma operating and financial data for the year ended
December 31, 1994. The selected historical balance sheet data of the Company
as of December 31, 1994, 1995, 1996, 1997 and 1998, the selected historical
operating and financial data of the Company and the Lessee for the period from
November 29, 1994 through December 31, 1994 and for each of the years in the
four year period ended December 31, 1998, and the selected combined historical
operating and financial data for the Initial Hotels for the period from
January 1, 1994 through November 29, 1994 have been derived from the historical
financial statements of the Company, the Lessee and the Initial Hotels audited
by Reznick Fedder & Silverman, independent public accountants.
The following selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and all of the financial statements and notes
thereto included elsewhere in this Annual Report.
17
<PAGE> 18
HUMPHREY HOSPITALITY TRUST, INC.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from
November 29,
1994 (Inception)
through
December December December December December
31, 1994 31, 1995 31, 1996 31, 1997 31, 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating data
Percentage lease revenue (1) $ 273 $ 3,750 $ 3,958 $ 7,326 $10,441
Other revenue - 21 47 106 28
Gain on sale of asset - - - - 179
------- ------- ------- ------- -------
Total revenue 273 3,771 4,005 7,432 10,648
------- ------- ------- ------- -------
Interest expense 97 1,011 493 1,764 2,822
Real estate and personal property
taxes and property insurance 18 196 252 476 755
Land lease - - - 52 74
General and administrative 15 238 411 485 520
Depreciation and amortization 42 680 736 1,633 2,747
Impairment loss - - - - 622
------- ------- ------- ------- -------
Total expenses 172 2,125 1,892 4,410 7,540
Income before allocation to minority interest 101 1,646 2,113 3,022 3,108
Minority interest 29 396 435 465 454
------- ------- ------- ------- -------
Net income applicable to
common shareholders $ 72 $ 1,250 $ 1,678 $ 2,557 $ 2,654
======= ======= ======= ======= =======
Basic earnings per common share (2) $ .05 $ .72 $ .70 $ .73 $ .62
======= ======= ======= ======= =======
Diluted earnings per common share (2) $ .05 $ .70 $ .70 $ .73 $ .62
======= ======= ======= ======= =======
Dividends declared per common share $ .04 $ .67 $ .76 $ .77 $ .87
======= ======= ======= ======= =======
Balance Sheet Data
Net investment in hotel properties $18,183 $19,709 $21,405 $50,476 $72,805
Minority interest in Partnership 996 $ 2,589 $ 3,247 $ 3,370 $ 5,197
Shareholders' equity $ 4,365 $10,290 $18,145 $17,852 $27,718
Total assets $19,375 $21,898 $30,221 $53,799 $78,844
Total long-term debt $13,795 $ 8,383 $ 8,185 $31,755 $44,196
</TABLE>
18
<PAGE> 19
HUMPHREY HOSPITALITY TRUST, INC.
SELECTED FINANCIAL DATA - Continued
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from
November 29,
1994 (Inception)
through Year Ended Year Ended Year Ended Year Ended
December December December December December
31, 1994 31, 1995 31, 1996 31, 1997 31, 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Other Data
Funds from operations (3) $139 $2,132 $2,723 $4,548 $6,234
Weighted avg. shares outstanding
Basic 1,321,800 1,742,533 2,410,252 3,481,700 4,266,221
Diluted 1,849,666 2,310,424 3,033,602 4,116,236 5,020,801
Net cash provided by
operating activities $170 $1,334 $2,751 $3,680 $5,137
Net cash (used in)
investing activities $(4,840) $ (619) $(1,967) $(29,406) $(22,859)
Net cash provided by (used in)
financing activities $ 5,223 $ (1,100) $6,148 $18,829 $18,060
</TABLE>
HUMPHREY HOSPITALITY MANAGEMENT, INC.
SELECTED HISTORICAL REVENUE AND EXPENSES
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from
November 29,
1994 (Inception)
through
December December December December December
31, 1994 31, 1995 31, 1996 31, 1997 31, 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Room revenue $459 $7,499 $7,942 $15,581 $21,913
Other revenue (4) 38 556 637 871 1,306
---- ------ ------ ------- -------
Total revenue 497 8,055 8,579 16,452 23,219
Hotel operating expenses 314 4,167 4,590 8,716 12,686
Percentage lease payments (1) 273 3,750 3,958 7,326 10,441
----- ----- ----- ----- ------
Net (loss) income $(90) $138 $31 $410 $92
==== ==== === ==== ===
</TABLE>
19
<PAGE> 20
COMBINED SELLING PARTNERSHIPS - INITIAL HOTELS
SELECTED HISTORICAL AND PRO FORMA OPERATING AND FINANCIAL DATA
(In thousands, except operating data)
<TABLE>
<CAPTION>
-PRO
HISTORICAL FORMA
---------- -----
1994 (5) 1994 (5)
-------- --------
<S> <C> <C>
Financial Data
Room revenue $6,583 $7,042
Other revenue 715 752
------ -----
Total revenue 7,298 7,794
Operating expenses 4,513 4,827
----- -----
Operating income before interest,
depreciation, and amortization 2,785 2,967
Interest 1,062 1,159
Depreciation and amortization 690 732
----- -----
Net income $1,033 $1,076
====== ======
</TABLE>
(1) Represents annual Base Rent plus aggregate Percentage Rent and Fixed
Rent paid by the Lessee to the Partnership or the Subsidiary
Partnership pursuant to the Percentage Leases and the Fixed Lease,
which payments are calculated by applying the rent provisions in the
Percentage Leases to the historical room revenue of the hotels.
(2) Represents basic and diluted earnings per share computed in accordance
with FAS No, 128, adopted by the Company during 1997. Basic earnings
per share is computed as net income available to common shareholders
divided by the weighted average common shares outstanding and diluted
earnings per share is computed as income before minority interests
divided by the weighted average common shares outstanding plus the
assumed conversion of the units held by minority interests. The
adoption of FAS No. 128 did not have a material effect on prior years.
(3) Management considers Funds from Operations ("FFO") to be a market
accepted measure of an equity REIT's cash flow, which management
believes reflects on the value of real estate companies such as the
Company, in connection with the evaluation of other measures of
operating performances. All REIT's do not calculate FFO in the same
manner, therefore, the Company's calculation of FFO may not be the
same as the calculation of FFO for similar REITs. Beginning with the
year ended December 31, 1997, the Company changed the way it computes
FFO. The Company believes that its current method of computing FFO is
more consistent with the guidelines established by the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") for
calculating FFO. FFO, as defined under the NAREIT standard, represents
net income (computed in accordance with generally accepted accounting
principles), excluding gains or losses from debt restructuring and
sales of properties, plus depreciation and amortization of real
property, and after adjustments for unconsolidated partnerships and
joint ventures. For the periods presented, depreciation and
amortization, minority interest, gain on sale of property, costs
associated with the non-consummated offering during 1998 and
impairment loss were the only non-cash adjustments. FFO should not be
considered as an alternative to net income or other measurements under
generally accepted accounting principles as an indicator of operating
performance or to cash flows from operating, investing or financing
activities as a measure of liquidity. FFO does not reflect working
capital changes, cash expenditures for capital improvements or debt
service with respect to the hotel properties.
20
<PAGE> 21
The following table computes FFO:
<TABLE>
<CAPTION>
Period from
November 29, 1994
through Year Ended December 31,
December 31,1994 1995 1996 1997 1998
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income applicable to
holders of common shares $ 72 $1,250 $1,678 $2,557 $2,654
Add:
Minority interests 29 396 435 465 454
Gain on sale - - - - (179)
Non-consummated offering costs - - - - 139
Impairment loss - - - - 622
Depreciation 38 486 610 1,502 2,474
Amortization of franchise costs - - - 24 70
---- ------ ------ ------ ------
Funds From Operations $139 $2,132 $2,723 $4,548 $6,234
==== ====== ====== ====== ======
FFO per share $ - $ .92 $ .90 $ 1.10 $ 1.24
==== ====== ====== ====== ======
</TABLE>
(4) Represents marina revenue (for the Comfort Inn-Beacon Marina,
Solomons, MD and the Best Western Suites Hotel in Key Largo, FL hotels
only), telephone revenue, restaurant lease revenue and other revenue.
(5) The Historical 1994 operating data of the Initial Hotels is for the
period January 1, 1994 through November 28, 1994. The pro forma 1994
operating data represents the historical operating data of the Initial
Hotels for the period January 1, 1994 through November 28, 1994 and
the Lessee for the period November 29, 1994 through December 31, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's principal source of revenue is from payments by the
Lessee under the Leases. The principal determinants of Percentage Rent are the
hotels' room revenue, and to a lesser extent, other revenue. The Lessee's
ability to make payments to the Partnership under the Percentage Leases is
dependent on the operations of the hotels.
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 1998 to the year ended December 31,
1997
The Company
The Company's total revenues for the twelve-month period ended
December 31, 1998 consisted substantially of Percentage Lease revenue
recognized pursuant to the Percentage Leases. The Company's revenue was
approximately $10,648,000, an increase of 43.3% compared to revenue of
$7,432,000 for the year ended December 31, 1997. Net income for the period was
approximately $2,654,000, an increase of 3.8% compared to 1997 net income of
approximately $2,557,000. The increase in revenue is primarily attributable to
the acquisition of seven hotels from June through September of 1998 and a full
year of operation in 1998 of hotels acquired in 1997. Net income includes
certain one-time revenue and expense items for 1998 -- including the gain
realized upon the sale of the Company hotel located in Elizabethton, TN of
approximately $179,000; the write-off of costs in connection with a proposed
stock offering of approximately $139,000; and an impairment loss on the
Company's hotel located in Wytheville, VA of approximately $622,000 due to a
reduction in
21
<PAGE> 22
carrying value in connection with the expected sale of the hotel in 1999.
Excluding these one-time losses and gains, the Company's net income would have
been approximately $3,236,000, an increase of 26.6% over the same period of
1997. Interest expense increased by approximately 60% in 1998 over 1997 as a
result of increased borrowings that were utilized to acquire hotels. Interest
expense, property taxes and insurance and depreciation and amortization
increased as a result of the acquisition of seven hotels during 1998 and the
full year of expenses incurred as the result of operation in 1998 of hotels
acquired in 1997.
The Lessee
The Lessee's revenues increased by $6,767,000 for the year ended
December 31, 1998, or 41.1%, to approximately $23,219,000, as compared to
approximately $16,452,000 for the year ended 1997. The Lessee's net income for
the year ended December 31, 1998 decreased approximately $318,000, to
approximately $92,000 for the year ended December 31, 1998 from $410,000 for
1997. Operating expenses increased as a result of hiring several additional
management personnel in anticipation of several hotel acquisitions. Occupancy
for the Hotels was 68.3% for 1998, down from 68.8% for 1997. Occupancy was
affected in the late third and fourth quarters of 1998 due to several hotels
undergoing capital improvement projects that placed rooms out of order. Most
capital improvement projects are expected to be completed in April 1999.
Average daily rate at the hotels increased to $58.64 in 1998, or 2.7% compared
to average daily rate of $57.08 for 19977. REVPAR increased to $40.05, or
1.9%, as compared to $39.31 for 1977. If all Hotels had been in operation
since January 1, 1998 average daily rate would have been $58.40, REVPAR $40.44
and occupancy 69.3% for the year ending December 31, 1998.
Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
The Company
The Company's total revenues for the twelve month period ended
December 31, 1997 consisted substantially of Percentage Lease revenue
recognized pursuant to the Percentage Leases, as well as Fixed Lease revenue
related to the Comfort Suites-Dover, DE Hotel. The Company's revenue was
approximately $7,432,000, an increase of 85.6% compared to revenue of
$4,005,000 for the year ended December 31, 1996. Net income for the period was
approximately $2,557,000, an increase of 52.4% compared to 1996 net income of
approximately $1,678,000. The increase in both revenue and net income is
attributable to the acquisition of ten hotels and the development of the
Comfort Suites-Dover, DE hotel. Interest expense increased as a result of
increased borrowings under the Mercantile Credit Facility. These funds were
utilized to acquire and develop the above noted hotels in 1997. General and
administrative expenses increased as the result of fees incurred from auditing
the financial performance of the hotels acquired and from the land leases
associated with the purchase of the Comfort Inn-Gettysburg, PA and Best
Western-Harlan, KY hotels.
The Lessee
The Lessee's revenues increased by $7,874,000, or 91.8 %, to
$16,452,000 for the year ended December 31, 1997, as compared to $8,579,000 of
revenue for 1996. The Lessee's net income for the year ended December 31, 1997
increased approximately $379,000 to $410,000 compared to approximately $31,000
for the year ended December 31, 1996. Average occupancy for the hotels
remained at 70% for the year ended December 31, 1997 (the same as average
occupancy for the year ended December 31, 1996). The average daily rate at the
hotels increased to $56.21 for the year ended December 31, 1997 or 12% compared
to $50.27 for the same period in 1996. The increases in revenue and net income
are the result of adding eleven new hotels to the portfolio in 1997. The
increase in average daily rate resulted from the addition of the Comfort
Suites-Dover, DE and the Best Western Suites-Key Largo, FL hotels during 1997.
These hotels generated a greater average daily rate than the remainder of the
hotels. REVPAR increased to $39.24 for the year ended December 31, 1997, an
increase of $4.07, compared to $35.17 for the same period in 1996. The
increase is primarily attributed to acquisitions in 1997 of hotels with higher
room rates than existed for the hotels owned in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its share of the Partnership's cash
flow. The Partnership's principal source of revenue is rent payments received
from the Lessee. The Lessee's obligations under the Leases are unsecured. The
Lessee's ability to make rent payments, and the
22
<PAGE> 23
Company's liquidity, including its ability to make distributions to common
shareholders, is dependent on the Lessee's ability to generate sufficient cash
flow from the operation of the hotels.
The hotel business is seasonal, with hotel revenue generally greater
in the second and third quarters than in the first and fourth quarters, with
the exception of the Company's hotels located in Florida, which are busiest in
the first and fourth quarters of the year. To the extent that cash flow from
operating activities is insufficient to provide all of the estimated monthly
distributions (particularly in the first quarter), the Company anticipates that
it will be able to fund any such deficit from future working capital.
The Company's FFO was approximately $6,234,000 for the year ended
December 31, 1998, which is an increase of $1,686,000, or 37.1%, over FFO in
the comparable period in 1997, which was approximately $4,548,000, or $1.24 and
$1.10, respectively, per diluted common share. Most of the improvements in FFO
can be attributed to the acquisition of seven hotels between June 1998 and
September 1998. Management considers FFO to be a market accepted-measure of an
equity REIT's cash flow, which management believes reflects on the value of
real estate companies such as the Company in connection with the evaluation of
other measures of operating performance. Beginning with the year ended
December 31, 1997, the Company changed the way it computes FFO. The Company
believes that its current method of computing FFO is more consistent with the
guidelines established by NAREIT for calculating FFO. FFO, as defined under
the NAREIT standard, consists of net income computed in accordance with
generally accepted accounting principles, excluding gains or losses from debt
restructuring and sales of properties, plus depreciation and amortization of
real estate assets after adjustments for unconsolidated partnerships and joint
ventures. For the period presented, the non-cash adjustments were depreciation
and amortization, minority interest, impairment loss, gain from the sale of the
Comfort Inn located in Elizabethton, TN and write off of failed offering costs.
FFO should not be considered as an alternative to net income or other
measurements under GAAP as an indicator of operating performance or to cash
flows from operating, investing or financing activities as a measure of
liquidity. FFO does not reflect working capital changes, cash expenditures for
capital improvements or debt service with respect to the hotels. FFO may not
be comparable to other similarly titled measures of operating performance
disclosed by other REITS.
The computation of historical Funds From Operations is as follows (in
thousands):
<TABLE>
<CAPTION>
Historical Twelve Historical Twelve Historical Twelve
Month Period Ended Month Period Ended Month Period Ended
December 31, 1996 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net income before minority interests $ 2,113 $ 3,022 $ 3,108
Gain on sale - - (179)
Offering costs - - 139
Impairment loss - - 622
Depreciation 610 1,502 2,474
Amortization of franchise costs - 24 70
-------- -------- --------
Funds From Operations $ 2,723 $ 4,548 $ 6,234
======== ======== ========
</TABLE>
The Company expects to meet its short-term liquidity requirements
generally through net cash provided by operations and existing cash balances.
The Company believes that its net cash provided by operations will be adequate
to fund both operating requirements and payment of dividends by the Company in
accordance with REIT requirements.
The Company expects to meet its long-term liquidity requirements, such
as scheduled debt maturities and property acquisitions, through long-term
secured and unsecured borrowings, the issuance of additional securities of the
Company, or, in connection with acquisitions of hotel properties, the issuance
of Units of limited partnership interests in the Partnership.
DEBT
At December 31, 1998, the Company's outstanding debt was equal to
approximately $44.2 million and is secured by the Hotels as follows:
Approximately $24 million from the Mercantile Credit Facility
which is secured by and cross-collateralized by thirteen hotels.
The interest rate on the credit facility is variable at 25 basis
points above the prime rate, at a
23
<PAGE> 24
current rate of 8% per annum. The Mercantile Credit Facility
matures in April 1999. The Company is currently negotiating the
renewal of the Mercantile Credit Facility for an additional three
year term.
Approximately $11.2 million from the BankBoston Credit Facility,
which is secured and cross-collateralized by nine hotels. The
interest rate on the BankBoston Credit Facility is LIBOR plus
between 165 and 215 basis points. The Company entered into a
interest swap agreement that fixed the interest rate on the
curent balance of approximately $11.2 at a ceiling of 7.79%.
The current rate at December 31 was 7.67%. The BankBoston
Credit Facility matures on September 1, 2001.
Approximately $3.8 million, secured by first deeds of trust on
the hotels in Wytheville, VA and Morgantown, WV. Interest accrues
at the rate necessary to remarket bonds at a price equal to 100%
of the outstanding principal balance. The rate is adjusted weekly
and is not to exceed 15% for the Wytheville, VA Hotel and
11.3636% for the Morgantown, WV hotel. At December 31, 1998, the
interest rates were 4.05% and 4.15% respectively. In addition,
letter of credit fees and financing fees increase the effective
rate on the bonds. The letters of credit expire in November 1999
for the Wytheville, VA hotel and in April 2000 for the
Morgantown, WV hotel.
On February 26, 1999, the Company satisfied the bonds secured by
the Comfort Inn - Morgantown, WV hotel. This hotel was placed
as additional collateral on the Mercantile Credit Facility.
Approximately $2.9 million, secured by a first deed on the
Hampton Inn located in Brandon, FL. The outstanding balance
bears interest at a rate of 8% which will remain fixed for five
years per annum. The debt matures on August 5, 2018.
Approximately $2.3 million, secured by a first deed of trust on
the Comfort Inn-Dublin, VA hotel. The outstanding balance bears
interest at a fixed annual rate of 7.75% per annum with
additional underwriters' fees increasing the rate to 8%. The
debt matures in November 2005.
The approximate aggregate annual principal payments and payments to
bond sinking funds for the three years following December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999 $25,726,000
2000 $294,000
2001 $11,518,000
</TABLE>
INFLATION
Operators of hotels in general possess the ability to adjust room
rates quickly. However, competitive pressures have limited and may in the
future limit the Lessee's ability to raise room rates in the face of inflation,
which may limit the Lessee's ability to pay Rent to the Company. Industry-wide
ADR generally has failed to keep pace with inflation since 1987.
SEASONALITY OF HOTEL BUSINESS AND THE HOTELS
The hotel industry is seasonal in nature. Generally, hotel revenues
for hotels operating in the geographic areas in which the hotels operate are
greater in the second and third quarters than in the first and fourth quarters,
with the exception of the Company hotels located in Florida, which are busiest
in the first and fourth quarters of the year. The hotel's operations
historically reflect this trend. Although the hotel business is seasonal in
nature, the Company believes that it generally will be able to make its
expected distributions by using undistributed cash from the second and third
quarters to fund any shortfall in cash flow from operating activities from the
hotels in the first and fourth quarters.
Year 2000
In response to the year 2000 issue, the Company modified its existing
information systems in order to make them year 2000 compliant. The Company
believes that it has made all necessary modifications to its existing systems
and does not expect that additional costs associated with year 2000 compliance,
if any, will be material to the Company's future results of operations or
financial position.
24
<PAGE> 25
Because of the interdependence of information systems today, Year 2000
compliant companies may be affected by the Year 2000 readiness of their
material suppliers, customers and other third parties. Although management has
not yet determined the risk associated with the failure of any such party to
become Year 2000 compliant, such failure could have a material adverse effect
on the Company's results of operation and financial condition. To date, no
such parties have informed the Company that they do not expect to be Year 2000
compliant in a timeframe that would expose the Company to material business
risks.
OTHER INFORMATION
Effective May 22, 1997 the Company's Board of Directors adopted a
resolution increasing the Company's limit on consolidated indebtedness from 50%
to 55% of the aggregate purchase price of the Hotels in which it has invested.
The aggregate purchase price paid by the Company for the Hotels as of December
31, 1998 was approximately $81.8 million. As of December 31, 1998, the
Company's total outstanding indebtness represented approximately 54.0% of the
aggregate purchase price of the hotels.
During 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" and SFAS No. 129, "Disclosure
of Information about Capital Structure". Basic and diluted earnings per share
have been calculated in accordance with SFAS No. 128 for 1996, 1997 and 1998.
SFAS No. 129 requires the disclosure, in summary form within the financial
statements of the pertinent rights and privileges of the various securities
outstanding.
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The Company does not have any
items of other comprehensive income, does not have other segments of its
business on which to report, and does not have any pension or other
postretirement benefits.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company has not yet
adopted the provisions of SFAS No. 133, which was issued with adoption
required by the Company in 1999. The Company expects to adopt the standard in
1999, and, based on its current evaluation, anticipates no material impact.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS & SENSITIVITY ANALYSIS
The Company is exposed to various market risks, including
fluctuations in interest rates. To manage these natural business exposures,
the Company has entered into derivative transactions. The Company does not
hold or issue derivative instruments for trading purposes. These contracts are
entered into with major financial institutions thereby minimizing the risk of
credit loss. The following analyses presents the sensitivity of the market
value, earnings and cash flows of the Company's financial instruments to
hypothetical changes in the interest rates as if these changes occurred at
December 31, 1998. Market values are the present values of projected future
cash flows based on the interest rate assumptions. These forward-looking
disclosures are selective in nature and only address the potential impacts from
financial instruments. They do not include other potential effects that could
impact the Company's business as a result of these changes in interest rates.
INTEREST RATE AND DEBT SENSITIVITY ANALYSIS
At December 31, 1998, the Company has debt totaling approximately
$44,196,000, including fixed rate debt totaling approximately $2,979,000 and
variable rate debt totaling approximately $41,217,000. Included in the
variable rate debt is approximately $11,197,000 of debt subject to an interest
rate swap agreement which effectively changes the characteristics of the
interest rate without actually changing the debt instrument. At December 31,
1998, the Company's interest rate swap agreement converts outstanding variable
rate debt totaling approximately $11,197,000 to fixed rate debt for a period of
time. At December 31, 1998, after adjusting for the effect of the interest
rate swap agreement, the Company has fixed rate debt of approximately
$14,176,000 and variable rate debt of $30,020,000. Holding other variables
constant, a one
25
<PAGE> 26
percentage point increase in interest rates would decrease the fair value of the
fixed rate debt by approximately $187,000. However , for variable rate debt,
interest rate changes do not affect the fair value of the debt but do impact
future earnings and cash flows. The earnings and cash flow impact for the next
year resulting from a one percentage point increase in interest rates would be
approximately $265,000, holding other variables constant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item 8 is included as a separate section of this
Annual Report on Form 10-K. See Item 14.
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
Directors and Executive Officers
The Board of Directors consists of six members, all of whom serve one
year terms. Certain information regarding the directors and executive officers
of the Company is set forth below.
James I. Humphrey, Jr., Member of the Acquisition Committee, Chairman
of the Board, and President. Mr. Humphrey, age 57, is President and sole
shareholder of Humphrey Associates, Inc., and has held that position since
1978. Humphrey Associates, Inc. is a full-service real estate corporation.
Mr. Humphrey also served as President of Humphrey Hotels, Inc. from 1989 to
1994. He currently serves on the Credit Assurance Review Committee of the
Maryland Housing Fund and has served on the Governor's Housing Task Force in
Maryland, the Maryland Housing Policy Commission and the Maryland International
Division Private Sector Advisory Council. Mr. Humphrey is a graduate of the
University of Maryland and obtained an M.B.A. degree from Loyola College. Mr.
Humphrey has served continuously as Director and Chairman of the Company since
November 1994.
Margaret Allen, Director and member of the Audit and Acquisition
Committees. Ms. Allen, age 54, is Chief Executive Officer and 50% owner of AGM
Financial Services, Inc. ("AGM"), which she co-founded in 1990. AGM is a
mortgagee licensed by the Federal Housing Authority (the "FHA"), a division of
the United States Department of Housing and Urban Development. As a licensed
mortgagee, AGM represents borrowers who wish to obtain mortgage insurance from
the FHA for multifamily housing, assisted living facilities and nursing homes.
Prior to 1990, Ms. Allen was a Regional Vice President for ABG Financial
Services, Inc., a FHA licensed mortgagee. Ms. Allen currently serves on the
Credit Assurance Review Committee of the Maryland Department of Housing and
Community Development, the Board of Directors of the Baltimore City Chapter of
the Home Builders Association of Maryland and the Insured Projects Committee of
the Mortgage Bankers Association. She has served on the Maryland Housing
Policy Commission and chaired that commission from 1991-1992. Ms. Allen is a
graduate of the University of California, Berkeley. Ms. Allen has served
continuously as a Director of the Company since November 1994.
Jeffrey M. Zwerdling, Esq., Director and member of the Audit and
Acquisition Committees. Mr. Zwerdling, age 54, is Managing Partner at the law
firm of Zwerdling and Oppleman located in Richmond, Virginia. Mr. Zwerdling
specializes in commercial real estate law and general litigation. He is
presently President and Director of The Corporate Center, the owner of a
225,000 square foot office park complex located in Richmond, Virginia. Mr.
Zwerdling is a graduate of Virginia Commonwealth University and obtained his
J.D. degree from William & Mary Law School. Mr. Zwerdling has served as a
Director of the Company since November 1996.
26
<PAGE> 27
George R. Whittemore, Director and Secretary. Mr. Whittemore, age 49,
is President of Mills Value Advisor, Inc., a registered investment advisor and
is Senior Vice President of Anderson & Strudwick Incorporated ("A&S"), which
has served as underwriter for the Company's four public stock offerings. Mr.
Whittemore is also a consultant of Mills Management II, Inc., which is the
manager and a member of a privately-held limited liability company that was
formed to, among other things, acquire hotels that are substantially similar to
the Company's hotels. He served as a director and the President and Managing
Officer of Pioneer Federal Savings Bank and its parent Pioneer Financial
Corporation from September 1982 until these institutions were acquired by a
merger with Signet Banking Corporation in August 1994. Mr. Whittemore joined
Pioneer Federal Savings Bank in 1975 as Treasurer and was made Executive Vice
President in March 1982. He is a graduate of the University of Richmond. Mr.
Whittemore has served as a Director of the Company since November 1994. He was
appointed Secretary in March 1998.
Dr. Leah T. Robinson, Director. Dr. Robinson, age 67, is a clinical
psychologist in a part-time private practice. She was a member of the faculty
of Virginia Commonwealth University until 1973 when she joined Psychiatric
Associates of Tidewater, remaining with this group until it dissolved in 1989.
Dr. Robinson has served continuously as a Director of the Company since
November 1994.
Andrew A. Mayer, M.D., Director and member of the Audit Committee.
Dr. Mayer, age 64, is presently retired. He was a partner of Medical Center
Radiologists from 1965 to 1992 and served as a Director and Treasurer until
1991. Dr. Mayer was also Chief of Radiology at Leigh Memorial Hospital,
Norfolk, Virginia. Dr. Mayer served as a Director of Mills Value Fund, a
mutual fund, from July 1988 to December 1991, and has served as managing
partner for partnerships formed to develop and own residential and commercial
property. Dr. Mayer has served continuously as a Director of the Company since
March 1995.
Director Meetings
The business of the Company is under the general management of its
Board of Directors as provided by the Company's Bylaws and the laws of
Commonwealth of Virginia, the Company's state of incorporation. The Company's
Bylaws provide that a majority of members of the Board of Directors must be
independent directors. There are presently six directors, including four
independent directors. The Board of Directors held five meetings in 1998.
The Company has an Acquisition Committee and an Audit Committee of its
Board of Directors. The Company may, from time to time, form other committees
as circumstances warrant. Such committees have authority and responsibility as
delegated by the Board of Directors.
Audit Committee
The Audit Committee consists of three Independent Directors,
Ms. Allen, and Mr. Zwerdling and Dr. Mayer. The Audit Committee will make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls. The Audit Committee,
with advice from the Company's attorneys and independent public accountants,
will establish procedures to monitor compliance with the REIT provisions of the
Code and the Securities Exchange Act of 1934, as amended, and such other laws
and regulations applicable to the Company. The Audit Committee met once in
1998.
Acquisition Committee
The Board of Directors has established an Acquisition Committee, which
currently consists of Ms. Allen and Messrs. Zwerdling and Humphrey. The
Acquisition Committee will review potential hotel acquisitions, visit the sites
of proposed hotel acquisitions, review the terms of proposed Percentage Leases
for proposed hotel acquisitions and make recommendations to the Board of
Directors with respect to proposed acquisitions. The Acquisition Committee met
five times in 1998.
27
<PAGE> 28
Compensation of Directors
On May 22, 1997, the Board of Directors unanimously voted to increase
the annual fees paid to them by the Company for serving on the Board from
$10,000 per year to $15,000 per year effective for the last three quarters of
1997. The Board's action was designed to make their fees more comparable to
those of other public companies (including REITs) that are of similar size to
the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company's directors, executive officers and owners of more than
10% of the Common Stock are required under the Securities and Exchange Act of
1934 to file reports of ownership with the SEC. Copies of these reports must
also be furnished to the Company.
Based solely on review of the copies of such reports furnished to the
Company through the date hereof, or written representations that no reports
were required, the Company believes that during 1998, all filing requirements
applicable to its officers, directors and 10% shareholders were met.
ITEM 11. EXECUTIVE COMPENSATION
The Company does not pay its executives any salary above or beyond the
compensation that they receive as directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth, as of March 15, 1999 (unless
otherwise indicated), certain information regarding the beneficial ownership
of shares of Common Stock by (i) each person known to the Company to be the
beneficial owner of more than five percent (5%) of its capital stock (ii) each
director of the Company, (iii) each executive officer of the Company, and (iv)
all directors and executive officers of the Company as a group. Unless
otherwise indicated, all shares are owned directly and the indicated person has
sole voting and investment power. The number of shares represents the number
of shares of Common Stock the person holds plus the number of shares of Common
Stock into which Units that are held may be redeemed in certain circumstances.
Security ownership of beneficial owners of more than five percent (5%) of
capital stock:
<TABLE>
<CAPTION>
Amount and Nature
Name & Address of Beneficial of Beneficial Percent of
Owner Ownership Class (1)
----- --------- ---------
<S> <C> <C>
Mr. James I. Humphrey, Jr. 708,798 (1) 12.88%
12301 Old Columbia Pike, Suite 300
Silver Spring, MD 20904
Mr. James T. Martin 289,146 (2) 6.2%
Odyssey Capital Req.
6 Front Street
Hamilton, HM11 BERMUDA
Alliance Capital Management, Inc. 395,200 (3) 8.5%
1345 Avenue of the Americas
New York, NY 10105
Salomon Smith Barney Holdings, Inc. 270,300 (4) 5.8%
388 Greenwich Street
New York, NY 10013
</TABLE>
28
<PAGE> 29
(1) Assumes that all Units held by James I. Humphrey and his Affiliates
are redeemed for shares of Common Stock.
(2) Based on information contained in Schedule 13D/A, dated March 9, 1999,
and pending filing with the SEC.
(3) Based upon information contained in Schedule 13G/A, dated February 10,
1999, and filed with the SEC on February 16, 1998.
(4) Based upon information contained in Schedule 13G/A, dated January 14,
1999 and filed with the SEC on January 22, 1999.
Security Ownership by Management:
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial of Beneficial Percent of
Owner Ownership Class
----- --------- -----
<S> <C> <C>
James I. Humphrey, Jr. 708,798 (1) 12.88%
Margaret Allen 7,276 (3) * (2)
Jeffrey M. Zwerdling 94,934 (4) 2.00%
George R. Whittemore 93,302 (5) 2.00%
Dr. Leah T. Robinson 86,815 1.90%
Andrew A. Mayer, M.D. 77,552 1.70%
------ ------
All directors and executive officers as a group
(6 persons) 1,068,677 20.48%
- ---------------
</TABLE>
(1) Represents 703,179 shares issuable to Mr. Humphrey directly upon
redemption of his Units, 5,279 shares issuable to Humphrey Associates,
Inc. upon redemption of its Units and 340 shares issuable to Humphrey
Development, Inc. upon redemption of its Units. Mr. Humphrey is the
sole shareholder of Humphrey Associates, Inc. and the majority
shareholder of Humphrey Development, Inc. The redemption rights are
exercisable at any time subject to certain conditions.
(2) Represents less than one percent of the outstanding shares of Common
Stock.
(3) Mrs. Allen has dispositive power over the 7,276 shares of Common
Stock held by members of her family.
(4) Includes 57,317 shares of Common stock owned by Mr. Zwerdling and
37,617 shares of Common Stock over which Mr. Zwerdling has dispositive
power.
(5) Includes 90,826 shares of Common Stock owned by Mr. Whittemore and
2,476 shares owned by Mr. Whittemore's wife.
29
<PAGE> 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Partnership have entered into a number of
transactions with Mr. Humphrey and the Humphrey Affiliates in connection with
the organization of the Company and the acquisition of the hotels. Mr.
Humphrey, Chairman of the Board of Directors and the President of the Company,
is the sole shareholder of the Lessee.
Acquisition of Hotels from Affiliates of Mr. Humphrey
The Initial Hotels were acquired, directly and indirectly, by the
Partnership from limited partnerships in which Mr. Humphrey was a limited
partner and Humphrey Associates, Inc. was the general partner. The
Partnership's interests in the Initial Hotels and the Subsidiary Partnership
were acquired in exchange for (i) the assumption of approximately $13.4 million
of outstanding indebtedness of the sellers of the Initial Hotels, most of which
was guaranteed by Mr. Humphrey and Humphrey Associates, Inc. and secured by the
Initial Hotels, (ii) the issuance of an aggregate of 527,866 Units to the
Humphrey Affiliates, (iii) the assumption and repayment of approximately $2.1
million of outstanding indebtedness of the sellers of the Initial Hotels (in
addition to the indebtedness in clause (i) above) of which approximately $1.2
million was repaid to Humphrey Associates, Inc., (iv) the payment of $247,000
in cash to satisfy the obligations of Humphrey Associates, Inc. to restore its
negative capital account in one of the limited partnerships selling an Initial
Hotel, and (v) the payment of approximately $4.6 million in cash to persons
not affiliated with Mr. Humphrey.
The Partnership acquired the Days Inn-Farmville, VA hotel in
exchange for (i) 95,484 Units, which are redeemable, subject to certain
limitations, for an aggregate of approximately 95,484 shares of Common Stock
and (ii) assumption of approximately $1.2 million of debt secured by that
Hotel, which was repaid immediately with proceeds of the Company's second
public stock offering.
The Partnership acquired the Best Western Suites-Key Largo, FL
hotel pursuant to a purchase agreement that was assigned to the Partnership by
Humphrey Key Largo. Pursuant to the assignment of the purchase agreement,
Humphrey Key Largo received 34,023 Units.
The Humphrey Affiliates own 708,798 Units with a value of
approximately $6.00 million based on the last bid price on March 15, 1999.
Upon exercise of the redemption rights, which are currently all exercisable,
all of such Units are redeemable on a one-for-one basis for shares of Stock or
for an equivalent cash value at the sole election of the Company or if the
issuance of shares of Common Stock would result in any person owning more than
9.9% of the outstanding shares of stock.
Guarantees by Mr. Humphrey
At December 31, 1998, Mr. Humphrey guaranteed, jointly and
severally with the Company, the payment of interest and principal on
approximately $5.8 million of the Company's outstanding long-term debt. The
debt is secured by 15 of the hotels.
Leases
During 1998, the Partnership and the Lessee were parties to
Percentage Leases with respect to each hotel owned by the Partnership. Each
Lease has a non-cancelable term of ten years, which may be renewed for an
additional term of five years at the Lessee's option, subject to earlier
termination upon the occurrence of defaults thereunder and certain other events
described therein. Pursuant to the terms of the Percentage Leases, the Lessee
is required to pay Base Rent and Percentage Rent on the revenue of the hotels
and certain other additional charges and is entitled to all profits from the
operations of the hotels after the payment of Rent, operating and other
expenses. Payments of Rent under the Leases constituted all of the
Partnership's and the Company's revenue. For the period January 1, 1998
through December 31, 1998, the Lessee paid an aggregate of $10,441,313 in rent
under the Leases.
30
<PAGE> 31
Franchise Agreements
The Lessee, which is owned by Mr. Humphrey, holds all of the
franchise licenses for each of the Hotels currently owned by the Partnership
and is expected to hold all of the franchise licenses for any subsequently
acquired hotel properties. During 1998, the Lessee paid franchise fees in the
aggregate amount of approximately $1,232,000.
Non-Competition Agreement and Option Agreement
Pursuant to a Non-Competition Agreement among Mr. Humphrey, Humphrey
Associates, Inc., and the Company, while Mr. Humphrey is an officer or director
of the Company or has any ownership interest in the Company, and for five years
thereafter, neither Mr. Humphrey nor any affiliate of Mr. Humphrey, will
acquire, develop, own, operate, manage or have any interest in any hotel that
is within 20 miles of a hotel in which the Company or the Partnership has
invested. . The 20 mile prohibition may be waived by the Company's Independent
Directors if they determine that such development, ownership, management, or
operation will not have a material adverse affect on the operations of one or
more of the hotels in which the Company has invested. In addition, Mr.
Humphrey has agreed that neither he nor any of his affiliates will receive any
brokerage commissions or other fees with respect to hotels purchased by the
Company.
Pursuant to an Option Agreement among Mr. Humphrey, Humphrey
Associates, Inc. and the Company, the Company will have an option to acquire
any hotels acquired or developed by Mr. Humphrey or any Humphrey Affiliates.
At any time during 12 months after a hotel is acquired by, or after the opening
of a hotel developed by Mr. Humphrey or any of the Humphrey Affiliates, the
Company may purchase the applicable hotel under the option for a price equal to
the fair market value of the hotel, as determined by independent third-party
appraisal, but in no event less than the sum of the following: (i) acquisition
or development costs paid to unaffiliated third parties, (ii) capitalized
interest expense, (iii) the amount of equity investment in the hotel, including
the cash investment or advances of Mr. Humphrey and the Humphrey Affiliates, if
any (to the extent not covered in clauses (i) and (ii)), and (iv) a cumulative,
non-compounded return on the equity investment not to exceed the prime rate, as
reported by The Wall Street Journal, Eastern Edition, plus five percent (less
any net cash flow received by Mr. Humphrey or any Humphrey Affiliates with
respect to such equity investment). The Company currently anticipates that any
such acquired or developed hotel will have achieved stabilized operating
revenue before the Company would consider purchasing such hotel from Mr.
Humphrey or any Humphrey Affiliates. All transactions to acquire additional
properties and any and all transactions between the Company, the Partnership or
the Subsidiary Partnership and Mr. Humphrey or the Humphrey Affiliates must be
approved by a majority of the Company's directors, including a majority of its
independent directors. In addition, the Option Agreement provides that in the
event the Company acquires a hotel from Mr. Humphrey or any of the Humphrey
Affiliates in connection with the Company's issuance of additional securities,
Mr. Humphrey or any Humphrey Affiliates may receive consideration for such
property in additional Units provided that his and the Humphrey Affiliates'
interests in the Partnership shall not exceed 28.54% of the total limited
partnership interest in the Partnership.
On June 1, 1998, the Company issued 70,936 Units of limited
partnership interest in the Partnership, valued at $720,000 based on an average
price of $10.15 per share, to Humphrey Development, Inc. ("HDI") in exchange
for the option to repurchase the Dover, DE Hotel, which was granted to HDI as
compensation for development services rendered pursuant to the restated and
amended Development Services Agreement. On June 1, 1998, the Company issued
17,734 Units of limited partnership interest in the Partnership, valued at
$180,000 based on an average price of $10.15 per share, to Humphrey Hospitality
Management, Inc. the "Lessee" as an incentive to enter into a Percentage Lease
with the Partnership for the Dover, DE Hotel. These units were re-assigned by
the Lessee to Randy P. Smith, President of the Lessee.
31
<PAGE> 32
Other
Charles A. Mills, III, who, until his resignation on March 17, 1998,
was the Vice President, Treasurer, and a director, is Senior Vice President and
Chairman of Anderson & Strudwick Incorporated ("A & S"). George E. Whittemore,
who is a director of the Company, is Senior Vice President of A & S. A & S was
the underwriter of the Company's previous four underwritings and received
approximately $1,755,000 in investment banking fees in connection with the four
underwritings. A & S also served as underwriter for $2,460,000 in principal
amount fixed rate first mortgage `refunding revenue bonds, series 1995 issued
by the Industrial Development Authority of Pulaski County, which are serviced
by the Comfort Inn - Dublin; VA, and receives an ongoing fee equal to 0.25% of
the outstanding principal of those bonds.
Effective March 17, 1998, Charles A. Mills, III, resigned from his
positions as Vice President, Treasurer and Director of the Company to devote
more attention to his other business interests. Mr. Mills is the Senior Vice
President, Chairman and largest shareholder of A & S and had served on the
Company's Board of Directors since its IPO on November 29, 1994. The Company
entered into a Capital Consulting Agreement with Mr. Mills, who provided the
Company with advice as to future equity offerings and access to capital markets
generally. Under the terms of the Capital Consulting Agreement, which has
expired, the Company would have paid Mr. Mills .25% of the net proceeds from
public equity offerings over the term of the agreement.
The Company has an agreement with the Lessee to provide accounting and
securities reporting services for the Company. The Services Agreement provides
that the Lessee shall perform such services for an annual fee equal to $30,000
per year for as long as the Company's portfolio includes the Initial hotels and
the Dover, Delaware hotel. The fee will increase $10,000 per year (prorated
from the time of acquisition) for each additional hotel added to the Company's
portfolio not to exceed $100,000 in any year. During 1998, the Company paid
$99,996 pursuant to the Services Agreement.
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including, without limitation,
statements containing the words "believes," "anticipates," "expects," and words
of similar import. Such forward-looking statements relate to future events,
the future financial performance of the Company, and involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and
other factors are detailed from time to time in documents filed by the Company
with the SEC.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
<TABLE>
<S> <C>
Humphrey Hospitality Trust, Inc.
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1997 and 1998 F-2
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998 F-3
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1997 and 1998 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 F-5
Notes to Consolidated Financial Statements F-6
Schedule III - Real Estate and Accumulated Depreciation F-25
Notes to Schedule III - Real Estate and Accumulated Depreciation F-28
Humphrey Hospitality Management, Inc.
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
Independent Auditors' Report F-29
Balance Sheets as of December 31, 1997 and 1998 F-30
Statements of Income for the Years Ended December 31, 1996, 1997 and 1998 F-31
Statements of Shareholder's Equity for the Years Ended December 31, 1996, 1997 and 1998 F-32
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 F-33
Notes to Financial Statements F-34
</TABLE>
All other schedules have been omitted since the required information is not
applicable, or because the information required is included in the financial
statements, including the notes thereto
(b) Reports on Form 8-K
None
(c) Exhibits
3.1 Amended & Restated Articles of Incorporation
3.2 Bylaws (incorporated by reference to Exhibit 3.1 to the
Registration statement on Form S-11 (Registration No.
33-83658)).
10.1 Declaration of Trust of Humphrey Hospitality REIT Trust
(incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-11 (Registration No.
333-48583 filed March 25, 1998)).
10.2 Bylaws of Humphrey Hospitality REIT Trust Incorporated
by reference to Exhibit 1.2 to the Registration
Statement on Form S-11 (Registration No. 333-48583 filed
March 25, 1998)).
10.3 Agreement of Purchase and Sale dated March 26, 1997
between 344 Associates Limited Partnership and Humphrey
Hospitality Limited Partnership for the Comfort
Inn-Gettysburg, Pennsylvania (incorporated by reference
to Exhibit 10.17 to the Registration Statement on Form
S-11 (Registration No. 333-48583 filed March 25, 1998)).
10.4 Agreement of Purchase and Sale dated March 26, 1997
between 144 Associates Limited Partnership and Humphrey
Hospitality Limited Partnership for the Holiday Inn
Express-Gettysburg, Pennsylvania (incorporated by
reference to Exhibit 10.18 to the Registration Statement
on Form S-11 (Registration No. 333-48583 filed March 25,
1998)).
10.5 Agreement of Purchase and Sale dated March 26, 1997
between 544 Associates Limited Partnership and Humphrey
Hospitality Limited Partnership for the Comfort
Inn-Chambersburg, Pennsylvania (incorporated by
reference to Exhibit 10.20 to the Registration Statement
on Form S-11 (Registration No. 333-48583 filed March 25,
1998)).
10.6 Agreement of Purchase and Sale dated March 26, 1997
between 644 Associates Limited Partnership and Humphrey
Hospitality Limited Partnership for the Holiday Inn
Express-Allentown Pennsylvania (incorporated by
reference to Exhibit 10.19 to the Registration Statement
on Form S-11 (Registration No. 333-48583 filed March 25,
1998)).
10.7 Agreement of Purchase and Sale dated May 31, 1998
between Allen Investments, Inc. and Humphrey Hospitality
Limited Partnership for the Best Western - Ellenton, FL,
the Shoney's Inn, Ellenton, FL and the Hampton Inn,
Brandon, FL. (incorporated by reference to Exhibit 2.1
to Form 8-K/A filed August 6, 1998.)
10.8 Revolving Credit and Guaranty Agreement among Humphrey
Hospitality Trust, Inc., Humphrey Hospitality Limited
Partnership, Humphrey Hospitality REIT Trust and
Solomons Beacon Limited Partnership and BankBoston, N.A
and the other banks that may become parties to this
agreement dated August 18, 1998.
33
<PAGE> 34
10.9 First Amendment to BankBoston Revolving Credit and
Guaranty Agreement dated November 30, 1998.
21.1 Subsidiaries
27.1 Financial Data Schedule.
34
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Humphrey Hospitality Trust, Inc.
We have audited the accompanying consolidated balance sheets of Humphrey
Hospitality Trust, Inc. and Subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998 , and
the financial statement schedule as of December 31, 1998. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Humphrey
Hospitality Trust, Inc. and Subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. The financial statement schedule referred to above, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
January 25, 1999, except for Note 10 as to which
dates are February 8, 1999 and February 26, 1999
F-1
<PAGE> 36
<TABLE>
<CAPTION>
Humphrey Hospitality Trust, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, 1997 and 1998
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Investment in hotel properties, net of accumulated
depreciation of $2,636 and $4,956 $ 50,476 $ 72,805
Cash and cash equivalents 204 542
Accounts receivable from lessee 1,857 3,024
Reserve for replacements 149 98
Deferred expenses, net of accumulated amortization
of $207 and $471 904 1,778
Other assets 209 597
--------- ---------
Total assets $ 53,799 $ 78,844
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgages and bonds payable $ 31,721 $ 44,196
Obligations under capital leases 34 -
Dividends payable 559 412
Accounts payable and accrued expenses 263 915
Due to affiliates - 406
--------- ---------
Total liabilities 32,577 45,929
--------- ---------
MINORITY INTEREST 3,370 5,197
--------- ---------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.01 par value, 25,000,000 shares
authorized; 3,481,700 and 4,631,700 shares issued and
outstanding 35 46
Additional paid-in capital 18,042 29,039
Distributions in excess of net earnings (225) (1,367)
--------- ---------
17,852 27,718
--------- ---------
Total liabilities and shareholders' equity $ 53,799 $ 78,844
========= =========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 37
<TABLE>
<CAPTION>
Humphrey Hospitality Trust, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years ended December 31, 1996, 1997 and 1998
1996 1997 1998
--------- ---------- ---------
<S> <C> <C> <C>
Revenue
Percentage lease revenue $ 3,958 $ 7,326 $ 10,441
Other revenue 47 106 28
Gain on sale of asset - - 179
--------- ---------- ---------
Total revenue 4,005 7,432 10,648
--------- ---------- ---------
Expenses
Interest 493 1,764 2,822
Real estate and personal property taxes
and property insurance 252 476 755
Land lease - 52 74
General and administrative 411 485 520
Depreciation and amortization 736 1,633 2,747
Impairment loss - - 622
--------- ---------- ---------
Total expenses 1,892 4,410 7,540
--------- ---------- ---------
Income before allocation to minority
interest 2,113 3,022 3,108
Income allocated to minority interest 435 465 454
--------- ---------- ---------
NET INCOME $ 1,678 $ 2,557 $ 2,654
========= ========== =========
Basic earnings per common share $ .70 $ .73 $ .62
========= ========== =========
Diluted earnings per common share $ .70 $ .73 $ .62
========= ========== =========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 38
<TABLE>
<CAPTION>
Humphrey Hospitality Trust, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except shares)
Years ended December 31, 1996, 1997 and 1998
Common stock Additional Distribution
----------------- paid-in in excess of
Shares Dollars capital net earnings Total
--------- ------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 2,331,700 $ 23 $ 10,265 $ 2 $ 10,290
Issuance of shares, net of
offering expenses 1,150,000 12 8,633 - 8,645
Minority interest in the proceeds
from common stock offering - - (696) - (696)
Dividends declared ($.76 per share) - - - (1,772) (1,772)
Net income - - - 1,678 1,678
--------- -------- ---------- --------- ----------
Balance at December 31, 1996 3,481,700 35 18,202 (92) 18,145
Offering expenses - - (7) - (7)
Minority interest issued in
connection with the acquisition
of the Best Western Key Largo - - (153) - (153)
Dividends declared ($.77 per share) - - - (2,690) (2,690)
Net income - - - 2,557 2,557
--------- -------- ---------- ---------- ---------
Balance at December 31, 1997 3,481,700 35 18,042 (225) 17,852
Issuance of shares, net of
offering expenses 1,150,000 11 10,934 - 10,945
Adjustments to minority interest
from issuance of common stock
and part-nership units - - 63 - 63
Dividends declared ($.87 per share) - - - (3,796) (3,796)
Net income - - - 2,654 2,654
--------- -------- ---------- --------- ----------
Balance at December 31, 1998 4,631,700 $ 46 $ 29,039 $ (1,367) $ 27,718
========= ======= ========= ========== =========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 39
<TABLE>
<CAPTION>
Humphrey Hospitality Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31, 1996, 1997 and 1998
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,678 $ 2,557 $ 2,654
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 736 1,633 2,747
Income allocated to minority interests 435 465 454
Gain on sale of asset - - (179)
Impairment loss - - 622
Changes in assets and liabilities
Increase in accounts receivable (42) (790) (1,167)
Deferred franchise and software fees paid - (363) (258)
Increase in other assets (64) (2) (388)
Increase in accounts payable and accrued
expenses 8 180 652
---------- ---------- ----------
Net cash provided by operating
activities 2,751 3,680 5,137
---------- ---------- ----------
Cash flows from investing activities
Investment in hotel properties (2,306) (29,325) (24,366)
Proceeds from sale of hotel property - - 1,456
Deposits to reserve for replacements - (776) (1,027)
Withdrawals from reserve for replacements 339 695 1,078
---------- ---------- ----------
Net cash used in investing
activities (1,967) (29,406) (22,859)
---------- ---------- ----------
Cash flows from financing activities
Proceeds from sale of stock, net of issuance
costs 8,645 (7) 10,945
Proceeds from mortgages payable - - 3,000
Principal payments on mortgages payable (3,175) (1,400) (215)
Proceeds from line of credit 2,999 23,750 26,012
Repayment of line of credit - - (16,322)
Financing costs paid (53) (299) (719)
Dividends paid (2,246) (3,187) (4,607)
Principal payments on capital leases (22) (28) (34)
---------- ---------- ----------
Net cash provided by financing
activities 6,148 18,829 18,060
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,932 (6,897) 338
Cash and cash equivalents, beginning 169 7,101 204
---------- ---------- ----------
Cash and cash equivalents, ending $ 7,101 $ 204 $ 542
========== ========== ==========
</TABLE>
(continued)
F-5
<PAGE> 40
<TABLE>
<CAPTION>
Humphrey Hospitality Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(in thousands)
Years ended December 31, 1996, 1997 and 1998
1996 1997 1998
---------- --------- --------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 495 $ 1,582 $ 2,762
========== ========= ========
</TABLE>
Supplemental disclosures of non-cash investing and financing activities
During 1997, Humphrey Hospitality Limited Partnership (the Partnership)
issued units of limited partnership interest to Humphrey-Key Largo
Associates, L.P., which are redeemable for an aggregate of 34,023 common
shares, with a value of approximately $370 based on an average price of
$10.875 per share in connection with the acquisition of the Best Western
Suites Hotel in Key Largo, Florida. The recording of the increase in
minority interest resulted in a $153 reduction in additional paid in
capital.
During 1997, the Company acquired the Culpeper Comfort Inn Hotel for
$1,900 of which $1,220 represented debt assumed.
During 1997, the Company acquired equipment subject to capital leases
with a total cost of $28.
On June 1, 1998, the Company issued 70,936 units of limited partnership
interest to Humphrey Development, Inc. (HDI) in exchange for an option to
repurchase the Comfort Suites Hotel in Dover, Delaware (the Dover Hotel)
granted to HDI as compensation for development services rendered pursuant
to the restated and amended Development Services Agreement. The 70,936
units are redeemable on a one-for-one basis for common shares and are
valued at approximately $720 based on an average price of $10.15 per
share. The additional cost has been capitalized and included in
investment in hotel properties as of December 31, 1998.
On June 1, 1998, the Company issued 17,734 units of limited partnership
interest to Humphrey Hospitality Management, Inc. (the Lessee) as an
incentive to enter into a new lease with the Partnership for the Dover
Hotel. The total of 17,734 units are redeemable on a one-for-one basis
for common shares and are valued at approximately $180 based on an
average price of $10.15 per share. As of December 31, 1998, the cost has
been capitalized and included in deferred expenses.
On August 9, 1998, the Company issued 122,261 units of limited
partnership interest to the seller of the Hampton Inn in Jackson,
Tennessee as part of the purchase price. The 122,261 units are redeemable
on a one-for-one basis for common shares and are valued at approximately
$1,202 based on an average price of $9.83 per share.
As of December 31, 1998, additional paid-in capital has been increased by
$63 relating to adjustments to minority interest from issuance of common
stock and partnership units.
As of December 31, 1998, investment in hotel properties includes $406 of
hotel improvements payable to the Lessee.
Dividends declared on November 28, 1997 and December 31, 1997 and 1998,
are payable as of December 31, 1997 and 1998, in the amounts of $559 and
$412, respectively. Dividends declared during 1997 and 1998 included $495
and $664, respectively, to the minority interests which have been
deducted from the minority interest on the balance sheets as of December
31, 1997 and 1998, respectively.
See notes to consolidated financial statements
F-6
<PAGE> 41
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 1. Organization and Summary of Significant Accounting Policies
Humphrey Hospitality Trust, Inc. was incorporated on August 23, 1994. The
Company is a self-administered real estate investment trust (REIT) for Federal
income tax purposes. Humphrey Hospitality Trust, Inc., through its wholly-owned
subsidiary Humphrey Hospitality REIT Trust (collectively, the Company) owns a
controlling partnership interest in Humphrey Hospitality Limited Partnership
(the Partnership) and through the Partnership owns interests in 26 existing
limited service Hotels as of December 31, 1998. The Partnership owns a 99%
general partnership interest and the Company owns a 1% limited partnership
interest in Solomons Beacon Inn Limited Partnership (the Subsidiary
Partnership). As of December 31, 1998, the Company owns a 84.21% interest in the
Partnership. The Company began operations on November 29, 1994.
Since inception, the Partnership has leased all of its hotel facilities to
Humphrey Hospitality Management, Inc. (the Lessee), a corporation wholly owned
by James I. Humphrey, Jr., the President and Chairman of the Board of the
Company. The Lessee operates and leases the hotel properties pursuant to
separate percentage lease agreements (the Percentage Leases) which provide for
both fixed base rents and percentage rents based on the revenues of the hotels.
As of December 31, 1998, the minority interest shareholders own a combined
total of 868,304 units of limited partnership interests, representing a 15.79%
interest in the Partnership.
The Company has completed the following public offerings since its
incorporation:
<TABLE>
<CAPTION>
Net
Offering proceeds
price per Shares (in
Offering Date completed share sold thousands)
-------- -------------- ----- ---- ----------
<S> <C> <C> <C> <C>
Initial public
offering November 29, 1994 $ 6.00 1,321,700 $ 6,950
Second offering July 21, 1995 $ 7.75 1,010,000 $ 6,957
Third offering December 6, 1996 $ 8.25 1,150,000 $ 8,645
Fourth offering April 21, 1998 $ 10.50 1,150,000 $ 10,945
</TABLE>
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
the Partnership and the Subsidiary Partnership. All significant intercompany
balances and transactions have been eliminated.
F-7
<PAGE> 42
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Investment in Hotel Properties
The hotel properties are recorded at cost. Depreciation is computed using
the straight-line method over estimated useful lives of the assets which range
from 31 to 40 years for buildings and 5 to 12 years for furniture and equipment.
Maintenance and repairs are generally the responsibility of the Lessee and are
charged to the Lessee's operations as incurred; major replacements, renewals and
improvements are capitalized. Upon disposition, both the asset and accumulated
depreciation accounts are relieved and the related gain or loss is credited or
charged to income.
The Company reviews the carrying value of each hotel property in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121 to
determine if circumstances exist indicating an impairment in the carrying value
of the investment in the hotel property or that depreciation periods should be
modified. If facts or circumstances support the possibility of impairment, the
Company prepares a projection of the undiscounted future cash flows of the
specific hotel property and determines if the investment in the hotel property
is recoverable based on the undiscounted future cash flows. If impairment is
indicated, an adjustment is made to the carrying value of the hotel property
based on the discounted future cash flows. The Company does not believe that
there are any current facts or circumstances indicating impairment of any of its
investment in hotel properties, except as described in Note 2.
Cash and Cash Equivalents
Cash and cash equivalents includes cash and various highly liquid
investments with original maturities of three months or less when acquired,
carried at cost which approximates fair value.
F-8
<PAGE> 43
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
Deferred Expenses
Deferred expenses are recorded at cost and consisted of the following at
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Initial franchise fees $ 378 $ 629
Computer software costs 27 34
Loan costs 706 1,406
Lease costs - 180
------ --------
1,111 2,249
Less accumulated amortization 207 471
------ --------
$ 904 $ 1,778
====== ========
</TABLE>
Amortization of loan costs is computed using the straight-line method,
which approximates the effective interest method, over the terms of the loans.
The unamortized balance of loan costs associated with retired debt is expensed
upon repayment of the related debt. Amortization of initial franchise fees is
computed using the straight-line method over the remaining lives of the
franchise agreements, which range up to 20 years. Amortization of computer
software costs is computed using the straight-line method over three years.
Amortization of lease costs is computed using the straight-line method over the
life of the lease.
Revenue Recognition
Lease income is recognized when earned from the Lessee under the lease
agreements from the date of acquisition of each hotel property (see Note 7). All
leases between the Company and the Lessee are operating leases.
Earnings Per Common Share
During 1997, the Company adopted SFAS No. 128, Earnings Per Share. Basic
and diluted earnings per share have been calculated in accordance therewith for
1996, 1997 and 1998 (see Note 6).
Distributions
The Company intends to pay regular monthly dividends which are dependent
upon the receipt of distributions from the Partnership.
F-9
<PAGE> 44
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
Minority Interest
Minority interest in the Partnership represents the limited partners'
proportionate share of the equity of the Partnership. The limited partnership
interests are owned by numerous individuals and companies as of December 31,
1998. Income is allocated to minority interest based on the weighted average
percentage ownership throughout the year.
Income Taxes
The Company intends to continue to qualify as a REIT under Sections 856
and 860 of the Internal Revenue Code effective with its taxable period ended
December 31, 1994. Accordingly, no provision for Federal income taxes has been
reflected in the financial statements.
Earnings and profits, which will determine the taxability of dividends to
shareholders, will differ from net income reported for financial reporting
purposes due to the differences for Federal tax purposes in the estimated useful
lives and methods used to compute depreciation. During 1997, none of the
distributions were considered to be return of capital for Federal income tax
purposes. During 1998, 13.5% of the distributions made were considered to be a
return of capital for Federal income tax purposes.
Concentration of Credit Risk
The Company maintains its deposits, including its repurchase agreements
and other investments, with three major banks. At December 31, 1998, the balance
reported by one bank, exceeded the federal depository insurance limit, however,
management believes that no significant concentration of credit risk exists with
respect to these uninsured cash balances.
Note 2. Investment in Hotel Properties
Investment in hotel properties consisted of the following at December 31,
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
(in thousands)
---------------------
<S> <C> <C>
Land $ 4,455 $ 6,739
Buildings and improvements 43,595 61,323
Furniture and equipment 4,937 7,587
Leased equipment 125 -
Construction-in-progress - 387
Hotel property held for sale - 2,347
------- --------
53,112 78,383
Less: Accumulated depreciation 2,636 4,956
Impairment loss - 622
------- --------
$50,476 $ 72,805
======= ========
</TABLE>
F-10
<PAGE> 45
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 2. Investment in Hotel Properties (Continued)
Depreciation expense was $610, $1,502 and $2,474 for the years ended
December 31, 1996, 1997 and 1998, respectively.
The 26 hotel properties owned at December 31, 1998 (including the 10 and 7
hotels acquired during 1997 and 1998, respectively) are all limited service
hotels located in nine states in the eastern United States and are subject to
leases as described in Note 7.
During 1997 and 1998, the Company acquired the following hotels for the
approximate amounts indicated:
<TABLE>
<CAPTION>
1997 1998
---------------------- --------------------
Contract Contract
purchase purchase
price Number price
Number (in of (in
Location of hotels thousands) hotels thousands)
-------- --------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Florida 1 $ 2,590 3 $ 10,750
Kentucky 2 5,341 - -
North Carolina 1 1,975 1 2,950
Pennsylvania 5 16,400 - -
Virginia 1 1,900 1 2,850
Tennessee - - 2 7,550
--------- --------
$ 28,206 $ 24,100
========= ========
</TABLE>
The above acquisitions were accounted for as purchases and the operating
results of such acquisitions are included in the Company's consolidated
statements of income from the date of acquisition. The hotel property in Key
Largo, Florida, was acquired in 1997 pursuant to an assignment of a purchase
contract from Humphrey-Key Largo Associates, L.P. (HKL), a partnership
substantially owned by Mr. Humphrey. Pursuant to the assignment of the contract,
HKL received as compensation 34,023 units of limited partnership interest in the
Partnership valued at $370 based on an average price of $10.875 per share. The
hotel property has been recorded by the Company at its acquisition cost.
During 1997, the Company also completed the development of the Dover Hotel
at a cost of approximately $2,688. On June 1, 1998, the Company issued 70,936
units of limited partnership interest in the Partnership, valued at $720 based
on an average price of $10.15 per share, to Humphrey Development, Inc. as
compensation for development services rendered pursuant to the restated and
amended Development Services Agreement (see Note 7). The additional cost has
been capitalized and included in investment in hotel properties as of December
31, 1998.
F-11
<PAGE> 46
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 2. Investment in Hotel Properties (Continued)
On August 9, 1998, the Company issued 122,261 units of limited
partnership interest in the Partnership in connection with the acquisition of a
hotel property located in Jackson, TN, valued at $1,202 based on an average
share price of $9.83 per share.
On June 30, 1998, the Company closed on the sale of the Comfort Inn,
Elizabethton, TN for $1,550. The Company realized a gain on the sale, after
selling costs, of $179.
On December 30, 1998, the Company executed an agreement to sell the
Rodeway Inn in Wytheville, VA (the Wytheville Hotel) for $1,450. It is
anticipated that the sale will be completed during the second quarter of 1999.
In connection with the execution of the agreement, the Company determined that
the carrying value of the hotel exceeded its fair value. Accordingly, an
impairment loss of $622, which represents the excess of the carrying value of
$2,004 over the fair value, net of costs to sell, of $1,382 has been charged to
operations in 1998. During 1997 and 1998, the Company earned lease revenue of
$289 and $271, respectively, from the Wytheville Hotel.
Note 3. Dividends Payable
On November 28, 1997 and December 31, 1997, the Company declared a $.0675
dividend on each share of common stock and on each unit of interest outstanding
on November 28, 1997 and December 31, 1997, respectively. The dividends
(including the distributions to minority interest) were paid on January 9, 1998
and January 30, 1998, respectively. On December 31, 1998, the Company declared a
$.075 dividend on each share of common stock and on each unit of interest
outstanding on December 31, 1998.
Note 4. Mortgages and Bonds Payable
Mortgages and bonds payable at December 31, 1997 and 1998, consisted of
the following:
F-12
<PAGE> 47
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 4. Mortgage and Bonds Payable (Continued)
<TABLE>
<CAPTION>
1997 1998
---------- ---------
(in thousands)
<S> <C> <C>
Comfort Inn - Morgantown, West Virginia
---------------------------------------
Bonds payable; see (a) below for repayment
terms, interest rates, and maturity;
collateralized by a first mortgage on the
hotel facility and equipment with a net
book value of $3,133 and $2,725 at
December 31, 1997 and 1998, respectively,
and secured by a letter of credit issued
by Crestar Bank in the amount of $2,281
expiring in April 2000. The outstanding
principal and interest are guaranteed
jointly and severally by the Company and
James I. Humphrey, Jr. $ 2,230 $ 2,180
Roadway Inn - Wyethville, Virginia
----------------------------------
Bonds payable; see (c) below for repayment
terms, interest rates, and maturity;
collateralized by a first mortgage on the
hotel facility and equipment with a net
book value of $1,254 and $1,868 at
December 31, 1997 and 1998, respectively,
and secured by a letter of credit issued
by Crestar Bank in the amount of $1,749
which expires November 1, 1999. The
outstanding principal and accrued interest
are guaranteed jointly and severally by
the Company and James I. Humphrey, Jr. 1,710 1,615
</TABLE>
F-13
<PAGE> 48
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 4. Mortgage and Bonds Payable (Continued)
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Hampton Inn - Brandon, Florida
------------------------------
Mortgage payable to Regions Bank, N.A.
evidenced by a promissory note dated
August 5, 1998, in the amount of $3,000;
collateralized by the hotel property in
Brandon, FL. The note bears interest
during the initial five-year period at
8.00% per annum and thereafter during the
remaining term at a rate equal to 250
basis points over the index rate as
defined in the promissory note. The
interest rate will be adjusted on every
5th anniversary. Monthly principal and
interest payments of $25 are payable
through maturity on August 5, 2018 when
the remaining balance of principal and
accrued interest are due. The mortgage is
collateralized by hotel facilities and
equipment having a combined net book value
of $4,852 at December 31, 1998. - 2,979
Mortgage payable to Bank Boston, N.A.
under the terms of a $35 million line of
credit, collateralized by 9 of the hotel
properties (see (d) below). The terms of
the line of credit require monthly
installments of interest only at the base
rate as determined in accordance with the
loan agreement, 7.67% at December 31,
1998. The loan agreement requires payment
of an annual fee of $20,000 plus a
quarterly fee ranging from .15% to .25% of
the unused credit facility. The
outstanding principal balance plus any
accrued interest are payable in full on
September 1, 2001. The mortgage is
collateralized by hotel facilities and
equipment having a combined net book value
of $22,929 at December 31, 1998. - 11,197
</TABLE>
F-14
<PAGE> 49
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 4. Mortgage and Bonds Payable (Continued)
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Mortgage payable to Mercantile Safe
Deposit and Trust Company under the terms
of a $25.5 million line of credit,
collateralized by 13 of the hotel
properties (see (e) below). The terms of
the line of credit require monthly
installments of interest only at the prime
rate plus .25% (8.00% per annum as of
December 31, 1998). The outstanding
principal balance plus any accrued
interest are payable in full in April
1999, with two one year extensions at the
option of the bank. The mortgage is
collateralized by hotel facilities and
equipment having a combined net book value
of $42,381 and $31,039 at December 31,
1997 and 1998, respectively. The first $2
million outstanding on the line is
guaranteed jointly and severally by the
Company and James I. Humphrey, Jr. 25,456 23,950
---------- ---------
$ 31,721 $ 44,196
========== =========
</TABLE>
--------------
(a) The bonds are Monongalia County, West Virginia, Commercial
Development Variable Rate Demand Refunding Revenue Bonds, Series
1988 issued through Crestar Bank in the amount of $2,500. Interest
is accrued at the rate necessary to remarket the bonds at a price
equal to 100% of the outstanding principal balance. The rate is
adjusted weekly and is not to exceed 11.3636%. At December 31,
1998, the interest rate was 4.15% . In addition, letter of credit
fees and financing fees increase the effective rate on the bonds.
The bonds may be redeemed at the option of the Partnership in
denominations greater than $25. Mandatory redemptions are pursuant
to a sinking fund redemption schedule which began on April 1,
1989, in the amount of $15 increasing annually until April 1,
2017, when the payment equals $140. The Partnership is required to
fund a principal reserve fund monthly equal to one-twelfth of the
mandatory sinking fund redemption. In addition, the Partnership is
required to fund an interest reserve fund. All principal and
interest payments will be automatically deducted by the trustee.
Any deficiencies will be drawn down under the letter of credit.
(b) On October 14, 1992, $2,528 of Variable Rate First Mortgage
Refunding Revenue Bonds were issued by the Industrial Development
Authority of Pulaski County, Virginia. Crestar Bank is the
trustee. In August 1995, the bonds were refinanced with
approximately $2,460 of 1995 First Mortgage Refunding Revenue
Bonds bearing interest at 8% per annum. The agreement establishes
a sinking fund from which principal payments on the bonds will be
made. The bonds mature in varying amounts November 1, 1995 through
November 1, 2005.
F-15
<PAGE> 50
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 4. Mortgage and Bonds Payable (Continued)
(c) The original $2,600 bond issue financing of 1984 was refunded with
$2,270, 1993 Series Industrial Development Revenue Bonds on
December 21, 1993. Crestar Bank is the lender and bond trustee.
Interest is accrued at the rate necessary to remarket the bonds at
a price equal to 100% of the outstanding principal balance. The
rate is adjusted weekly and is not to exceed 15%. At December 31,
1998, the interest rate was 4.05%. The bonds are subject to
mandatory redemption at a redemption price equal to the principal
amount thereof plus all unpaid accrued interest thereon, pursuant
to the sinking fund installments beginning on November 1, 1994, in
the amount of $65 increasing annually until November 1, 2009, when
the payment equals $300. The Partnership is required to fund a
principal reserve monthly equal to one-twelfth of the mandatory
sinking fund redemption. In addition, the Partnership is required
to fund an interest reserve fund. All principal and interest
payments will be automatically deducted by the trustee. Any
deficiencies will be drawn under the letter of credit described
above.
(d) As of December 31, 1998, the line of credit is secured by the
Company's hotels located in Jackson, TN; Ellenton, FL (2 hotels);
Shelby, NC; Cleveland, TN; Dover, DE; Dahlgren, VA; Key Largo, FL
and Princeton, WV.
(e) As of December 31, 1998, the line of credit is secured by the
Company's hotels located in Solomons, MD; Farmville, VA (2
hotels); Culpeper, VA; New Castle, PA; Harlan, KY; Danville, KY;
Murphy, NC; Chambersburg, PA; Allentown, PA; Gettysburg, PA (2
hotels); and Rocky Mount, VA.
F-16
<PAGE> 51
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 4. Mortgages and Bonds Payable (Continued)
Aggregate annual principal payments and payments to bond sinking funds for
the five years following December 31, 1998, and thereafter are as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
December 31, 1999 $ 25,726
2000 294
2001 11,518
2002 347
2003 2,973
Thereafter 3,338
--------
$ 44,196
========
</TABLE>
The Company's revolving lines of credit contain requirements as to the
maintenance of minimum levels of debt service coverage and loan-to-value ratios
and net worth, and place certain restrictions on distributions.
Bond sinking funds and escrows for taxes and insurance in the amounts of
approximately $125 and $130 are included in other assets at December 31, 1997
and 1998, respectively.
The Company has entered into an interest rate swap agreement to reduce the
impact of changes in interest rates on its variable and long-term debt. At
December 31, 1998, the Company had an outstanding swap agreement with
BankBoston, N.A. having a notional balance of approximately $11.2 million,
maturing September 1, 2001. The agreement effectively changes the Company's
interest rate exposure on the BankBoston line of credit due August 2001 to a
fixed rate of 7.79%. The Company is exposed to credit losses in the event of
nonperformance by the bank, related to the interest rate swap agreement.
However, the Company does not anticipate nonperformance by the bank. Amounts
receivable or payable under the swap agreement are accounted for as adjustments
to interest expense on the related debt.
Management believes that the carrying amounts of the Company's mortgages
and bonds payable approximate fair value at December 31, 1998, as there were no
significant changes in the market rate of interest between that date and the
dates of the respective mortgages and bonds.
Note 5. Obligations Under Capital Lease
Certain of the hotel properties leased equipment under capital leases
expiring at various intervals through 1999. The leases provided for bargain
purchase options at the end of the respective terms. Future minimum lease
payments under the capital leases, together with the present value of the net
minimum lease payments as of December 31, 1997, were as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Years ended December 31, 1998 $ 25
1999 8
</TABLE>
F-17
<PAGE> 52
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
2000 6
2001 3
---------
42
Less amount
representing interest 8
---------
Present value of net minimum lease
payments $ 34
=========
</TABLE>
On February 3, 1998, the Company exercised its option to pay off the
remaining capital leases for a total of $39.
F-18
<PAGE> 53
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 6. Earnings Per Share
The following is a reconciliation of the income (numerator) and weighted
average shares (denominator) used in the calculation of basic earnings per
common share and diluted earnings per common share in accordance with SFAS No.
128, Earnings Per Share:
<TABLE>
<CAPTION>
Year ended December 31, 1996 Year ended December 31, 1997 Year ended December 31, 1998
------------------------------ ---------------------------- ------------------------------
Income Income Income
(Numerator) Per (Numerator) Per (Numerator) Per
(In Shares Share (In Shares Share (In Shares Share
thousands)(Denominator) Amount thousands)(Denominator) Amount thousands)(Denominator) Amount
-------- ---------- -------- -------- ----------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per common
share
Income available to
common shareholders $ 1,678 2,410,252 $ 0.70 $ 2,557 3,481,700 $ 0.73 $ 2,654 4,266,221 $ 0.62
======== ======= =======
Effect of diluted
securities
Units held by minority
interests 435 623,350 465 634,536 454 754,580
-------- --------- ------- --------- -------- ---------
Income available to common
shareholders plus assumed
conversion $ 2,113 3,033,602 $ 0.70 $ 3,022 4,116,236 $ 0.73 $ 3,108 5,020,801 $ 0.62
======== ========= ======== ======= ========= ======= ======== ========= =======
</TABLE>
F-19
<PAGE> 54
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 7. Commitments and Contingencies and Related Party Transactions
As of December 31, 1998, James I. Humphrey, Jr., Humphrey Associates,
Inc.,. and Humphrey Development, Inc. (collectively, the Humphrey Affiliates)
own a combined total of 708,798 units of limited partnership interest in the
Partnership.
Pursuant to the Humphrey Hospitality Limited Partnership Agreement (the
Partnership Agreement), the Humphrey Affiliates have received redemption rights,
which will enable them to cause the Partnership to redeem their interests in the
Partnership in exchange for shares of common stock or for cash at the election
of the Company. The redemption rights may be exercised by the Humphrey
Affiliates, at any time.. At December 31, 1998, the number of shares of common
stock issuable to the Humphrey Affiliates and non-affiliated unit holders upon
exercise of the redemption rights is 708,798 and 159,506, respectively. The
number of shares issuable upon exercise of the redemption rights will be
adjusted upon the occurrence of stock splits, mergers, consolidations or similar
pro rata share transactions, which otherwise would have the effect of diluting
the ownership interests of the Humphrey Affiliates, non-affiliated unit holders
or the shareholders of the Company.
The Company acts as the general partner of the Partnership, which acts as
a general partner of the Subsidiary Partnership and as such, is liable for all
recourse debt of the partnerships to the extent not paid by the partnerships. In
the opinion of management, the Company does not anticipate any losses as a
result of its general partner obligations.
The Company has entered into percentage leases relating to the Hotels,
with Humphrey Hospitality Management, Inc. (the "Lessee"). Each such lease has a
term of 10 years, with a five year renewal option at the option of the Lessee.
Pursuant to the terms of the Percentage Leases, the Lessee is required to pay a
fixed rent and certain other additional charges and is entitled to all profits
from the operations of the Hotel after the payment of certain specified
operating expenses. The percentage rents are based on a percentage of gross room
revenue and other revenue. Also pursuant to the terms of the Percentage Leases,
the Company is required to make available to the Lessee an amount equal to 6% of
room revenue on a quarterly, cumulative basis for capital improvements and
refurbishments. The Company has future lease commitments from the Lessee through
September 2008. Minimum future rental income under these noncancelable operating
leases at December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Years (in thousands)
----- --------------
<S> <C>
1999 $ 5,352
2000 5,352
2001 5,352
2002 5,352
2003 5,352
Thereafter 15,977
----------
$ 42,737
==========
</TABLE>
F-20
<PAGE> 55
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 7. Commitments and Contingencies and Related Party Transactions (Continued)
The Company earned base rents of $1,679, $3,303 and $4,745 and percentage
rents of $2,279, $4,023 and $5,696 for the years ended December 31, 1996, 1997
and 1998, respectively. As of December 31, 1997 and 1998, $1,857 and $3,024,
respectively, of lease revenue was due from the Lessee.
On January 1, 1996, the Company executed an agreement with the Lessee to
provide accounting and securities reporting services for the Company. The
initial terms of the agreement provided for a fixed fee of $80,000 per year. On
October 1, 1996, the Company amended the Agreement reducing the initial annual
fee to $30,000 per year, with an increase of $10,000 per year (prorated from the
time of acquisition) for each hotel added to the Company's portfolio (excluding
the Dover Hotel). Under the terms of the amended agreement, the service fee
cannot exceed $100,000 in any year. As of December 31, 1996, 1997 and 1998,
$67,503, $79,388 and $99,996, respectively, has been charged to operations.
During 1996, the Company executed a Development Agreement with Humphrey
Development, Inc. (HDI), a Humphrey Affiliate, pursuant to which HDI provided
construction supervision services for the Dover Hotel and agreed to pay any
development costs in excess of $2,796 in exchange for a right to reacquire the
Dover Hotel from the Company on the sixth anniversary of its commencement of
operations for $2,796. The development costs incurred in connection with the
Dover Hotel totaled approximately $2,794 of which $2,688 was recorded as
investment in hotel properties and $106 as deferred loan costs.
On June 1, 1998, the Company issued 70,936 units of limited partnership
interest in the Partnership, valued at $720 based on an average price of $10.15
per share, to HDI in exchange for the option to repurchase the Dover Hotel
provided to HDI as compensation for development services rendered pursuant to
the restated and amended Development Services Agreement. The additional cost has
been capitalized and included in investment in hotel properties at December 31,
1998.
On June 1, 1998, the Company issued 17,734 units of limited partnership
interest in the Partnership, valued at $180 based on an average price of $10.15
per share, to the Lessee as an incentive to enter into a new lease with the
Partnership for the Dover Hotel. As of December 31, 1998, this cost has been
capitalized and included in deferred expenses.
During 1998, the Lessee provided for capital improvements totalling $406
to the hotels which are the responsibility of the Company and have been
capitalized and included in investment in hotel properties. As of December 31,
1998, $406 remains payable and is recorded as due to affiliates.
F-21
<PAGE> 56
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 7. Commitments and Contingencies and Related Party Transactions (Continued)
During 1997 and 1998, the Company contracted with Unit Services, Inc., an
affiliated company to perform rehabilitation work on certain hotels. The total
amounts incurred and paid were $301 and $143, respectively, which have been
capitalized into the investment in hotel properties.
The hotel properties are operated under franchise agreements by the Lessee
that may be terminated by either party on certain anniversary dates specified in
the agreements. The agreements require annual payments for franchise royalties,
reservation and advertising services which are based upon percentages of gross
room revenue. These fees are paid by the Lessee.
On April 17, 1997, the Company assumed a land lease agreement in
conjunction with the purchase of the Best Western Hotel, Harlan, Kentucky. The
lease requires monthly payments of the greater of $2 or 5% of room revenue
through November 2091. On May 23, 1997, the Company assumed a land lease
agreement in conjunction with the purchase of the Comfort Inn, Gettysburg,
Pennsylvania. The lease requires an annual payment of $35 through May 2025. For
the years ended December 31, 1997 and 1998, land lease expense totaled
approximately $52 and $74, respectively, and is included in general and
administrative expense.
As of December 31, 1998, the future minimum lease payments applicable to
noncancellable land leases are as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
December 31, 1999 $ 59
2000 59
2001 59
2002 59
2003 59
Thereafter 2,860
--------
Total minimum lease payments $ 3,155
========
</TABLE>
In response to the Year 2000 Issue, the Company modified its existing
information systems in order to make them year 2000 compliant. The Company
believes that it has made all necessary modifications to its existing systems
and does not expect that additional costs associated with year 2000 compliance,
if any, will be material to the Company's results of operations or financial
position. However, because there is no guarantee that all systems of outside
vendors or other entities affecting the Company's operations will be year 2000
compliant, the Company remains susceptible to consequences of the Year 2000
Issue.
F-22
<PAGE> 57
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 8. Capital Stock
The Company's common stock is duly authorized, fully paid and
nonassessable. Subject to preferential rights of any other shares or series of
shares of capital stock, common shareholders are entitled to receive dividends
if and when authorized and declared by the Board of Directors of the Company out
of assets legally available therefore and to share ratably in the assets of the
Company legally available for distribution to its shareholders in the event of
its liquidation, dissolution or winding up after payment of, or adequate
provision for, all known debts and liabilities of the Company. Each outstanding
share of common stock entitles the holder to one vote on all matters submitted
to a vote of shareholders. See Notes 2 and 7 for a discussion of the units
issued and the redemption rights of minority interest shareholders with respect
to 868,304 units that are redeemable on a one-for-one basis for shares of common
stock. None of the units discussed in Notes 2 and 7 have been redeemed. The
total market value of these units at December 31, 1998, based on the last
reported sales price of the common stock on the NASDAQ National Market of $9.56,
was approximately $8.3 million.
The Board of Directors is authorized to provide for the issuance of ten
million shares of preferred stock in one or more series, to establish the number
of shares in each series and to fix the designation, powers, preferences and
rights of each such series and the qualifications, limitations or restriction
thereof. As of December 31, 1997 and 1998, no preferred stock was issued.
Presently, members of the Board of Directors own approximately 7.8% of the
Company's outstanding common shares.
Note 9. Pro Forma Financial Information (Unaudited)
Due to the impact of the acquisitions discussed in Note 2, historical
operations may not be indicative of future results of operations and net income
per common share.
The following unaudited Pro Forma Consolidated Statements of Income for
the years ended December 31, 1997 and 1998, are presented as if the acquisition
of all 26 hotels owned at December 31, 1998, and the consummation of the
offerings and the application of the net proceeds therefrom had occurred on
January 1, 1997, and all of the hotels had been leased to the Lessee pursuant to
Percentage Lease Agreements. The Pro Forma Consolidated Statements of Income do
not purport to present what actual results of operations would have been if the
acquisitions had occurred and the leases executed on such date or to project
results for any future period. Additionally, the proforma consolidated
statements of income are presented without consideration of the gain on the sale
of the hotel property which occurred in 1998.
F-23
<PAGE> 58
Humphrey Hospitality Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Amounts in thousands, except per share data)
December 31, 1996, 1997 and 1998
Note 9. Pro Forma Financial Information (Unaudited) (Continued)
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
----------------------
(in thousands)
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Operating data
Revenue
Lease revenue $ 12,001 $ 12,426
Other revenue 106 28
--------- ---------
Total revenue 12,107 12,454
--------- ---------
Expense
Interest expense 3,903 3,554
Real estate and personal property taxes
and insurance 875 920
Land lease 74 74
General and administrative 524 509
Depreciation and amortization 2,952 3,309
Minority interest 600 645
--------- ---------
Total expense 8,928 9,011
--------- ---------
Net income applicable to common
shareholders $ 3,179 $ 3,443
========== ==========
Net income per share $ 0.69 $ 0.74
========== ==========
Weighted average number of common shares
outstanding 4,631,700 4,631,700
========== ==========
</TABLE>
Note 10. Subsequent Events
On February 8, 1999, the Company entered into an agreement with
Susquehanna Bank for the refinancing of the hotel properties located in
Gettysburg, PA. The loan is in the amount of $5.05 million for 10 years with a
fixed interest rate of 7.75%
On February 26, 199, the Company retired the bonds payable which were
secured by the Comfort Inn in Morgantown, WV in the amount of $2,180, including
accrued interest. This Hotel was placed as additional collateral on the mortgage
payable to Mercantile Safe Deposit and Trust Company.
F-24
<PAGE> 59
Humphrey Hospitality Trust, Inc.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Gross Amounts at which
Costs Capitalized Carried at
Initial Costs Subsequent to Acquisition Close of Period
--------------------------- ------------------------- --------------------------
Buildings Buildings Buildings
and and and
Description Encumbrances Land Improvements Land Improvements Land Improvements
- --------------------------- ------------ -------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Comfort Inn
Morgantown, West
Virginia $ 2,180 $ 277 $ 2,574 $ - $ 120 $ 277 $ 2,694
Comfort Inn
Dublin, Virginia $ 2,275 118 2,611 - 44 118 2,655
Rodeway Inn
Wytheville, Virginia $ 1,615 137 1,737 - 79 137 1,816
Solomons Beacon Inn
Solomons Island, Maryland (f) 1,354 2,012 - 155 1,354 2,167
Comfort Inn
Farmville, Virginia (f) 148 1,201 - 27 148 1,228
Comfort Inn
Dahlgren, Virginia (e) 206 1,546 - 61 206 1,607
Comfort Inn
Princeton, West Virginia (e) 363 1,600 - 55 363 1,655
Days Inn
Farmville, Vi-rginia (f) 290 1,389 - 38 290 1,427
Holiday Inn Express
Allentown, Pennsylvania (f) 139 3,360 - 50 139 3,410
</TABLE>
<TABLE>
<CAPTION>
Life Upon
Accumulated Which
Depreciation Net Book Value Depreciation
Buildings Buildings in Latest Income
and and Year of Statement is
Description Total Improvements Improvements Acquisition Computed
- --------------------------- ---------- -------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Comfort Inn
Morgantown, West
Virginia $ 2,971 $ 211 $ 2,760 1994 (d)
Comfort Inn
Dublin, Virginia 2,773 224 2,549 1994 (d)
Rodeway Inn
Wytheville, Virginia 1,953 142 1,811 1994 (d)
Solomons Beacon Inn
Solomons Island, Maryland 3,521 150 3,371 1994 (d)
Comfort Inn
Farmville, Virginia 1,376 105 1,271 1994 (d)
Comfort Inn
Dahlgren, Virginia 1,813 126 1,687 1994 (d)
Comfort Inn
Princeton, West Virginia 2,018 129 1,889 1994 (d)
Days Inn
Farmville, Virginia 1,717 91 1,626 1995 (d)
Holiday Inn Express
Allentown, Pennsylvania 3,549 135 3,414 1997 (d)
</TABLE>
F-25
<PAGE> 60
Humphrey Hospitality Trust, Inc.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Gross Amounts at which
Costs Capitalized Carried at
Initial Costs Subsequent to Acquisition Close of Period
--------------------------- ------------------------- --------------------------
Buildings Buildings Buildings
and and and
Description Encumbrances Land Improvements Land Improvements Land Improvements
- --------------------------- ------------ -------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Comfort Inn
Chambersburg,
Pennsylvania (f) 97 2,343 - 7 97 2,350
Comfort Inn
Culpepper, Virginia (f) 146 1,705 - - 146 1,705
Holiday Inn Express
Danville, Kentucky (f) 140 2,366 - 62 140 2,428
Comfort Suites
Dover, Delaware (e) 200 2,090 - 720 200 2,810
Comfort Inn
Gettysburg, Pennsylvania (f) - 4,036 - 9 - 4,045
Holiday Inn Express
Gettysburg, Pennsylvania (f) 101 2,450 - 19 101 2,469
Best Western
Harlan, Kentucky (f) - 2,395 - 7 - 2,402
Best Western Suites
Key Largo, Florida (e) 269 2,237 - 55 269 2,292
Comfort Inn
Murphy, North Carolina (f) 276 1,569 - - 276 1,569
</TABLE>
<TABLE>
<CAPTION>
Life Upon
Accumulated Which
Depreciation Net Book Value Depreciation
Buildings Buildings in Latest Income
and and Year of Statement is
Description Total Improvements Improvements Acquisition Computed
- --------------------------- ---------- -------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Comfort Inn
Chambersburg,
Pennsylvania 2,447 93 2,354 1997 (d)
Comfort Inn
Culpepper, Virginia 1,851 79 1,772 1997 (d)
Holiday Inn Express
Danville, Kentucky 2,568 102 2,466 1997 (d)
Comfort Suites
Dover, Delaware 3,010 111 2,899 1997 (d)
Comfort Inn
Gettysburg, Pennsylvania 4,045 162 3,883 1977 (d)
Holiday Inn Express
Gettysburg, Pennsylvania 2,570 148 2,422 1997 (d)
Best Western
Harlan, Kentucky 2,402 105 2,297 1997 (d)
Best Western Suites
Key Largo, Florida 2,561 74 2,487 1997 (d)
Comfort Inn
Murphy, North Carolina 1,845 65 1,780 1997 (d)
</TABLE>
F-26
<PAGE> 61
Humphrey Hospitality Trust, Inc.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Gross Amounts at which
Costs Capitalized Carried at
Initial Costs Subsequent to Acquisition Close of Period
--------------------------- ------------------------- --------------------------
Buildings Buildings Buildings
and and and
Description Encumbrances Land Improvements Land Improvements Land Improvements
- --------------------------- ------------ -------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn
Brandon, Florida $ 2,979 544 4,526 - - 544 4,526
Hampton Inn
Cleveland, Tennessee (e) 243 2,328 - - 243 2,328
Best Western
Ellenton, Florida (e) 560 2,160 - - 560 2,160
Shoney's Inn
Ellenton, Florida (e) 305 2,019 - - 305 2,019
Hampton Inn
Jackson, Tennessee (e) 407 3,923 - - 407 3,923
Comfort Inn
Rocky Mount, Virginia (f) 230 2,155 - - 230 2,155
Hampton Inn
Shelby, North Carolina (e) 287 2,548 - - 287 2,548
Comfort Inn
New Castle, Pennsylvania (f) 39 2,751 - - 39 2,751
-------- --------- ------ -------- -------- ---------
$ 6,876 $ 61,631 $ - $ 1,508 $ 6,876 $ 63,139
======== ========= ====== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Life Upon
Accumulated Which
Depreciation Net Book Value Depreciation
Buildings Buildings in Latest Income
and and Year of Statement is
Description Total Improvements Improvements Acquisition Computed
- --------------------------- ---------- -------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Hampton Inn
Brandon, Florida 5,070 61 5,009 1998 (d)
Hampton Inn
Cleveland, Tennessee 2,571 22 2,549 1998 (d)
Best Western
Ellenton, Florida 2,720 34 2,686 1978 (d)
Shoney's Inn
Ellenton, Florida 2,324 26 2,298 1998 (d)
Hampton Inn
Jackson, Tennessee 4,330 46 4,284 1998 (d)
Comfort Inn
Rocky Mount, Virginia 2,385 23 2,362 1998 (d)
Hampton Inn
Shelby, North Carolina 2,835 28 2,807 1998 (d)
Comfort Inn
New Castle, Pennsylvania 2,790 120 2,670 1997 (d)
--------- -------- ---------
$ 70,015 $ 2,612 $ 67,403
========= ======== =========
</TABLE>
F-27
<PAGE> 62
<TABLE>
<CAPTION>
Humphrey Hospitality Trust, inc.
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(in thousands)
(a) Reconciliation of real estate:
<S> <C>
Balance at December 31, 1996 $ 16,140
Additions to building and improvements 153
Acquisition of building and improvements 27,302
--------
Balance at December 31, 1997 43,595
Acquisition of building and improvements 19,659
Additions to building and improvements 925
Disposition of building and improvements (1,040)
--------
Balance at December 31, 1998 $ 63,139
========
Land, building and improvements totalling
$1,953 for the Rodeway Inn, Wytheville,
VA, are included in hotel property held
for sale.
(b) Reconciliation of accumulated depreciation:
Balance at December 31, 1996 $ 811
Depreciation for the period ended December 31,
1997 497
--------
Balance at December 31, 1997 1,308
Depreciation for the period ended December 31,
1998 1,367
Depreciation on assets sold (63)
--------
Balance at December 31, 1998 $ 2,612
========
(c) The aggregate cost of land, buildings,
furniture and equipment for Federal income tax
purposes is approximately $71,120.
(d) Depreciation is computed based upon the
following useful lives:
Buildings and improvements 31 - 40 years
Furniture and equipment 5 - 12 years
(e) The Company has a mortgage payable with Bank
Boston which is collateralized by 9 of the
hotels. The outstanding balance at
December 31, 1998, was $11,197.
(f) The Company has a mortgage payable with
Mercantile Safe Deposit & Trust Company
which is collateralized by 13 of the
hotels. The outstanding balance at
December 31, 1998 was $23,950.
</TABLE>
F-28
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To the Shareholder
Humphrey Hospitality Management, Inc.
We have audited the accompanying balance sheets of Humphrey Hospitality
Management, Inc. as of December 31, 1998 and 1997, and the related statements
of income, shareholder's equity and cash flows for each of the three years in
the period ended December 31,1998. 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 audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Humphrey
Hospitality Management, Inc. as of December 31, 1998 and 1997, and the
results of its operations, the changes in shareholder's equity and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Baltimore, Maryland
February 4, 1999
F-29
<PAGE> 64
<TABLE>
<CAPTION>
Humphrey Hospitality Management, Inc.
BALANCE SHEETS
December 31, 1997 and 1998
1997 1998
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,483,403 $3,262,524
Accounts receivable 224,201 389,536
Due from affiliate - 405,765
Prepaid expenses 66,862 41,095
Other assets 60,377 71,973
---------- ----------
Total current assets $ 2,834,843 $4,170,893
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 402,188 $ 426,685
Accrued expenses 346,744 465,666
Advanced deposits 12,031 24,669
Prepaid slip rentals - Marina 31,914 32,817
Due to affiliates 1,857,021 3,024,324
---------- ----------
Total current liabilities 2,649,898 3,974,161
---------- ----------
COMMITMENTS - -
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 1,000 shares
authorized; 100 shares issued and outstanding 1 1
Retained earnings 184,944 196,731
---------- ----------
Total shareholder's equity 184,945 196,732
---------- ----------
Total liabilities and shareholder's
equity $ 2,834,843 $4,170,893
========== ==========
</TABLE>
See notes to financial statements
F-30
<PAGE> 65
<TABLE>
<CAPTION>
Humphrey Hospitality Management, Inc.
STATEMENTS OF INCOME
Years ended December 31, 1996, 1997 and 1998
1996 1997 1998
---------- ------------ -----------
<S> <C> <C> <C>
Revenue from hotel operations
Room revenue $7,941,875 $15,581,298 $21,913,267
Telephone revenue 173,743 273,256 359,672
Slip revenue 243,725 252,481 298,496
Other revenue 192,147 313,316 573,714
Interest revenue 27,422 32,131 73,929
---------- ----------- -----------
Total revenue 8,578,912 16,452,482 23,219,078
---------- ----------- -----------
Expenses
Salaries and wages 2,062,594 3,849,840 5,600,691
Room expense 433,870 950,239 1,344,976
Telephone 182,735 258,926 363,784
Marina expense 42,925 34,821 33,373
General and administrative 386,670 729,163 1,219,830
Marketing and promotion 254,205 621,067 872,189
Utilities 429,608 768,138 1,111,817
Repairs and maintenance 227,200 384,050 532,275
Taxes and insurance 149,811 244,877 375,114
Franchise fees 420,809 875,104 1,231,929
Lease payments 3,957,401 7,326,193 10,441,313
---------- ----------- -----------
Total expenses 8,547,828 16,042,418 23,127,291
---------- ----------- -----------
NET INCOME $ 31,084 $ 410,064 $ 91,787
========== =========== ===========
</TABLE>
See notes to financial statements
F-31
<PAGE> 66
<TABLE>
<CAPTION>
Humphrey Hospitality Management, Inc.
STATEMENTS OF SHAREHOLDER'S EQUITY
Years ended December 31, 1996, 1997 and 1998
Common Stock Retained
------------- Earnings
Shares Amount (Deficit) Total
------ ------ --------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1995 100 $1 $ 48,796 $ 48,797
Distributions - - (50,000) (50,000)
Net income - - 31,084 31,084
--- --- --------- ---------
Balance, December 31, 1996 100 1 29,880 29,881
Distributions - - (255,000) (255,000)
Net income - - 410,064 410,064
--- --- --------- ---------
Balance, December 31, 1997 100 1 184,944 184,945
Distributions - - (80,000) (80,000)
Net income - - 91,787 91,787
--- --- --------- ---------
Balance, December 31, 1998 100 $1 $ 196,731 $ 196,732
=== === ========= =========
</TABLE>
See notes to financial statements
F-32
<PAGE> 67
<TABLE>
<CAPTION>
Humphrey Hospitality Management, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1997 and 1998
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash flow from operating activities
Net income $ 31,084 $ 410,064 $ 91,787
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities
Changes in assets and liabilities
Increase in accounts receivable (10,475) (135,141) (165,335)
(Increase) decrease in prepaid
expenses (18,306) (30,580) 25,767
Increase in other assets (818) (59,559) (11,596)
(Decrease) increase in accounts
payable (62,610) 294,343 24,497
(Decrease) increase in prepaid slip
rentals - Marina (6,862) 711 903
(Decrease) increase in due to
affiliates (25,477) 790,025 1,167,303
Increase in accrued expenses 67,328 279,416 118,922
Increase in advanced deposits 1,730 10,301 12,638
---------- ---------- ----------
Net cash (used in) provided by
operating activities (24,406) 1,559,580 1,264,886
---------- ---------- ----------
Cash flows from investing activities
Advances to affiliate - - (405,765)
---------- ---------- ----------
Net cash used in investing
activities - - (405,765)
---------- ---------- ----------
Cash flows from financing activities
Distributions paid (50,000) (255,000) (80,000)
Advances to (from) shareholder (51,250) 51,250 -
---------- ---------- ----------
Net cash used in financing
activities (101,250) (203,750) (80,000)
---------- ---------- ----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (125,656) 1,355,830 779,121
Cash and cash equivalents, beginning of
year 1,253,229 1,127,573 2,483,403
---------- ---------- ----------
Cash and cash equivalents, end of year $1,127,573 $2,483,403 $3,262,524
========== ========== ==========
</TABLE>
See notes to financial statements
F-33
<PAGE> 68
Humphrey Hospitality Management, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
Note 1. Organization and Summary of Significant Accounting Policies
Humphrey Hospitality Management, Inc. (the Lessee) was incorporated
under the laws of the State of Maryland on August 18, 1994, to lease and
operate hotel properties from Humphrey Hospitality Limited Partnership (the
Partnership) and Solomons Beacon Inn Limited Partnership (the Subsidiary
Partnership). James I. Humphrey, Jr. is the sole shareholder of the Lessee.
The Lessee began operations on November 29, 1994. As of December 31, 1998,
the Lessee leases 26 hotel properties (the Hotels) from the Partnership.
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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable
The Lessee considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
Income Taxes
The Lessee has elected to be treated as an S Corporation for Federal
and state income tax purposes. Therefore, no provision or benefit for income
taxes has been included in these financial statements since taxable income or
loss passes through to, and is reportable by, the stockholder individually.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and a repurchase agreement
with a bank with an original maturity of three months or less when acquired,
carried at cost, which approximates fair value.
Concentration of Credit Risk
The Lessee places cash deposits with major banks. The Company has not
experienced any losses with respect to bank balances in excess of government
provided insurance. As of December 31, 1998, management believes that no
significant concentration of credit risk exists with respect to these cash
balances.
F-34
<PAGE> 69
Humphrey Hospitality Management, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
Note 2. Related Party Transactions
Shared Expenses
Humphrey Associates, Inc., and HAI Management, Inc., affiliates of the
Lessee, share certain operating expenses with the Lessee. Expenditures are
allocated based on each entity's pro rata share of the expense.
Percentage Lease Payment
The Lessee has entered into percentage leases, with the Partnership and
Subsidiary Partnership relating to twenty-six of its Hotels (including ten
hotels acquired in 1997 and seven acquired in 1998) (collectively, the
Acquired Hotels). Each such lease (the "Percentage Leases") has a term of 10
years. Pursuant to the terms of the Percentage Leases, the Lessee is
required to pay both base rent and percentage rent and certain other
additional charges. Effective as of June 1, 1998, the Lessee amended its
fixed lease for the Comfort Suites - Dover, Delaware Hotel with the
partnership. The amendment converted the former lease, which only provided
for base rent, to a Percentage Lease with terms similar to the remaining
Acquired Hotels. The Lessee has future lease commitments through September
2008. Minimum future lease payments due under these noncancellable operating
leases as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Years Amount
----- ------
<S> <C>
1999 $ 5,351,650
2000 5,351,650
2001 5,351,650
2002 5,351,650
2003 5,351,650
Thereafter 15,976,885
-----------
$42,735,135
===========
</TABLE>
The Lessee has incurred base rents of $1,678,347, $3,302,922 and
$4,745,489 and percentage rents of $2,279,054, $4,023,271 and $5,695,824 for
the years ended December 31, 1996, 1997 and 1998, respectively. As of
December 31, 1997 and 1998, the amount due the Partnership and the Subsidiary
Partnership for lease payments totalled $1,857,021 and $3,024,324,
respectively, and is included in due to affiliates on the balance sheets.
F-35
<PAGE> 70
Humphrey Hospitality Management, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
Note 2. Related Party Transactions (Continued)
Services Agreement
On January 1, 1996, the Lessee executed an Agreement with Humphrey
Hospitality Trust, Inc., to provide accounting and securities reporting
services. The initial terms of the Agreement provided for a fixed fee of
$80,000 per year. On October 1, 1996, the Agreement was amended reducing the
initial annual fee to $30,000 per year with an increase of $10,000 per year
(prorated from the time of acquisition) for each hotel acquired by Humphrey
Hospitality Trust, Inc. Under the terms of the amendment, the service fee
cannot exceed $100,000 in any year. For the years ended December 31, 1996,
1997 and 1998, the Lessee received $67,503, $79,388 and $99,996,
respectively, for the services provided in accordance with the Agreement,
which is included in other revenue.
Due from Affiliate
During 1998, the Lessee provided for capital improvements totaling
$405,765 to the hotels which are the responsibility of the Partnership. As
of December 31, 1998, $405,765 remains receivable and is recorded as due from
affiliates.
Note 3. Commitments
Franchise Agreements
The Lessee operates the hotels acquired by the Partnership and the
Subsidiary Partnership, under the terms of existing franchise agreements.
The franchise licenses generally specify certain management, operational,
accounting, reporting and marketing standards and procedures with which the
franchisee must comply and provide for annual franchise fees based upon
percentages of gross room revenue. During the years ended December 31, 1996,
1997 and 1998, franchise fees totaling $420,809, $875,104 and $1,231,929,
respectively, were charged to operations.
Restaurant Leases
As of December 31, 1998, three of the Hotels have executed lease
agreements for the hotel's restaurant facilities with varying expiration
dates, including renewal periods, through December 1, 2023. Monthly rent is
payable during the terms of the leases at 3% to 8% of the previous month's
gross receipts.
F-36
<PAGE> 71
Humphrey Hospitality Management, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996, 1997 and 1998
Note 3. Commitments (Continued)
Year 2000 Issue
In response to the Year 2000 Issue, the Lessee modified its existing
information systems in order to make them year 2000 compliant. The Lessee
believes that it has made all necessary modifications to its existing systems
and does not expect that additional costs associated with year 2000
compliance, if any, will be material to the Lessee's results of operations or
financial position. However, because there is no guarantee that all systems
of outside vendors or other entities affecting the Lessee's operations will
be year 2000 compliant, the Lessee remains susceptible to consequences of the
Year 2000 Issue.
Note 4. Economic Dependency
The Lessee receives the majority of its income from related hotel
entities. The related hotels are primarily located in the Mid-Atlantic and
Southeast regions of the United States.
F-37
<PAGE> 72
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
executed by the undersigned, thereunto duly authorized.
HUMPHREY HOSPITALITY TRUST, INC.
By: /s/ James I. Humphrey, Jr.
-----------------------------------
March 29, 1999 James I. Humphrey, Jr.
Chairman of the Board and President
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 indicated.
By: /s/ James I. Humphrey, Jr.
----------------------------------------------
James I. Humphrey, Jr.
Chairman of the Board and President
(Principal Executive, Financial and Accounting
Officer)
By: /s/ Margaret Allen
----------------------------------------------
Margaret Allen
Director
By: /s/ Andrew A. Mayer
----------------------------------------------
Andrew A. Mayer
Director
By: /s/ Leah T. Robinson
----------------------------------------------
Leah T. Robinson
Director
By: /s/ George R. Whittemore
----------------------------------------------
George R. Whittemore
Director and Secretary
By: /s/ Jeffrey M. Zwerdling
----------------------------------------------
Jeffrey M. Zwerdling
Director
Each of the above signatures is affixed as of March 29, 1999.
68
<PAGE> 1
================================================================================
Exhibit 10.8
REVOLVING CREDIT AND
GUARANTY AGREEMENT
among
HUMPHREY HOSPITALITY TRUST, INC.,
HUMPHREY HOSPITALITY LIMITED PARTNERSHIP,
HUMPHREY HOSPITALITY REIT TRUST,
and
SOLOMONS BEACON INN LIMITED PARTNERSHIP
and
BANKBOSTON, N.A.
and
THE OTHER BANKS THAT MAY BECOME
PARTIES TO THIS AGREEMENT
and
August __18__, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2. AGREEMENT TO MAKE REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1 Agreement to Make Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 Purpose of Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Reduction of Aggregate Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 Advances Do Not Constitute a Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3 THE NOTES, INTEREST RATE OPTIONS, REPAYMENT OF REVOLVING CREDIT LOANS . . . . . . . . . . . 15
3.1 The Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Funds for Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 The Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4 Interest on the Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Interest Rate Selection; Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.6 Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.7 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.8 Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.9 Mandatory Repayments of Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . 17
4. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1 Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Letter of Credit Expiry Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 Letter of Credit Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 Payments on Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 Other Reimbursement of Agent by Lenders . . . . . . . . . . . . . . . . . . . . . . . . 20
4.8 Instruction to Pay; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5. COMMITMENT FEE; PAYMENTS AND COMPUTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Agent's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Unused Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
5.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.5 Additional Costs, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.6 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.7 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.8 Charges Against Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6. CONDITIONS TO CLOSING AND ALL ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.1 Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.2 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.3 Certified Copies of Organization Documents . . . . . . . . . . . . . . . . . . . . . . . 26
6.4 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.5 Incumbency Certificate; Authorized Signers . . . . . . . . . . . . . . . . . . . . . . . 27
6.6 Validity of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.7 Deliveries Regarding Borrowing Base Assets . . . . . . . . . . . . . . . . . . . . . . . 27
6.8 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.9 Lien Search. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.10 Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.11 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.12 Performance; No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.13 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.14 Covenant Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.15 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.16 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.17 No Legal Impediment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.18 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7. COLLATERAL SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Borrowing Base Assets List. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Substitution of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 New Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8. REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Organization; Authority, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.4 No Material Changes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.5 Franchises, Patents, Copyrights, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
8.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.7 No Materially Adverse Contracts, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.8 Compliance With Other Instruments, Laws, Etc. . . . . . . . . . . . . . . . . . . . . . 34
8.9 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.10 No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Setoff, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.12 Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.14 Partners, Beneficiaries, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.15 ERISA Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.16 Condition of Borrowing Base Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.17 Compliance with Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.18 Assets Under Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.19 Other Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.20 Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.21 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.22 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.23 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9. AFFIRMATIVE COVENANTS OF THE OBLIGORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.1 Punctual Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.2 Records and Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.3 Financial Statements, Certificates and Information . . . . . . . . . . . . . . . . . . . 38
9.4 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.5 Liens and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.6 Inspection of Borrowing Base Assets, Other Real Estate Assets and Books, Appraisals . . 39
9.7 Compliance with Laws, Contracts, Licenses, and Permits . . . . . . . . . . . . . . . . . 40
9.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.9 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.10 Further Assurance of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.11 Deposit of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.13 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.14 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.15 Hotel Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
[9.16Deferred Maintenance Account] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
9.17 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.18 Ownership of HH Trust and HHLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.19 PIP Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10. NEGATIVE COVENANTS OF THE OBLIGORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1 Restrictions on Easements, Covenants and Restrictions . . . . . . . . . . . . . . . . 45
10.2 No Amendments, Terminations or Waivers . . . . . . . . . . . . . . . . . . . . . . . . 46
10.3 Restrictions on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.4 Restrictions on Liens, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.5 Restrictions on Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . 47
10.6 Merger, Consolidation, Conversion, and Disposition of Assets . . . . . . . . . . . . . 48
10.7 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.8 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.1 Indebtedness to Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.2 Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.3 Ratio of Borrower Cash Flow to Debt Service Charges (Borrower) . . . . . . . . . . . . 49
11.4 Ratio of Borrowing Base Cash Flow to Debt Service Charges (Facility) . . . . . . . . . 49
11.5 Ratio of Borrowing Base Cash Flow to Imputed Debt Service Charges (Facility) . . . . . 50
11.6 Borrowing Base Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.7 Ratio of Borrowing Base Value to Outstanding Facility . . . . . . . . . . . . . . . . 50
11.8 Consolidated Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12. GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.1 Agreement to Pay and Perform; Costs of Collection . . . . . . . . . . . . . . . . . . 50
12.2 Reinstatement of Refunded Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.3 Rights of Lender to Deal with Collateral, Borrower and Other Persons . . . . . . . . . 51
12.4 No Contest with Lenders; Subordination . . . . . . . . . . . . . . . . . . . . . . . . 52
12.5 Waiver of Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.6 Guaranty of Payment and Performance and Not of Collection . . . . . . . . . . . . . . 54
12.7 Rights and Remedies of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.8 Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.9 Business Failure, Bankruptcy or Insolvency . . . . . . . . . . . . . . . . . . . . . . 55
12.10 Security and Rights of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.11 Changes in Writing; No Revocation . . . . . . . . . . . . . . . . . . . . . . . . . . 55
13. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
- iv -
<PAGE> 6
<TABLE>
<S> <C>
13.2 Termination of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
13.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
13.4 Distribution of Collateral Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 59
13.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
13.6 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
13.7 Events of Default Affecting Borrowing Base Asset . . . . . . . . . . . . . . . . . . . 60
13.8 Environmental Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
14. SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
15. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
15.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
15.2 Employees and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
15.3 No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
15.4 No Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
15.5 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
15.6 Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
15.7 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
15.8 Agent as Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
15.9 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
15.10 Notification of Defaults and Events of Default . . . . . . . . . . . . . . . . . . . . 65
15.11 Duties in the Case of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . 65
16. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
17. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
18. LIABILITY OF THE LENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19. RIGHTS OF THIRD PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
20. SURVIVAL OF COVENANTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
21. ASSIGNMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
21.1 Conditions to Assignment by Lender . . . . . . . . . . . . . . . . . . . . . . . . . . 68
21.2 Certain Representations and Warranties; Limitations; Covenants . . . . . . . . . . . . 68
21.3 Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
21.4 New Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
21.5 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
21.6 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
21.7 Miscellaneous Assignment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 70
21.8 No Assignment by the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
- v -
<PAGE> 7
<TABLE>
<S> <C>
22. RELATIONSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
23. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
24. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
25 CONSENT TO JURISDICTION; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
26. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
27. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
28 ENTIRE AGREEMENT, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
29. CONSENTS, AMENDMENTS, WAIVERS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
30. TIME OF THE ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
31. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
- vi -
<PAGE> 8
REVOLVING CREDIT AND
GUARANTY AGREEMENT
THIS REVOLVING CREDIT AND GUARANTY AGREEMENT is made as of August
__18___, 1998, by and among HUMPHREY HOSPITALITY LIMITED PARTNERSHIP ("HHLP"),
a limited partnership organized under the laws of the Commonwealth of Virginia,
HUMPHREY HOSPITALITY TRUST, INC. ("HH TRUST"), a corporation organized under
the laws of the Commonwealth of Virginia, HUMPHREY HOSPITALITY REIT TRUST ("HH
REIT"), a real estate investment trust organized under the laws of the State of
Maryland (HHLP, HH Trust, and HH REIT, collectively, the "BORROWER"), SOLOMONS
BEACON INN LIMITED PARTNERSHIP ("SOLOMONS" or "GUARANTOR"), a limited
partnership organized under the laws of the State of Maryland, each Borrower
and Guarantor having its principal place of business at 12301 Old Columbia
Pike, Silver Spring, Maryland 20904 and BANKBOSTON, N.A., a national banking
association, having its principal executive offices at 100 Federal Street,
Boston, Massachusetts 02110 and the other lending institutions that will become
parties hereto pursuant to Section 21 and BANKBOSTON, N.A., as agent for itself
and such other lending institutions.
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1 DEFINITIONS. The following terms as used in this Agreement,
any Exhibit hereto, or in any other Loan Document (unless otherwise defined
therein) shall have the meanings set forth in this Section 1.1. Further, any
and all terms that are defined in EXHIBIT B annexed hereto, shall, when used
herein, have the meaning as set forth in such EXHIBIT B.
Adjusted Appraised Value. With respect to any Real Estate Asset that
is the subject of an Appraisal, either the appraised value set forth in such
Appraisal if the final version of such Appraisal is satisfactory to all of the
Lenders, or, if such Appraisal is not satisfactory to all of the Lenders, the
highest value of such Real Estate to which all of the Lenders agree. Unless a
Lender has notified the Agent and other Lenders within fifteen (15) days after
receipt of an Appraisal that such Lender disagrees with the appraised value set
forth in the Appraisal, such Lender shall be deemed to have accepted the
appraised value set forth in the Appraisal.
Advance. Each advance of a Revolving Credit Loan to the Borrower
hereunder by the Lenders, whether such Advances are from time to time, Base
Rate Loan or Eurodollar Rate Loans.
Affiliate. Any Person directly or indirectly controlling, controlled
by or under direct or indirect common control with any other Person. A Person
shall be deemed to control another Person if the controlling Person owns ten
percent (10%) or more of any class of voting securities of the controlled
Person or possesses, directly or indirectly, the power to direct or cause the
direction of the management or policies of the controlled Person, whether
through ownership of stock, by contract or otherwise.
- 1 -
<PAGE> 9
Agent. BankBoston, acting as agent for the Lenders. The term shall
include any successor agent for the Lenders that may be appointed at any time
in the future under the terms of this Agreement.
Agent's Fee. The annual $20,000.00 fee payable to BankBoston in
accordance with Section 5.2.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Aggregate Commitment. As of any date, the sum of all of the Lenders'
then-current Commitments. The initial Aggregate Commitment shall be
Thirty-Five Million Dollars ($35,000,000.00).
Agreement. This Revolving Credit Agreement, including the Schedules
and Exhibits hereto.
Appraisal. An appraisal in form and substance satisfactory to the
Agent and the Majority Lenders and prepared by an appraiser acceptable to the
Agent in accordance with the requirements established under FIRREA.
Assets Under Development. Real Estate Assets under development for
which (i) the Borrower is actively pursuing construction, (ii) construction is
progressing toward completion without any undue delay due to permit denial or
other construction delays, and (iii) the Borrower's pro forma financial
statements demonstrate to the Agent's satisfaction that, upon completion, the
Borrower will remain in compliance with the Financial Covenants.
Assignment and Acceptance. See Section 21.1.
Balance Sheet Date. June 30, 1998.
BankBoston. BankBoston, N.A., a national banking association.
Borrower Cash Flow. With respect to any fiscal period, an amount
equal to the sum of (a) Funds From Operations plus (b) interest expense less
(c) the Imputed Capital Expenditure Reserve for all Real Estate Assets,
including Borrowing Base Assets.
Borrower Market Value. The sum of (a) the Borrower Value, plus (b)
Costs Expended to Date for Assets Under Development, and (c) 100% of the
Borrower's unrestricted cash or cash equivalents, excluding tenant security and
other restricted deposits.
Borrower Value. Borrower Cash Flow for the trailing twelve (12)
months ending the most recent fiscal quarter end capitalized at 12.5%
Borrower's Accountant. Reznick, Fedder and Silverman or such other
independent certified public accountant approved by the Agent.
- 2 -
<PAGE> 10
Borrowing Base Advance Rate. Forty percent (40%) of the Borrowing
Base Value.
Borrowing Base Asset. Each Real Estate Asset that meets the following
criteria individually and together with the other Real Estate Assets that
meeting the same criteria:
(a) The Real Estate Asset is subject to a Security Deed,
but may not be subject to any other associated mortgage liens, stock pledges,
negative pledges, or pledges of partnership or other equity or other security
interests;
(b) The Real Estate Asset is affiliated with a nationally
recognized and Lender-approved franchise in the upper economy and mid-scale
segments and is:
(i) fully operational with an individual hotel
occupancy of no less than 60% for the most recent trailing twelve (12) month
period and, together with the other Borrowing Base Assets, has an aggregate
average room occupancy of no less than 70% for the same period, and is not the
subject of any matter that may adversely affect the Borrowing Base Value, OR
(ii) an Asset Under Development;
(c) The Agent must have commissioned, received, reviewed
and approved (i) an Appraisal, (ii) an Engineering Report, (iii) an
environmental Phase I Site Assessment performed by a firm acceptable to the
Agent, which indicates the property is either free from any environmentally
hazardous materials or affected by such environmental matters as may be
acceptable to the Agent in its sole and absolute discretion, (iv) a commitment
for title insurance, (v) a copy of the Lease, and (vi) any other real estate
documents deemed appropriate by the Agent in respect of the Real Estate Asset;
and
(d) There are no fewer than six (6) Real Estate Assets
that qualify as Borrowing Base Assets at any one time; furthermore, the value
of Assets Under Development may not account for more than fifteen percent (15%)
of the Borrowing Base Value, and no single asset may comprise more than fifteen
percent (15%) of the Borrowing Base Value.
Borrowing Base Cash Flow. Net Operating Income for each Borrowing
Base Asset, which includes the Imputed Capital Expenditure Reserve, or as
otherwise agreed upon by the Agent and Borrower.
Borrowing Base Value. The aggregate value of the Borrowing Base
Assets, which is the sum of the lowest of the following amounts for each
Borrowing Base Asset: (i) the Adjusted Appraised Value or (ii) the actual
Borrowing Base Cash Flow for the most recent trailing twelve (12) months
capitalized at 12.5% or (iii) if such Borrowing Base Asset has been acquired
within the preceding six (6) months, its acquisition cost.
Business Day. Any day on which the Agent is open for the transaction
of banking business in Boston, Massachusetts and each of the Lenders is open
for the transaction of banking business in the location from which it makes
Advances and receives payments.
- 3 -
<PAGE> 11
Closing Date. The first date on which the conditions set forth in
Section 6 have been satisfied.
Code. The Internal Revenue Code of 1986 and the regulations
thereunder, all as amended and in effect from time to time.
Collateral. All of the property, rights and interests of the Borrower
and its Subsidiaries that are or are intended to be subject to the security
interests, assignments, and mortgage liens created by the Security Documents,
including, without limitation, the Borrowing Base Assets.
Commitment. With respect to each Lender, the amount set forth on
Schedule 1 hereto as the amount of such Lender's commitment to make Loans to
the Borrower, as the same may be reduced from time to time.
Commitment Percentage. With respect to each Lender, the percentage
set forth on SCHEDULE 1 hereto as such Lender's percentage of the aggregate
Commitments of all of the Lenders.
Consolidated or consolidated. With reference to any term defined
herein, that term as applied to HH Trust and its Subsidiaries, consolidated in
accordance with generally accepted accounting principles. At the option of the
Lenders, any financial reports required hereunder shall be submitted, and any
financial covenants established hereunder shall be calculated, on a
Consolidated basis by the Borrower.
Costs Expended to Date. The sum of project costs expended to date
(excluding interest) by the Borrower for Assets Under Development that qualify
as Borrowing Base Assets.
Covenant Compliance Certificate. A certificate from each of the
Borrowers and Guarantor in the form attached at Exhibit C.
Debt Service Charges (Borrower). For any fiscal period, interest
(including capitalized interest) plus scheduled debt amortization and fees
associated with Letters of Credit, excluding optional prepayments and bullet
maturities other than from loan acceleration; provided that (a) only the
Borrower's share of such interest and scheduled debt amortization owed by any
Partially-Owned Real Estate Holding Entity that are without recourse to the
Borrower shall be included within "Debt Service Charges (Borrower)" and (b) all
of such interest and scheduled debt amortization owed by any Partially-Owned
Real Estate Holding Entity that are recourse to the Borrower shall be included
within "Debt Service."
Debt Service Charges (Facility). For any fiscal period of the
Borrower, the sum of (i) the expenses of the Borrower for such period for (x)
interest payable with respect to the Obligations (including the current portion
thereof) and (y) fees payable hereunder, including without limitation, fees
associated with Letters of Credit, under the other Loan Documents, in
connection with the Obligations plus (ii) current maturities of the Obligations
for such period excluding optional prepayments and bullet maturities, in each
case determined in accordance with generally accepted accounting principles.
- 4 -
<PAGE> 12
Default. A condition or event which would, with either the giving of
notice or lapse of time or both, constitute an Event of Default.
Default Rate. See Section 3.6.
Deferred Maintenance. See Section 9.16.
Deferred Maintenance Account. See Section 9.16.
Deferred Maintenance Schedule. A schedule to be prepared by the
Borrower regarding the repairs and improvements necessary or appropriate for
the maintenance of the Collateral, which schedule shall be in form and
substance satisfactory to the Agent. The schedule shall (i) be based on the
Engineering Report, (ii) contain an estimate of the amounts needed to complete
the repairs and improvements recommended therein, and (iii) set forth a
description of each item of work and the estimated cost thereof on a separate
line.
Delinquent Lender. See Section 15.5.
Distribution. The (i) declaration or payment of any dividend, (ii)
distribution of cash or other property, (iii) purchase, redemption, or other
retirement (directly or indirectly), or (iv) other distribution, in each case,
of, on or in respect of any shares of any class of capital stock, partnership
interests, or other beneficial or ownership interests of the Borrower.
Dollars. The lawful currency of the United States of America.
Drawdown Date. The date on which any Revolving Credit Loan is made or
is to be made, and the date on which any Revolving Credit Loan is converted or
continued in accordance with Exhibit B.
Eligible Assignee. Any of (a) a commercial bank organized under the
laws of the United States, or any State thereof or the District of Columbia,
and having total assets in excess of $1,000,000,000; (b) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof or the District of Columbia, and having a net worth of at
least $100,000,000, calculated in accordance with generally accepted accounting
principles; (c) a commercial bank organized under the laws for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any
such country, and having total assets in excess of $1,000,000,000, so long as
such bank is acting through a branch or agency located in the country in which
it is organized or another country which is also a member of the OECD; and (d)
the central bank of any country that is a member of the OECD.
Engineering Report. A building inspection report or reports of one or
more qualified engineering or similar inspector firm approved by the Agent of
each proposed Borrowing Base Asset commissioned by the Agent at the Borrower's
expense or provided by the Borrower at the Borrower's expense. In the Agent's
discretion, the Agent may accept so-called "Property Improvement Plan (PIP)"
reports prepared by or on behalf of the franchisors of the Borrowing
- 5 -
<PAGE> 13
Base Assets in lieu commissioning a new engineering report; provided that the
Agent reserves the right to require preparation of a more detailed engineering
report if the PIP report is not satisfactory in all respect to the Agent.
Environmental Laws. As specifically defined in the Security Deed.
ERISA Plan. Any employee benefit, employee pension, or multiemployer
plan within the meaning of the Employee Retirement Income Security Act of 1974,
as amended and in effect from time to time.
ERISA Reportable Event. A reportable event with respect to a
Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice has
not been waived.
Event of Default. See Section 13.
Facility. The revolving credit facility and letters of credit made
available to the Borrower by the Lenders pursuant to this Agreement.
Financial Covenants. The financial covenants of Borrower set forth in
Section 11.
Financing Statements. Uniform Commercial Code Form 1 Financing
Statement(s) from any of the Obligors in favor of the Agent.
Funds From Operations. Consolidated Net Income (Loss) before
extraordinary items, computed in accordance with GAAP, plus, to the extent
deducted in determining Net Income (Loss) and without duplication, (i) gains
(or losses) from debt restructuring and sales of property (or adjustment to
basis of properties or other assets), (ii) non-recurring charges, (iii)
provisions for losses, (iv) real estate related depreciation, amortization and
other non-cash charges (excluding amortization of financing costs), and (v)
amortization of organizational expenses minus, to the extent included in net
income (loss) and without duplication, (a) non-recurring income and (b) equity
income (loss) from unconsolidated partnerships and joint ventures less the
proportionate share of funds from operations of such partnerships and joint
ventures, which adjustments shall be calculated on a consistent basis.
GAAP or Generally accepted accounting principles. Principles that are
(a) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (b) consistently applied with past financial statements of the Borrower
adopting the same principles; provided that a certified public accountant
would, insofar as the use of such accounting principles is pertinent, be in a
position to deliver an unqualified opinion (other than a qualification
regarding changes in generally accepted accounting principles) as to financial
statements in which such principles have been properly applied.
- 6 -
<PAGE> 14
Governmental Authority. The United States of America, the State in
which any Borrowing Base Asset is located, the city or town in which any
Borrowing Base Asset is located, and any political subdivision, agency,
authority, department, commission, board, bureau, or instrumentality of any of
them.
Gross Receipts. The sum of cash actually received during any fiscal
period of the Borrower with respect to the Real Estate Assets in payment of the
following items:
(a) rentals, including minimum or base rent, percentage
rent, and any other payments received from HH Management and any other tenants
occupying space in any of the Real Estate Assets during such period;
(b) cash reimbursements from tenants of operating
expenses, insurance premiums, and real estate taxes and the cost of tenant
improvements;
(c) parking revenues received in connection with the
operation of parking facilities;
(d) receipts from laundries, vending machines,
recreational facilities and any and all other operating revenues received from
the Real Estate Assets.
If the Borrower shall receive cash by reason of fire or other casualty
insurance proceeds, or a taking by eminent domain, or a loan or advance or a
sale of any part of the Real Estate Assets, such amounts shall not be included
in Gross Receipts.
Gross Receipts shall be determined on a cash basis consistent with the
basis used in the preparation of the computations of Gross Receipts furnished
pursuant to Section 8.3 of this Agreement. Notwithstanding the foregoing,
Gross Receipts with respect to a Real Estate Asset acquired during the
preceding twelve (12) months from the date of such determination of Gross
Receipts shall include all gross receipts of the preceding twelve (12) months
that fall into categories (a) through (d) above without regard to whether the
amounts were received by the Borrower or the prior owner(s) of such Borrowing
Base Asset. Inclusion of gross receipts from the prior owner(s), however,
shall be conditioned upon the submission of adequate documentation of Gross
Receipts during the prior owner(s)' ownership.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(3) of ERISA maintained or contributed to by the Borrower
or any ERISA Affiliate the benefits of which are guaranteed on termination in
full or in part by the PBGC pursuant to Title IV of ERISA, other than a
Multiemployer Plan.
Guarantor. Solomons and any other Person that may hereafter become a
guarantor of the Facility.
Guaranty. Section 12 of this Agreement.
- 7 -
<PAGE> 15
HHLP. Humphrey Hospitality Limited Partnership, a Virginia limited
partnership, which is one of the Borrowers, is fee owner of each of the initial
Borrowing Base Assets except the Solomons Property, and is the sole general
partner of Solomons.
HH Management. Humphrey Hospitality Management, Inc., a Maryland
corporation, which is tenant and operator of each of the Borrowing Base Assets.
HH REIT. Humphrey Hospitality REIT Trust, a Maryland real estate
investment trust, which is one of the Borrowers and is the sole general partner
of HHLP.
HH Trust. Humphrey Hospitality Trust, Inc., a Virginia corporation,
which is one of the Borrowers and is the sole shareholder of HH REIT.
Hotel Operator. See Section 9.15.
Imputed Capital Expenditure Reserve. A four percent (4%) unfunded
reserve for replacements and other purposes for the Real Estate Assets,
including the Borrowing Base Assets less funded reserves, if any, for such
purposes. The Imputed Capital Expenditure Reserve shall be calculated on a
rolling basis to adjust for acquisitions and dispositions of Real Estate
Assets.
Imputed Debt Service Charges (Facility). See Section 11.5.
Indebtedness. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should
be made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; (c) all liabilities under capitalized leases; and (d) all
guaranties, endorsements and other contingent obligations whether direct or
indirect in respect of indebtedness of others, including the obligations to
reimburse the issuer in respect of any letters of credit. Notwithstanding the
foregoing, only such obligor's pro rata share of Indebtedness owed by any
Partially-Owned Real Estate Holding Entity that is without recourse to such
obligor shall be included within "Indebtedness," and all Indebtedness owed by
any Partially-Owned Real Estate Holding Entity that is recourse to such obligor
shall be included within "Indebtedness."
Indemnity Agreement. The Indemnity Agreement Regarding Hazardous
Materials, dated or to be dated on or prior to the Closing Date, made by the
Borrower and the Guarantor in favor of the Agent on behalf of the Lenders.
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect to any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person.
- 8 -
<PAGE> 16
Leases. (1) The leases between HHLP, as landlord, and HH Management,
as tenant, of each of the Borrowing Base Assets except the Solomons Property;
(2) the lease between Solomons, as landlord, and HH Management, as tenant, of
the Solomons Property; and (3) any and all other leases, licenses and
agreements, whether written or oral, relating to the use or occupation of space
in any of the Borrowing Base Assets by Persons other than HHLP, Solomons or any
other owner of any future Borrowing Base Asset that may become a Borrower or
Guarantor, as fee owner of the applicable Borrowing Base Asset.
Lenders. BankBoston and the other lending institutions listed on
Schedule 1 hereto and any other Person that becomes an assignee of any rights
and obligations of a Lender pursuant to Section 21.
Letter of Credit. An irrevocable standby letter of credit issued by
the Agent in a face amount denominated in dollars for the Borrower's account
for a Letter of Credit purpose.
Letter of Credit Application. A letter of credit application
completed on the Agent's customary form, or such other form that the Agent may
find satisfactory in the Agent's discretion, and executed and submitted to the
Agent by the Borrower, together with such other information, documents, and
instruments as the Agent may request the Borrower to submit to the Agent with
such application form.
Letter of Credit Collateral Account. Any deposit account, at and for
the benefit of the Agent, into which the Borrower may be required by the Agent,
from time to time, and in accordance with the terms of this Agreement, to make
cash deposits to be held by the Agent as cash collateral to secure the
Borrower's contingent and other reimbursement obligations to the Agent under
outstanding Letters of Credit.
Letter of Credit Fee. The annual fee in an amount equal to two
percent (2.0%) per annum of the face amount of each Letter of Credit plus the
Agent's issuance fee.
Letter of Credit Maximum Amount. Five million Dollars
($5,000,000.00).
Loan Documents. This Agreement, the Notes, the Indemnity Agreement,
and the Security Documents, and all other agreements, documents and instruments
now or hereafter evidencing, securing or otherwise relating to the Facility.
Majority Lenders. As of any date, the Lenders holding at least
fifty-one percent (51%) of the Outstanding principal amount of the Notes on
such date; and if no such principal is Outstanding, the Lenders whose aggregate
Commitments constitute at least fifty-one percent (51%) of the Aggregate
Commitment.
Maturity Date. September 1, 2001.
Maximum Availability. See Section 2.1.
- 9 -
<PAGE> 17
Net Income (or Deficit). The net income (or deficit) for any fiscal
period of any Person, after deduction of all expenses, taxes, and other proper
charges, determined in accordance with generally accepted accounting
principles, after eliminating therefrom all extraordinary items of income.
Net Operating Income. The amount by which the Gross Receipts of
Borrower from each Real Estate Asset or Assets for any fiscal period exceed the
aggregate of the following items for such fiscal period:
(a) all operating costs and expenses incurred in the
operation of such Real Estate Assets, including, without limitation, real
estate taxes and betterment assessments, management fees for such Real Estate
Assets and cash security deposits from tenants returned to tenants in cash to
the extent the same were included as a part of Gross Receipts;
(b) capital expenditures on the Real Estate Assets;
(c) funded reserves established for replacement and other
purposes for such Real Estate Assets for which funds are set aside in a
separate account or accounts, paid in cash (or, in the case of reserves, set
aside in cash) during such period, but there shall not be deducted from Gross
Receipts amounts paid from funded reserves theretofore established; and
(d) the Imputed Capital Expenditure Reserve.
Without limitation, charges for income taxes, capital gain
taxes, corporate excise taxes and similar taxes, and depreciation, amortization
and other non-cash expenses shall not be deducted from Gross Receipts in
determining Net Operating Income
Net Operating Income shall be determined on a cash basis,
modified as described above, consistent with the basis used in the preparation
of the computations of Net Operating Income furnished pursuant to Section 8.3
of this Agreement. With respect to any fiscal period, if Gross Receipts
includes any amounts received by the prior owner(s) of a Borrowing Base Asset
acquired within the preceding twelve (12) months, then items (a) through (d)
above for the same fiscal period of the prior owner(s) shall be included in the
determination of Net Operating Income. Inclusion of receipts and operating
expenses from the prior owner(s), however, shall be conditioned upon the
submission of adequate documentation of Gross Receipts and operating expenses
during the prior owner(s)' ownership.
Net Worth. Borrower Market Value less Consolidated Indebtedness.
Notes. See Section 3.1.
Obligations. All indebtedness, obligations and liabilities of any of
the Borrower to any of the Lenders and the Agent, individually or collectively,
existing on the date of this Agreement or arising thereafter, direct or
indirect, joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by contract,
operation of law
- 10 -
<PAGE> 18
or otherwise, arising or incurred under this Agreement or any of the other Loan
Documents or in respect of the Facility or any of the Notes, or other
instruments at any time evidencing any thereof.
Obligor(s). Each Borrower and, if any Borrower is a partnership, each
general partner of such Borrower and each Guarantor and, if any Guarantor is a
partnership, each general partner of such Guarantor.
Organizational Documents. For any corporation, partnership, trust,
limited liability company, limited liability partnership, unincorporated
association, business or other legal entity, the documents pursuant to which
such entity has been established or organized, as such documents may be amended
from time to time.
Outstanding. With respect to the Facility, the aggregate unpaid
principal of the Revolving Credit Loans and the aggregate outstanding exposure
of issued Letters of Credit as of any date of determination.
Partially-Owned Real Estate Holding Entity. With respect to any
Person, any real estate holding entity in which such Person owns directly or
indirectly some but less than all of the ownership interest in such entity.
Party(ies). Each Obligor; if any Obligor is a partnership, each
partner authorized to execute documents on behalf of such Obligor; if any
Obligor is a limited liability company or corporation, each officer or other
Person authorized to execute documents on behalf of such Obligor; and if any
Obligor is a trust, each trustee of such Obligor.
PBGC. The Pension Benefit Guaranty Corporation created by Section
4002 of ERISA and any successor entity or entities having similar
responsibilities.
Permitted Liens. Liens, security interests and other encumbrances,
permitted by Section 10.4.
Person. Any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, and any government
or any governmental agency or political subdivision thereof.
Personal Property. All materials, furnishings, fixtures, furniture,
machinery, equipment and all items of tangible or intangible personal property
now or hereafter owned or acquired by the Borrower, in which the Lender has
been, or will be granted an interest to secure the Project Obligations.
Project Approvals. All approvals, consents, waivers, orders,
agreements, acknowledgments, authorizations, permits and licenses required
under applicable Requirements or under the terms of any restriction, covenant
or easement affecting the Assets Under Development, or otherwise necessary or
desirable, for the ownership, acquisition, use,
- 11 -
<PAGE> 19
occupancy and operation of the Assets Under Development, whether obtained from
a Governmental Authority or any other Person.
Real Estate Assets. All real estate assets wholly owned by HH Trust
and/or its Subsidiaries, including but not limited to the Borrowing Base
Assets.
Record. Any record, including computer records, maintained by each
Lender with respect to the balance due under the Revolving Credit Loan(s) made
by such Lender to the Borrower.
Requirements. Any law, ordinance, code, order, rule or regulation of
any Governmental Authority relating in any way to the acquisition, ownership,
use, occupancy and operation of any of the Borrowing Base Assets.
Revolving Credit Loans. Revolving credit loans made or to be made by
the Lenders to the Borrower pursuant to Section 2.
Security Deeds. Collectively, the Mortgages and Security Agreements
and Deeds of Trust and Security Agreements, dated or to be dated on or prior to
the Closing Date, made by HHLP with respect to each of the HHLP owned Borrowing
Base Assets or by Solomons with respect to the Solomons Property in favor of
the Agent and any future Mortgages and Security Agreements and Deeds of Trust
and Security Agreements granted by HHLP, Solomons, or any other owner of future
additional or substitute Borrowing Base Assets.
Security Documents. The Security Deeds, the Assignments of Leases and
Rents dated as of the date hereof, the Financing Statements, and any other
agreement, document or instrument now or hereafter securing the Obligations.
Solomons. Solomons Beacon Inn Limited Partnership, a Maryland limited
partnership, which is a Guarantor and is the fee owner of the Solomons
Property.
Solomons Property. The Borrowing Base Asset owned by Solomons and
located in Solomons, Maryland. The Solomons Property is more particularly
described in the Security Deed from Solomons.
Subsidiary. Any corporation, partnership, association, trust, or
other business entity of which the designated parent shall at any time own
directly, or indirectly through a Subsidiary or Subsidiaries at least a
majority (by number of votes) of the outstanding voting interests therein and
shall control such entity. "Control," as used in this definition, means the
possession, directly or indirectly, of the power to direct, or cause the
direction of, the management and policies of an entity, whether through
ownership of voting stock, by contract or otherwise.
Substitution Request. See Section 7.3.
- 12 -
<PAGE> 20
Survey. An instrument survey of the Land and the Improvements dated
or recertified not earlier than thirty (30) days before the proposed inclusion
of the applicable Real Estate Asset as a Borrowing Base Asset and prepared in
accordance with the Agent's survey requirements, which are attached as Exhibit
F, such survey to be satisfactory to the Agent in form and substance.
Surveyor Certificate. With respect to any Survey, a certificate
executed by the surveyor who prepares such Survey dated as of a recent date and
containing such information relating to the Project as the Lender or the Title
Insurance Company may require, such certificate to be satisfactory to the
Lender in form and substance.
Taking. Any condemnation for public use of, or damage by reason of,
the action of any Governmental Authority, or any transfer by private sale in
lieu thereof, either temporarily or permanently.
Title Insurance Company. Chicago Title Insurance Company and such
other companies as may be approved by the Agent from time to time.
Title Policies. One or more ALTA standard form title insurance
policies issued by any of the Title Insurance Companies (with such reinsurance
or co-insurance as the Agent may require, any such reinsurance to be with
direct access endorsements) in a combined amount not less than the Aggregate
Commitment insuring the priority of each Security Deed and insuring that HHLP
or Solomons, as applicable, holds marketable fee simple title to each of the
Borrowing Base Assets, subject only to such exceptions as the Agent may
approve, and shall contain such endorsements and affirmative insurance as the
Agent in its discretion may require.
Total Assets. All assets of the Borrower determined in accordance
with generally accepted accounting principles.
Total Liabilities. All liabilities of the Borrower determined in
accordance with generally accepted accounting principles and all Indebtedness
of the Borrower, whether or not so classified.
Tri-Party Agreement. The Tri-Party Agreement of even date among HHLP
and Solomons, as owners of the Borrowing Base Assets, HH Management, as tenant
and operator of the Borrowing Base Assets, and the Agent.
Turnover Payment. See Section 12.2.
Unused Facility Fee. A fee payable quarterly in arrears by Borrower
to the Agent for the Lenders accruing at a rate equal to the percent per annum
shown in the following chart on the average available but unborrowed portion of
the Aggregate Commitment and calculated at the end of each calendar quarter
based on the average available but unborrowed portion of the Aggregate
Commitment for such quarter.
- 13 -
<PAGE> 21
<TABLE>
<CAPTION>
==================================================================
UNUSED AGGREGATE UNUSED FACILITY FEE
COMMITMENT
==================================================================
<S> <C>
< one-third 0.15%
------------------------------------------------------------------
> one-third < two-thirds 0.20%
-
------------------------------------------------------------------
> two-thirds 0.25%
-
==================================================================
</TABLE>
1.2 RULES OF INTERPRETATION.
(a) A reference to any Loan Document, agreement, budget,
document or schedule shall include such agreement, budget, document or schedule
as revised, amended, modified or supplemented from time to time in accordance
with its terms and the terms of this Agreement.
(b) A reference to any Exhibit hereto shall be deemed to
specifically incorporate the terms and provisions of such Exhibit herein.
(c) The singular includes the plural and the plural
includes the singular.
(d) A reference to any law includes any amendment or
modification to such law.
(e) A reference to any Person includes its permitted
successors and permitted assigns.
(f) Accounting terms not otherwise defined herein have
the meaning assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they refer.
(g) The words "approval" and "approved", as the context
so determines, means an approval in writing given to the party seeking approval
after full and fair disclosure to the party giving approval of all material
facts necessary in order to determine whether approval should be granted.
(h) Reference to a particular "Section" refers to that
section of this Agreement unless otherwise indicated.
2. AGREEMENT TO MAKE REVOLVING CREDIT LOANS.
2.1 AGREEMENT TO MAKE REVOLVING CREDIT LOANS. Subject to the
terms and conditions set forth in this Agreement, each of the Lenders severally
agrees to lend to the Borrower jointly and severally from time to time before
the Maturity Date such sums as are requested by the Borrower up to a maximum
aggregate amount Outstanding (after giving effect
- 14 -
<PAGE> 22
to all amounts requested) at any one time equal to such Lender's Commitment so
long as the sum of the Outstanding amount of the Revolving Credit Loans and
Letters of Credit (after giving effect to all amounts requested) shall not at
any time exceed the lesser of (i) the Aggregate Commitment and (ii) the
then-current Borrowing Base Advance Rate (collectively, the "MAXIMUM
AVAILABILITY"). The Borrower may borrow, repay, and reborrow the Revolving
Credit Loans from time to time before the Maturity Date upon notice by the
Borrower to the Agent given in accordance with EXHIBIT B. The Revolving Credit
Loans shall be made pro rata in accordance with each Lender's Commitment
Percentage. Each request for a Revolving Credit Loan hereunder shall
constitute a representation and warranty by the Borrower that the conditions
set forth in Section 6 have been satisfied on the date of such request.
2.2 PURPOSE OF FACILITY. Proceeds of the Facility shall be
available for working capital and other general corporate purposes of the
Borrower.
2.3 REDUCTION OF AGGREGATE COMMITMENT. The Borrower shall have
the right at any time and from time to time upon five (5) Business Days' prior
written notice to the Agent to reduce by $1,000,000.00 or an integral multiple
thereof or terminate entirely the Aggregate Commitment, whereupon the
Commitments of the Lenders shall be reduced pro rata in accordance with their
respective Commitment Percentages of the amount specified in such notice or, as
the case may be, terminated. Promptly after receiving any notice of the
Borrower delivered pursuant to this Section 2.3, the Agent will notify the
Lenders of the substance thereof. No reduction or termination of the
Commitments may be reinstated.
2.4 ADVANCES DO NOT CONSTITUTE A WAIVER. No Revolving Credit Loan
made by any Lender shall constitute a waiver of any of the terms and conditions
of this Agreement, nor, in the event the Borrower fails to satisfy any such
condition, shall any such Revolving Credit Loan have the effect of precluding
the Agent or any Lender from thereafter declaring such failure to satisfy a
condition to be an Event of Default.
3. THE NOTES, INTEREST RATE OPTIONS, REPAYMENT OF REVOLVING CREDIT LOANS.
3.1 THE NOTES. The Revolving Credit Loans shall be evidenced by
separate promissory notes of the Borrower in substantially the form of Exhibit
A hereto (each a "NOTE"), dated as of the Closing Date and completed with
appropriate insertions. One Note shall be made to the order of each Lender
payable in a principal amount equal to such Lender's Commitment or, if such
Lender's Commitment is not then fully advanced, the aggregate outstanding
amount of all Revolving Credit Loans made by such Lender, plus interest accrued
thereon, as set forth in this Agreement.
3.2 FUNDS FOR REVOLVING CREDIT LOANS.
(a) Not later than 11:00 a.m. (Boston time) on the
proposed Drawdown Date of any Revolving Credit Loans, each of the Lenders will
make available to the Agent, at the
- 15 -
<PAGE> 23
Agent's Head Office, in immediately available funds, the amount of such
Lender's Commitment Percentage of the amount of the requested Revolving Credit
Loans. Upon receipt from each Lender of such amount, and upon receipt of the
documents required by Section 6 and the satisfaction of the other conditions
set forth therein, to the extent applicable, the Agent will make available to
the Borrower the aggregate amount of such Revolving Credit Loans made available
to the Agent by the Lenders. The failure or refusal of any Lender to make
available to the Agent at the aforesaid time and place on any Drawdown Date the
amount of its Commitment Percentage of the requested Revolving Credit Loans
shall not relieve any other Lender from its several obligation hereunder to
make available to the Agent the amount of such other Lender's Commitment
Percentage of any requested Revolving Credit Loans.
(b) The Agent may, unless notified to the contrary by any
Lender prior to a Drawdown Date, assume that such Lender has made available to
the Agent on such Drawdown Date the amount of such Lender's Commitment
Percentage of the Revolving Credit Loans to be made on such Drawdown Date, and
the Agent may (but it shall not be required to), in reliance upon such
assumption, make available to the Borrower a corresponding amount. If any
Lender makes available to the Agent such amount on a date after such Drawdown
Date, such Lender shall pay to the Agent on demand an amount equal to the
product of (i) the average computed for the period referred to in clause (iii)
below, of the weighted average interest rate paid by the Agent for federal
funds acquired by the Agent during each day included in such period, times (ii)
the amount of such Lender's Commitment Percentage of such Revolving Credit
Loans, times (iii) a fraction, the numerator of which is the number of days
that elapse from and including such Drawdown Date to the date on which the
amount of such Lender's Commitment Percentage of such Revolving Credit Loans
shall become immediately available to the Agent, and the denominator of which
is 360. A statement of the Agent submitted to such Lender with respect to any
amounts owing under this paragraph shall be prima facie evidence of the amount
due and owing to the Agent by such Lender. If the amount of such Lender's
Commitment Percentage of such Revolving Credit Loans is not made available to
the Agent by such Lender within three (3) Business Days following such Drawdown
Date, the Agent shall be entitled to recover such amount from the Borrower on
demand, with interest thereon at the rate per annum applicable to the Revolving
Credit Loans made on such Drawdown Date.
3.3 THE RECORD. The Borrower irrevocably authorizes each Lender
to make or cause to be made, at or about the time of the Drawdown Date of any
Revolving Credit Loan or at the time of receipt of any payment of the principal
of such Lender's Note, an appropriate notation on the Lender's Note Record
reflecting the making of such Revolving Credit Loan or (as the case may be) the
receipt of such payment. The outstanding amount of the Revolving Credit Loan
set forth on such Lender's Note Record shall be prima facie evidence of the
principal amount thereof owing and unpaid to such Lender, but the failure to
record, or any error in so recording, any such amount on such Lender's Note
Record shall not limit or otherwise affect the obligations of the Borrower
hereunder or under any Note to make payments of principal or interest on any
Note when due. Further, the outstanding amount of any Revolving Credit Loan as
reflected on each Lender's Note Record from time to time shall be considered
presumptively correct and binding
- 16 -
<PAGE> 24
on the Borrower absent manifest error unless within ten (10) Business Days
after receipt of any notice by the Borrower of such outstanding amount, the
Borrower shall notify such Lender to the contrary.
3.4 INTEREST ON THE REVOLVING CREDIT LOANS. The Revolving Credit
Loans shall bear interest at the interest rates, and such interest shall be
payable, as set forth in Exhibit B.
3.5 INTEREST RATE SELECTION; CONVERSION. The Borrower shall have
such rights as are set forth in Exhibit B to select and, as applicable, convert
Revolving Credit Loans from one Type of Revolving Credit Loan to another Type
of Revolving Credit Loan.
3.6 DEFAULT INTEREST. Upon the occurrence of an Event of Default,
at the Lenders' option, the Revolving Credit Loans and all other amounts
payable hereunder or under any of the other Loan Documents shall bear interest
payable on demand at a rate per annum equal to four percent (4%) above the then
applicable highest rate of interest under the Notes until such amount shall be
paid in full (after as well as before judgment) (the "DEFAULT RATE").
3.7 PREPAYMENT. The Borrower shall not have the right at any time
to prepay the Revolving Credit Loans on or before the Maturity Date, as a
whole, or in part, except as set forth in Exhibit B.
3.8 MATURITY. The Borrower promises to pay on the Maturity Date,
and there shall become absolutely due and payable on the Maturity Date, all of
the Revolving Credit Loans outstanding on such date, together with any and all
accrued and unpaid interest thereon.
3.9 MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS. If at any
time the sum of the Outstanding amount of the Revolving Credit Loans and
Letters of Credit exceeds the then applicable Maximum Availability then the
Borrower shall immediately pay the amount of such excess to the Agent for the
respective accounts of the Lenders for application to the Revolving Credit
Loans. Each prepayment of Revolving Credit Loans shall be allocated among the
Lenders, in proportion, as nearly as practicable, to the respective unpaid
principal amount of each Lender's Note, with adjustments to the extent
practicable to equalize any prior payments or repayments not exactly in
proportion.
4. LETTERS OF CREDIT.
4.1 ISSUANCE. The Agent hereby agrees, subject to and in
accordance with the terms and conditions set forth in this Section 4, to issue,
from time to time after the Closing Date and not later than sixty (60) days
before the Maturity Date, Letters of Credit on behalf of the Lenders for the
account of any Borrower.
No Letter of Credit shall be issued or renewed unless at the
time of such issuance or renewal:
- 17 -
<PAGE> 25
(a) no Event of Default shall exist;
(b) no event, circumstance or condition shall exist or
shall have occurred and be continuing that has a materially adverse effect on
any Borrower, any Guarantor, or any Borrowing Base Asset;
(c) the amount of such Letter of Credit, when added to
the then outstanding Letters of Credit hereof, does not exceed the Letter of
Credit Maximum Amount;
(d) the amount of such Letter of Credit, when added to
the then outstanding balance of all Revolving Credit Loans and outstanding
Letters of Credit, does not exceed the Maximum Availability; and
(e) there shall not be more than four (4) other
outstanding Letters of Credit at the time of issuance.
4.2 LETTER OF CREDIT EXPIRY DATES. Each Letter of Credit shall
have an expiry date not more than one (1) year after the date that the Letter
of Credit is issued; provided that no Letter of Credit shall be issued with an
expiry date later than thirty (30) days prior to the Maturity Date.
4.3 APPLICATION. The Borrower shall request the issuance of a
Letter of Credit by its execution and delivery to the Agent of a Letter of
Credit Application together with a Covenant Compliance Certificate in the form
attached to this Agreement at Exhibit C at least five (5) Business Days before
the proposed issuance date of the Letter of Credit. If the Letter of Credit
Application is acceptable to the Agent and all of the conditions for issuance
of a Letter of Credit remain satisfied, then the Agent shall prepare the Letter
of Credit in a form acceptable to the Agent in accordance with the instructions
set forth in the approved Letter of Credit Application and shall issue the
Letter of Credit to the beneficiary of such Letter of Credit unless otherwise
instructed by the Borrower.
4.4 LETTER OF CREDIT FEES. The Borrower shall pay to the Agent an
annual Letter of Credit Fee for each Letter of Credit issued under this
Agreement, which Letter of Credit Fee shall be due and payable in advance on
the date that the Letter of Credit is issued or extended. The Borrower shall
also pay to the Agent on demand an issuance fee of twenty (20) basis points and
such other amendment and letter of credit transaction fees as may be announced
by the Agent from time to time.
4.5 LETTER OF CREDIT RESERVES. If any change in any Law or in the
interpretation thereof by any court or other governmental authority charged
with administration thereof shall either (a) impose, modify or deem applicable
any reserve, special deposit or similar requirement against any Letter of
Credit, or (b) impose on the Agent or any other Lender any other condition
regarding this Agreement or any Letter of Credit, and the result of any event
referred to in clauses (a) or (b) of this Section shall be to increase the cost
to the Agent or any other Lender of
- 18 -
<PAGE> 26
issuing any Letter of Credit, then upon demand by the Agent or such other
Lender, the Borrower shall pay to the Agent or such other Lender such
additional amounts as may be necessary to compensate the Agent or such other
Lender for such increased costs. A certificate submitted by the Agent or such
other Lender to the Borrower, stating such increased costs of issuing Letters
of Credit, shall be conclusive, absent manifest error, as to the amount of such
increased costs.
4.6 PAYMENTS ON LETTERS OF CREDIT.
(a) The Borrower covenants and agrees to immediately and
without demand, and without set-off, defense or counterclaim of any kind,
reimburse the Agent in Dollars in immediately available funds all amounts drawn
under Letters of Credit. The Agent shall promptly notify each of the Lenders
of each such draw.
(b) Before the occurrence of an Event of Default, and
unless otherwise immediately reimbursed to the Agent in Dollars in immediately
available funds by the Borrower, but only to the extent that Base Rate Loans
may be made under this Agreement in the necessary amounts at such times, all
amounts drawn under Letters of Credit shall be reimbursed to the Agent with
proceeds of Base Rate Loans made under this Agreement to the Borrower (and
regardless of whether the Borrower shall have requested such Base Rate Loans)
and directly advanced to the Agent (without instruction or authorization from
the Borrower) for the purpose of making such reimbursements. All such amounts
to be reimbursed with the proceeds of Base Rate Loans shall upon the Agent's
instruction be advanced by the Lenders (including the Agent) in accordance with
the terms of this Agreement, and such Base Rate Loans shall be repayable in
accordance with the terms of this Agreement and the other Loan Documents.
(c) Upon the occurrence of an Event of Default, all of
the Borrower's reimbursement obligations under Letters of Credit, including the
Borrower's obligations to reimburse the Agent for amounts drawn under Letters
of Credit and the Borrower's contingent obligations for amounts not yet drawn
under outstanding Letters of Credit, whether then due or otherwise, shall be
immediately due and payable by the Borrower to the Agent. All such immediately
due and payable amounts paid to the Agent in respect of such contingent
obligations for amounts not yet drawn shall be held by the Agent in the Letter
of Credit Collateral Account as cash collateral and applied by the Agent to
reimburse the Agent from time to time for amounts drawn under Letters of Credit
until all Letters of Credit have expired and the Agent has been reimbursed for
all amounts drawn under Letters of Credit. The Borrower hereby assigns to the
Agent and grants the Agent a security interest in all amounts so held in any
Letter of Credit Collateral Account as cash collateral for the Borrower's
reimbursement obligations under Letters of Credit. Any draw under an
outstanding Letter of Credit after the funding of the Letter of Credit
Collateral Account shall be paid by the Agent first with funds held in the
Letter of Credit Collateral Account to the extent funds are available therein
and are permitted by law to be disbursed and next by Borrower in any amount not
so paid from the Letter of Credit Collateral Account, regardless of the reason
for such non-payment from the Letter of Credit Collateral Account and
regardless of whether there is a balance in the Letter of Credit Collateral
Account. If the Borrower fails to pay such reimbursement obligations
immediately, including such
- 19 -
<PAGE> 27
amounts as are required to be held in the Letter of Credit Collateral Account,
the Lenders shall upon the Agent's instruction, and regardless of whether the
Borrower shall have requested such Base Rate Loans or given the Agent
instructions to the contrary, immediately make Base Rate Loans to the Borrower
and directly apply the proceeds of such Base Rate Loans to the payment of some
or all of such reimbursement obligations and to the funding of some or all of
such amounts to be held in and disbursed to the Agent from the Letter of Credit
Collateral Account. All such amounts paid or held from the proceeds of Base
Rate Loans shall be repayable in accordance with the terms of this Agreement
and the other Loan Documents. When all outstanding Letters of Credit have
expired or have been drawn, any amounts remaining in the Letter of Credit
Collateral Account shall be applied to any Obligations and the surplus, if any,
returned to the Borrower.
(d) The Borrower's agreement and obligation to reimburse
the Agent for amounts due and payable as set forth in the preceding clauses of
this Section (including all such amounts in respect of contingent obligations)
shall be absolute and unconditional under all circumstances and shall be paid
without set-off, counterclaim, or defense to payment which the Borrower may
have against the beneficiary of any such Letter of Credit, or the Agent, any
Lender or any other Person, including any set-off, counterclaim or defense
based on any drawing documents proving to be forged, fraudulent or invalid, or
the legality, validity, regularity or enforceability of such Letter of Credit
or any Letter of Credit Application, this Agreement, the Notes, or any other
Loan Documents.
4.7 OTHER REIMBURSEMENT OF AGENT BY LENDERS.
(a) Upon any draw under a Letter of Credit, and to the
extent not reimbursed by the Borrower or pursuant to an advance made under a
Base Rate Loan, each Lender, immediately upon demand by the Agent, shall
reimburse the Agent in an amount equal to such Lender's Commitment Percentage
of the amount of such draw. In addition, upon an Event of Default, each Lender
shall, upon the written request of the Agent remit to the Agent as security for
its obligations as a participant in each outstanding Letter of Credit (and not
as an advance under a Base Rate Loan), its Commitment Percentage of all
outstanding Letters of Credit, which amount shall be held by the Agent in the
Letter of Credit Collateral Account and applied to draws under the outstanding
Letters of Credit or returned to each Lender upon the expiration of all
outstanding Letters of Credit, as applicable. Each Lender may, in lieu of its
obligations under the preceding sentence, deliver to the Agent a letter of
credit in form and substance satisfactory to the Agent.
(b) Each of the Lenders irrevocably and unconditionally
agrees to honor any demands for payment under this Section and promises to pay
on the same Business Day as demanded the amounts required to be paid by it
pursuant to this Section in immediately available funds, without any set-off,
counterclaim or deduction of any kind. Any payment by a Lender as required by
the immediately preceding sentence shall in no way release, discharge or lessen
the joint and several obligation of the Borrower to pay any Obligations in
accordance with the provisions of this Agreement. The obligation of each of
the Lenders to remit the amounts
- 20 -
<PAGE> 28
required to be paid by it pursuant to this Section shall be unconditional and
irrevocable under any and all circumstances and may not be terminated,
suspended or delayed for any reason whatsoever, including any Default or Event
of Default or any remedial action taken by the Agent or the Lenders in
connection therewith; provided that all payments of such amounts by each of the
Lenders shall be without prejudice to the right of each of the Lenders for any
claim any Lender may have against the Agent as a result of the Agent's alleged
gross negligence or willful misconduct which may be brought by such Lender in a
separate action against the Agent but may not be used as a defense to payment
under the provisions of this Section.
(c) No failure of any Lender to remit the amounts
required to be paid by it pursuant to this Section shall affect the obligations
of the Agent under any Letter of Credit, and if any Lender does not remit the
amounts required to be paid by it pursuant to this Section on the same Business
Day as demanded as above provided, then without limiting such Lender's
obligation to transmit funds on the same Business Day as demanded, such Lender
shall be obligated to pay, on demand of the Agent and without set-off,
counterclaim or deduction of any kind whatsoever an amount equal to the product
of (i) a fraction, the numerator of which is the daily average Federal Funds
Rate during such period and the denominator of which is 360, times (ii) the
amounts required to be paid by such Lender pursuant to this Section, times
(iii) the number of days that elapse from the due date of such Lender's payment
to the date on which such Lender's payment shall have become immediately
available to the Agent.
(d) If any amount paid to the Agent by the Borrower on
account of any Letter of Credit is rescinded or required to be restored or
turned over by the Agent upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or upon or as a result of the
appointment of a receiver, intervenor, trustee, conservator or similar officer
for the Borrower, the Agent shall promptly notify each of the Lenders and shall
demand payment from each of the Lenders of its Commitment Percentage of such
amount so restored or turned over by the Agent, and the Lenders shall
immediately make such payment upon demand.
4.8 INSTRUCTION TO PAY; INDEMNIFICATION.
(a) The Borrower hereby irrevocably instructs the Agent
to pay any draft complying with the terms of any Letter of Credit. The
Borrower assumes all risks of the acts and omissions of the beneficiary and
other users of any Letter of Credit.
(b) The Agent and its branches, affiliates and/or
correspondents shall not be responsible for any, and the Borrower shall
indemnify and hold the Agent, the Lenders and their branches, affiliates and
correspondents harmless from and against all, liability, loss and expense
(including reasonable attorney's fees and costs) incurred by the Agent, the
Lenders or their branches, affiliates or correspondents relative to or as a
consequence of (i) any failure of the Borrower to perform the agreements
hereunder and under any Letter of Credit Application, (ii) any Letter of Credit
Application, this Agreement, any Letter of Credit and any drafts and
acceptances under or purporting to be under any Letter of Credit, (iii) any
action taken or omitted by the Lenders, the Agent or their branches, affiliates
or correspondents at the request of the
- 21 -
<PAGE> 29
Borrower, (iv) any failure or inability to perform in accordance with the terms
of any Letter of Credit by reason of any control or restriction rightfully or
wrongfully exercised by any de facto or de jure government, group or individual
asserting or exercising governmental powers, and (v) any consequences arising
from causes beyond the control of the Agent or the Lenders, or their branches,
affiliates or correspondents.
(c) Except for gross negligence and willful misconduct of
the Agent, the Lenders and their branches, affiliates and correspondents, the
Agent, the Lenders and their branches, affiliates and correspondents, shall not
be liable or responsible in any respect for any (i) error, omission,
interruption or delay in transmission, dispatch or delivery of any one or more
messages or advices in connection with any Letter of Credit, whether
transmitted by cable, telegraph, mail or otherwise and despite any cipher or
code which may be employed, or (ii) action, inaction or omission that may be
taken or suffered by it or them in good faith or through inadvertence in
identifying or failing to identify any beneficiary or otherwise in connection
with any Letter of Credit.
(d) Any Letter of Credit may be amended, modified or
revoked only upon the receipt by the Agent from the Borrower, the beneficiary
(including any transferees and assignees of the original beneficiary), the
Agent and the Lenders of a written consent and request for such amendment,
modification or revocation, and then only on such terms and conditions as the
Agent may prescribe in the Agent's discretion.
(e) If any Laws, orders of court and/or rulings or
regulations of any governmental authorities of the United States, any state, or
foreign government permits the beneficiary under a Letter of Credit to require
the Agent or its branches, affiliates or correspondents to pay drafts under or
purporting to be under a Letter of Credit after the expiration date of the
Letter of Credit, the Borrower shall reimburse the Agent for any such payment
pursuant to Section 4.6.
(f) Except as may otherwise be specifically provided in a
Letter of Credit or Letter of Credit Application, the laws of the Commonwealth
of Massachusetts and the Uniform Customs and Practice for Documentary Credits,
1993 Revision, International Chamber of Commerce Publication No. 500 shall
govern the Letters of Credit. In the event of a conflict between the Uniform
Customs and Practice for Documentary Credits and the laws of the Commonwealth
of Massachusetts, the laws of the Commonwealth of Massachusetts shall prevail.
5. COMMITMENT FEE; PAYMENTS AND COMPUTATIONS.
5.1 COMMITMENT FEE. The Borrower agrees to pay to the Agent for
the pro rata accounts of the Lenders a commitment fee, which shall be detailed
in a separate fee letter.
5.2 AGENT'S FEE. The Borrower shall pay the Agent's Fee to the
Agent, for the Agent's own account, on the Closing Date; provided that if
BankBoston is the sole Lender on the Closing Date, payment of the Agent's fee
shall be deferred until BankBoston transfers a portion
- 22 -
<PAGE> 30
of the Aggregate Commitment to an Eligible Assignee pursuant to Section 21.
Upon such transfer, the Borrower shall pay the Agent's Fee within ten (10) days
after demand by the Agent.
5.3 UNUSED FACILITY FEE. The Borrower shall pay to the Agent the
Unused Facility Fee for each year or portion thereof prior to the termination
of the Lenders' obligations to make Revolving Credit Loans under this
Agreement. The accrued portion of the Unused Facility Fee shall be due and
payable to the Agent quarterly in arrears. If the Borrower repays the Facility
in full and terminates in writing the Lenders' obligation to make any further
Revolving Credit Loans or issue Letters of Credit, the Borrower shall have no
obligation to pay the Unused Facility Fee for the period between such
termination and the scheduled Maturity Date. The Agent shall distribute to
each Lender such Lender's Commitment Percentage of each Unused Facility Fee
paid to the Agent.
5.4 PAYMENTS.
(a) All payments of principal, interest, commitment fees,
and any other amounts due hereunder or under any of the other Loan Documents
shall be made to the Agent, for the respective accounts of the Lenders and the
Agent, at P.O. Box 3012, Boston, Massachusetts 02241-3012, or at such other
location in the Boston, Massachusetts area that the Agent may from time to time
designate, in the billing invoice or otherwise, in immediately available funds
in lawful money of the United States.
(b) All payments by the Borrower hereunder and under any
of the other Loan Documents shall be made without setoff or counterclaim and
free and clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any jurisdiction
or any political subdivision thereof or taxing or other authority therein
unless the Borrower is compelled by law to make such deduction or withholding.
If any such obligation is imposed upon the Borrower with respect to any amount
payable by it hereunder or under any of the other Loan Documents, the Borrower
will pay to the Agent, for the account of the Lenders or (as the case may be)
the Agent, on the date on which such amount is due and payable hereunder or
under such other Loan Document, such additional amount in Dollars as shall be
necessary to enable the Lenders or the Agent to receive the same net amount
that the Lenders or the Agent would have received on, such due date had no such
obligation been imposed upon the Borrower. The Borrower will deliver promptly
to the Agent certificates or other valid vouchers for all taxes or other
charges deducted from or paid with respect to payments made by the Borrower
hereunder or under such other Loan Document.
5.5 ADDITIONAL COSTS, ETC. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon
or otherwise issued to any
- 23 -
<PAGE> 31
Lender or the Agent by any central bank or other fiscal, monetary or other
authority (whether or not having the force of law), shall:
(a) subject any Lender or the Agent to any tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature with respect
to this Agreement, the other Loan Documents, such Lender's Commitment or the
Loans (other than taxes based upon or measured by the income or profits of such
Lender or the Agent), or
(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to any Lender of the
principal of or the interest on any Loans or any other amounts payable to any
Lender or the Agent under this Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than
to the extent specifically provided for elsewhere in this Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or other
similar requirements (whether or not having the force of law) against assets
held by, or deposits in or for the account of, or loans by, or letters of
credit issued by, or commitments of an office of any Lender, or
(d) impose on any Lender or the Agent any other
conditions or requirements with respect to this Agreement, the other Loan
Documents, the Loans, such Lender's Commitment, or any class of loans or
commitments of which any of the Loans or such Lender's Commitment forms a part;
and the result of any of the foregoing is
(i) to increase the cost to any Lender of making,
funding, issuing, renewing, extending or maintaining any of the Loans or such
Lender's Commitment, or
(ii) to reduce the amount of principal, interest,
or other amount payable to such Lender or the Agent hereunder on account of
such Lender's Commitment, any Letter of Credit or any of the Loans, or
(iii) to require such Lender or the Agent to make
any payment or to forego any interest or other sum payable hereunder, the
amount of which payment or foregone interest or other sum is calculated by
reference to the gross amount of any such receivable or deemed received by such
Lender or the Agent from the Borrower hereunder,
then, and in each such case that such amounts are being generally passed
through to borrowers of similar capitalization and leverage of such Lender, the
Borrower will, upon demand made by such Lender or (as the case may be) the
Agent at any time and from time to time and as often as the occasion therefor
may arise, pay to such Lender or the Agent such additional amounts as will be
sufficient to compensate such Lender or the Agent for such additional cost,
education, payment or foregone interest or other sum.
- 24 -
<PAGE> 32
5.6 CAPITAL ADEQUACY. If the Agent or any Lender shall have
determined that the adoption of any applicable law, rule, regulation,
guideline, directive or request (whether or not having force of law)
regarding capital requirements, or the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by the Agent or
such Lender with any of the foregoing imposes or increases a requirement by the
Lender to allocate capital resources to the Revolving Credit Loans made, or to
be made, hereunder, which has or would have the effect of reducing the return
on such Lender's capital to a level below that which such Lender could have
achieved (taking into consideration such Lender's then existing policies with
respect to capital adequacy and assuming full utilization of such Lender's
capital) but for such adoption, change or compliance, by any amount deemed by
such Lender to be material and such increase is being generally passed through
to borrowers of similar capitalization and leverage with such Lender: (i) the
Agent or such Lender shall promptly after its determination of such occurrence
give notice thereof to the Borrower; and (ii) the Borrower shall pay to the
Agent for the account of such Lender as an additional fee from time-to-time on
demand such amount as the such Lender certifies to be the amount that will
compensate it for such reduction. In determining such amounts, such Lender may
use any reasonable averaging and attribution methods.
5.7 CERTIFICATE. A certificate setting forth any additional
amounts payable pursuant to Section 5.5 or Section 5.6 and a brief explanation
of such amounts that are due, submitted by any Lender or the Agent to the
Borrower, shall be prima facie evidence that such amounts are due and owing.
5.8 CHARGES AGAINST ACCOUNTS. The Agent and each Lender shall
have the right, and the Borrower hereby irrevocably authorizes the Agent and
each Lender, to charge any account of the Borrower with the Agent or such
Lender, without the further approval of the Borrower, for (a) any installment
of interest or principal due under such Lender's Note, (b) any costs or
expenses incurred by the Agent or such Lender which are to be paid or
reimbursed by the Borrower under the terms of this Agreement or any of the
other Loan Documents, or (c) any other sums due to the Agent or such Lender
under such Lender's Note, this Agreement or any of the other Loan Documents,
and any other Obligations, all to the extent that the same are not paid by the
respective due dates thereof. If any Lender makes any of the foregoing charges
against any account of the Borrower, such Lender shall use commercially
reasonable efforts to notify the Borrower of such charge promptly thereafter.
6. CONDITIONS TO CLOSING AND ALL ADVANCES.
The obligation of the Lenders to make the Revolving Credit Loans or to
issue Letters of Credit shall be subject to the satisfaction of the following
conditions precedent:
6.1 LOAN DOCUMENTS. Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to each of the
Lenders. Each Lender shall have received a fully executed copy of each such
document.
- 25 -
<PAGE> 33
6.2 LEASES. The Leases shall have been duly executed by the
respective parties thereto, shall be in full force and effect, and shall be in
form and substance satisfactory to the Lenders. The Agent shall have received
a certified or fully executed copy of each Lease. HH Management, as tenant
under each of the Leases other than the restaurant Lease at the Solomons
Property, shall have duly executed and delivered the Tri-Party Agreement, and
each Lender shall have received from the Agent a fully executed copy of such
document.
6.3 CERTIFIED COPIES OF ORGANIZATION DOCUMENTS. The Agent shall
have received from each of the Parties a certified copy of its Organization
Documents as in effect on such date of certification, such Organizational
Documents to be in form and substance satisfactory to the Agent.
6.4 RESOLUTIONS. All action necessary for the valid execution,
delivery and performance by each Party of this Agreement and the other Loan
Documents to which it is or is to become a party shall have been duly and
effectively taken, and evidence thereof satisfactory to the Agent shall have
been provided to the Agent. The Agent shall have received from each such
Person true copies of the resolutions authorizing the transactions described
herein, each certified as of a recent date to be true and complete.
6.5 INCUMBENCY CERTIFICATE; AUTHORIZED SIGNERS. The Agent shall
have received from each Party an incumbency certificate, dated as of the
Closing Date, giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
such Person each of the Loan Documents to which such Person is or is to become
a party; (b) in the case of the Borrower, to make Draw Requests; and (c) to
give notices and to take other action on such Party's behalf of under the Loan
Documents.
6.6 VALIDITY OF LIENS. The Security Documents shall be effective
to create in favor of the Agent a legal, valid and enforceable first lien and
security interest in the Collateral. All filings, recordings, deliveries of
instruments and other actions necessary or desirable in the opinion of the
Agent to protect and preserve such lien and security interest shall have been
duly effected. The Agent shall have received evidence thereof in form and
substance satisfactory to the Agent.
6.7 DELIVERIES REGARDING BORROWING BASE ASSETS. The following
items or documents shall have been delivered to the Agent by the Borrower and
shall be in form and substance satisfactory to the Agent:
(a) Title Policies. The Title Policies, together with
proof of payment of all fees and premiums for such policies and true and
accurate copies of all documents listed as exceptions under such policies, with
such reinsurance or coinsurance as the Agent may require.
(b) Other Insurance. Duplicate originals or certified
copies of all policies of insurance required hereunder or by the Security Deeds
to be obtained and maintained.
- 26 -
<PAGE> 34
(c) Environmental Report(s). A Phase I Environmental
Site Assessment (an "ESA") dated within six (6) months of the proposed
inclusion of the Real Estate Asset as a Borrowing Base Asset and performed by
an environmental professional acceptable to the Agent which (i) meets the
minimum criteria for Phase I Environmental Site Assessments established under
the most recent edition of ASTM Standard Practice E1527, (ii) includes a visual
inspection to determine the presence and condition of asbestos containing
materials, and (iii) includes observations concerning the potential for
wetlands on the Borrowing Base Asset. Such ESA must be satisfactory in all
respects to the Agent in its sole discretion and must be accompanied or
supplemented by a reliance letter in the form attached as Exhibit D.
(d) Engineering Report(s). An Engineering Report, which
report or reports shall indicate a condition of the improvements on the
Borrowing Base Assets in compliance with all Requirements and in all respects
satisfactory to the Agent in its sole discretion and upon which report or
reports the Lenders are expressly entitled to rely.
(e) Survey and Taxes. A Survey of each of the Borrowing
Base Assets (and all existing improvements thereon) and Surveyor's Certificate,
and evidence of payment of all real estate taxes and municipal charges on the
Borrowing Base Assets that were due and payable prior to the Closing Date.
(f) Hotel Franchise Comfort Letter. A comfort letter or
comparable agreement from the franchisor of each Borrowing Base Asset in form
and substance satisfactory to the Agent.
(g) Deferred Maintenance Schedule. A copy of the
Deferred Maintenance Schedule, if any, in form and substance satisfactory to
the Agent.
6.8 LEGAL OPINIONS. Each of the Lenders and the Agent shall have
received favorable opinions in form and substance satisfactory to the Lenders
and the Agent's counsel, addressed to the Lenders and the Agent and dated as of
the Closing Date or as of the date of the addition or substitution of a
Borrowing Base Asset, from counsel to the Obligors acceptable to the Lenders.
6.9 LIEN SEARCH. The Agent shall have received a certification
from the Title Insurance Company or counsel satisfactory to the Agent (which
shall be updated from time to time at the Borrower's expense upon request by
the Agent) that a search of the public records disclosed no conditional sales
contracts, security agreements, chattel mortgages, leases of personalty,
financing statements or title retention agreements that affect any of the
Collateral other than the Security Deeds and Financing Statements and Permitted
Encumbrances.
6.10 APPRAISAL. The Lenders shall have received an Appraisal of
each of the Borrowing Base Assets, in form and substance satisfactory to each
of the Lenders.
- 27 -
<PAGE> 35
6.11 COMMITMENT FEE. The Borrower shall have paid to the Agent the
commitment fee pursuant to Section 5.1.
6.12 PERFORMANCE; NO DEFAULT. Each Borrower shall have performed
and complied with all terms and conditions herein required to be performed or
complied with by it on or prior to the advance of the Revolving Credit Loan or
issuance of the Letter of Credit being requested, and there shall exist no
Default or Event of Default.
6.13 REPRESENTATIONS AND WARRANTIES. The representations of
warranties made by the Obligors in the Loan Documents or otherwise made by or
on behalf of the Obligors in connection therewith shall have been true and
correct in all respects when made and shall be true and correct in all respects
on the date of any Revolving Credit Loan or issuance of any Letter of Credit.
6.14 COVENANT COMPLIANCE CERTIFICATE. The Borrower shall have
submitted a Covenant Compliance Certificate in the form attached to this
Agreement at Exhibit C certifying that the Borrower is in compliance with the
Financial Covenants.
6.15 PROCEEDINGS AND DOCUMENTS. All proceedings in connection with
the transactions contemplated by this Agreement, the other Loan Documents and
all other documents incident thereto shall be satisfactory in substance and in
form to the Lenders and to the Agent's legal counsel, and the Lenders and such
counsel shall have received all information and such counterpart originals or
certified or other copies of such documents as the Agent may reasonably
request.
6.16 WAIVER. Any waiver by the Lenders of any of the conditions
precedent contained herein for the Closing Date and any Revolving Credit Loan
or Letter of Credit shall not be deemed to be a waiver by the Lenders of such
conditions precedent for any subsequent Revolving Credit Loan or Letter of
Credit, if any, or any other obligation of the Borrowers hereunder.
6.17 NO LEGAL IMPEDIMENT. No change shall have occurred in any law
or regulations thereunder or interpretations thereof that in the reasonable
opinion of any Lender would make it illegal for such Lender to make such
Revolving Credit Loan or for the Agent to issue Letters of Credit.
6.18 GOVERNMENTAL REGULATION. Each Lender shall have received such
statements in substance and form reasonably satisfactory to such Lender as such
Lender shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
- 28 -
<PAGE> 36
7. COLLATERAL SECURITY
7.1 BORROWING BASE ASSETS LIST. Attached as Schedule 7.1 is a
list identifying all of the initial Borrowing Base Assets. Schedule 7.1 shall
be revised and updated whenever there are additional or substitute Borrowing
Base Assets.
7.2 SECURITY. The Obligations shall be secured by a perfected
first priority mortgage lien and security in the Borrowing Base Assets by the
Agent, whether now owned or hereafter acquired, pursuant to the terms of the
Security Documents to which any Borrower is a party.
7.3 SUBSTITUTION OF COLLATERAL. From time to time during the term
of this Facility following Borrower's written request ("SUBSTITUTION REQUEST")
and compliance with the provisions of this Section 7.3, (i) the Lenders shall
authorize the Agent to release one or more of the Borrowing Base Assets (as
identified by Borrower in its written request) then held by the Agent as
Collateral from the lien of the Security Documents, and (ii) the Borrower shall
furnish the Lenders with new Collateral in substitution for the then-current
Collateral to be released and shall deliver and cause to be filed and recorded,
as needed, such agreements or other documentation necessary to evidence and
secure the interest of the Lenders in the new Collateral, together with a
certificate from the Borrower that all the requirements of this Section 7.3
have been satisfied. The Lenders shall agree to the release of Collateral and
the substitution and acceptance of new Collateral only upon the satisfaction of
the following conditions:
(a) The Agent shall make an initial determination in good
faith that the Borrowing Base Advance Rate and the Financial Covenants shall
remain satisfied. An Appraisal of each such proposed Borrowing Base Asset will
be made within sixty (60) days before the date of the substitution to establish
that the Borrowing Base Advance Rate and the Financial Covenants shall remain
satisfied.
(b) No Default, including but not limited to any Default
in the Financial Covenants resulting from the substitution of Collateral, by
Borrower shall exist under this Agreement or the other Loan Documents at the
time of the Substitution Request or at the time of any such release or
acceptance and all representations and warranties contained herein or therein
shall be true and correct as of the date of substitution.
(c) The Lenders shall have no obligation to permit a
substitution of Collateral more than once in any three (3) month period except
as necessary to cure an Event of Default.
(d) Borrower shall satisfy each of the conditions
precedent contained in Section 6 hereof (including, without limitation, the
execution and delivery by the applicable Borrower to the Agent on behalf of the
Lenders of all necessary Security Documents in connection with such new
Borrowing Base Asset, including a Covenant Compliance Certificate) with respect
to the new Borrowing Base Asset and the state in which such new Borrowing Base
Asset is located.
- 29 -
<PAGE> 37
(e) The new Borrowing Base Asset shall be owned by HHLP,
Solomons or such other Subsidiary of HH Trust as is acceptable to the Majority
Lenders and shall be satisfactory to the Agent and the Majority Lenders in
their sole and absolute discretion.
(f) There has been and is no insolvency of any Obligor or
a materially adverse effect on the financial condition of any Obligor.
(g) At the time of the proposed substitution, no
litigation or inquiry or injunction or restraining order that may in the
Agent's and Majority Lenders' judgment adversely affect Lenders shall be then
pending or threatened with respect to the new Borrowing Base Asset, or which
could have a materially adverse effect on the business, operations or financial
conditions of any Obligor.
(h) The substitution of Collateral shall be fully
effected within sixty (60) days after approval by the Lenders.
(i) The Borrower shall pay or reimburse the Agent for all
appraisal fees, title insurance and recording costs, reasonable legal fees and
expenses and other costs and expenses incurred by Agent in connection with the
new Collateral.
Any failure of the proposed Borrowing Base Asset to meet all of the foregoing
conditions shall be deemed a rejection of the proposed Borrowing Base Asset for
that Substitution Request and such proposed Borrowing Base Asset shall not be
included in the Borrowing Base for any purpose unless and until it is accepted
by Lenders and all of the foregoing conditions are satisfied.
7.4 NEW COLLATERAL. If and when any new Borrowing Base Asset is
added (other than a new Borrowing Base Asset that is substituted pursuant to
Section 7.3), for any reason, then all of the conditions described in Section
7.3 (excluding Section 7.3(c), but specifically including, without limitation,
all conditions described in Section 6 as adopted by Section 7.3(d)) must be
fulfilled as conditions precedent to the Borrower's ability to borrow any
Revolving Credit Loans or obtain the issuance of any Letters of Credit
attributable to the addition of such new Borrowing Base Asset.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Borrower represents, warrants, and covenants to the Lenders and
the Agent as follows:
- 30 -
<PAGE> 38
8.1 ORGANIZATION; AUTHORITY, ETC.
(a) Organization; Good Standing.
(i) HHLP is a limited partnership duly organized
under the laws of the Commonwealth of Virginia pursuant to HHLP's
Organizational Documents and is, and will at all times be, validly existing and
in good standing under the laws of such State.
(ii) HH Trust is a corporation duly organized
under the laws of the Commonwealth of Virginia pursuant to HH Trust's
Organizational Documents; is, and will at all times be, validly existing and in
good standing under the laws of such State; and is a self-directed,
self-managed "real estate investment trust" as such term is defined in Section
856 of the Code.
(iii) HH REIT is a a real estate investment trust
duly organized under the laws of the State of Maryland pursuant to HH REIT's
Organizational Documents and is, and will at all times be, validly existing and
in good standing under the laws of such State.
(iv) Solomons is a limited partnership duly
organized under the laws of the State of Maryland pursuant to Solomons'
Organizational Documents and is, and will at all times be, validly existing and
in good standing under the laws of such State.
(v) Each of the Parties is, and will at all times
be, duly organized and is, and will at all times be, validly existing, in good
standing, and qualified to do business in each jurisdiction where required.
Each Party has, and will at all times have, all requisite power to own its
property and conduct its business as now conducted and as presently
contemplated.
(b) Authorization. The execution, delivery and
performance of this Agreement and the other Loan Documents to which any Party
is or is to become a party and the transactions contemplated hereby and thereby
(i) are within the authority of such Party, (ii) have been duly authorized by
all necessary proceedings on the part of such Party, (iii) do not conflict with
or result in any breach or contravention of any provision of law, statute, rule
or regulation to which such Party is subject or any judgment, order, writ,
injunction, license or permit applicable to such Party, (iv) do not conflict
with any provision of the Organizational Documents of such Party, and (v) do
not require the approval or consent of, or filing with, any governmental agency
or authority other than those already obtained and the filing of the Security
Documents and the Financing Statements in the appropriate public records with
respect thereto.
(c) Enforceability. The execution and delivery of this
Agreement and the other Loan Documents to which each Obligor is or is to become
a party will result in valid and legally binding obligations of such Obligor
enforceable against it in accordance with the respective terms and provisions
hereof and thereof, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent that
availability of the
- 31 -
<PAGE> 39
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
8.2 TITLE TO ASSETS. HH Trust or one or more of its Subsidiaries
own all of the assets reflected in the balance sheet of the Borrower as at the
Balance Sheet Date or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date).
HHLP has good and marketable title to each of the Borrowing Base Assets except
the Solomons Property free and clear of liens except for the Permitted Liens.
Solomons has good and marketable title to the Solomons Property free and clear
of liens except for the Permitted Liens. The execution, delivery or
performance of the Loan Documents required to be delivered by the Borrower
hereunder will not result in the creation of any lien on any of the Borrowing
Base Assets other than in favor of the Lenders. No consent to the transactions
contemplated hereunder is required from any ground lessor or mortgagee or
beneficiary under a deed of trust or any other party except as has been
delivered to the Lenders.
8.3 FINANCIAL STATEMENTS.
(a) There has been furnished to the Agent:
(i) A Consolidated balance sheet as of the
Balance Sheet Date and a statement of income for the fiscal year then ended,
for the Borrower, certified by Borrower's Accountant. Such balance sheets and
statements of income have been prepared in accordance with generally accepted
accounting principles and fairly present the financial condition of the
Borrower as at the close of business on the date thereof and the results of
operations for the fiscal year then ended. As of the date of this Agreement,
there are no liabilities or contingent liabilities of the Borrower known to the
officers, partners, or trustees of the Borrower which are not disclosed in said
balance sheet and the related notes thereto other than the Obligations.
(ii) A Consolidated balance sheet and a statement
of income of the Borrower for each of the fiscal quarters of the Borrower ended
since the Balance Sheet Date certified by Borrower's chief financial officer,
partner or trustee to have been prepared in accordance with generally accepted
accounting principles consistent with those used in the preparation of the
annual audited statements delivered pursuant to paragraph (i) above and to
fairly present the financial condition of the Borrower at the close of business
on the dates thereof and the results of operations for the fiscal quarters then
ended (subject to year-end adjustments).
(iii) A statement of Gross Receipts and Net
Operating Income for each of the fiscal quarters of the Borrower ended since
the Balance Sheet Date certified by Borrower's chief financial officer (or, if
Borrower has no officer specifically designated as "chief financial officer,"
such other officer principally responsible for financial matters), partner or
trustee as fairly presenting the cash receipts and disbursements of the Real
Estate Assets for such period, such statement to be prepared on a basis
consistent with the schedule of cash receipts and disbursements delivered
pursuant to paragraph (i) above.
- 32 -
<PAGE> 40
(b) Such financial statements of the Borrower were
prepared (i) on a Consolidated basis with all of its Subsidiaries and (ii) as
to the operating statements of the Real Estate Assets, separately for each Real
Estate Asset.
8.4 NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date, there
has occurred no adverse change in the financial condition or business of each
Person as shown on or reflected in the respective balance sheet as at the
Balance Sheet Date, or the statement of income for the fiscal year then ended,
other than changes in the ordinary course of business that have not had any
adverse effect either individually or in the aggregate on the business or
financial condition of such Person.
8.5 FRANCHISES, PATENTS, COPYRIGHTS, ETC. The Borrower possesses,
and will at all times possess, all franchises, patents, copyrights, trademarks,
trade names, licenses and permits, and rights in respect of the foregoing,
adequate for the conduct of its business substantially as now conducted or as
it is intended to be conducted, without known conflict with any rights of
others. To the knowledge of the Borrower after reasonable investigation, HH
Management possesses, and will at all times possess, all franchises, patents,
copyrights, trademarks, trade names, licenses and permits, and rights in
respect of the foregoing, adequate for the conduct of its business at the
Borrowing Base Assets substantially as now conducted or as it is intended to be
conducted, without known conflict with any rights of others.
8.6 LITIGATION. There are no actions, suits, proceedings or
investigations of any kind pending or threatened against any Obligor or any of
the Borrower's Subsidiaries before any court, tribunal or administrative agency
or board or any mediator or arbitrator that, if adversely determined, might,
either in any case or in the aggregate, materially adversely affect the
business, assets or financial condition of such Person, or result in any
liability not adequately covered by insurance, or for which adequate reserves
are not maintained on the balance sheet of such Person, or which question the
validity of this Agreement or any of the other Loan Documents, any action taken
or to be taken pursuant hereto or thereto, or any lien or security interest
created or intended to be created pursuant hereto or thereto, or which will
adversely affect the ability of the Borrower to pay and perform the Obligations
in the manner contemplated by this Agreement and the other Loan Documents or
the ability of the Borrowing Base Assets to be used and occupied in the manner
contemplated by this Agreement and the other Loan Documents.
8.7 NO MATERIALLY ADVERSE CONTRACTS, ETC. Each Obligor is not
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation that has or is expected in the future to have
a materially adverse effect on the business, assets or financial condition of
such Person. Each Obligor is not, and will not be, a party to any contract or
agreement that has or is expected, in the judgment of the Borrower's officers,
to have any materially adverse effect on the business of such Person.
8.8 COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Each Party is
not, and will not at any time be, in violation of any provision of its
Organizational Documents or any agreement or instrument to which it may be
subject or by which it or any of its properties may be
- 33 -
<PAGE> 41
bound or any decree, order, judgment, statute, license, rule or regulation, in
any of the foregoing cases in a manner that could result in the imposition of
substantial penalties or materially and adversely affect the financial
condition, properties or business of such Party.
8.9 TAX STATUS. Each Obligor and Subsidiary thereof (a) has made
or filed, and will make or file in a timely fashion, all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (b) has paid, and will pay when due, all
taxes and other governmental assessments and charges shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and by appropriate proceedings, (c) if a partnership, limited
partnership, limited liability partnership, or limited liability company, has,
and will maintain, partnership tax classification under the Code, and (d) has
set aside, and will at all times set aside, on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the period to
which such returns, reports or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers, partners or trustees of the Borrower know of no
basis for any such claim. Such representation is made with respect to property
taxes for all Real Estate Assets and all real property assets owned by
Partially-Owned Real Estate Holding Entities.
8.10 NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing.
8.11 SETOFF, ETC. The Collateral and the Lenders' rights with
respect to the Collateral are not subject to any setoff, claims, withholdings
or other defenses.
8.12 CERTAIN TRANSACTIONS. Except for the Leases with HH
Management and as otherwise set forth on Schedule 8.12 hereto, (a) none of the
officers, trustees, directors, partners, managers, members, or employees of any
Obligor or Subsidiary thereof or (b) to the knowledge of the Borrower, any
corporation, partnership, trust or other entity in which any such officer,
trustee, director, partner, manager, member, or employee has a substantial
interest or is an officer, director, trustee, manager or partner, is presently
a party to any transaction with the Borrower (other than for services as
employees, officers, trustees, managers and directors).
8.13 SUBSIDIARIES. Except as set forth in Schedule 8.13, none of
the Borrowers has any Subsidiaries.
8.14 PARTNERS, BENEFICIARIES, ETC. Except as set forth in Schedule
8.14, the Borrower has no general partners, limited partners, partners,
beneficiaries, stockholders or members.
8.15 ERISA PLAN. The Borrower does not, and will not maintain or
contribute to an ERISA Plan.
- 34 -
<PAGE> 42
8.16 CONDITION OF REAL ESTATE ASSETS. Neither any Real Estate
Asset nor any part thereof is now damaged or injured as result of any fire,
explosion, accident, flood or other casualty or has been the subject of any
Taking, and to the knowledge of the Borrower, no Taking is pending or
contemplated.
8.17 COMPLIANCE WITH REQUIREMENTS. The use and occupancy of each
Borrowing Base Asset complies with, and will at times comply with, all
Requirements. The Borrower will give all such notices to, and take all such
other actions with respect to, or assure that HH Management takes all such
other actions with respect to, such Governmental Authority as may be required
under applicable Requirements to use, occupy and operate each Borrowing Base
Asset.
8.18 ASSETS UNDER DEVELOPMENT.
(a) Availability of Utilities. All utility services
necessary and sufficient for the development of the Assets Under Development
are presently, and will at all times be, available to the boundaries of the
Assets Under Development through dedicated public rights of way or through
perpetual private easements, approved by the Agent, with respect to which the
Security Deed that encumbers the applicable Asset Under Development creates a
valid and enforceable first lien. The Borrower has obtained all utility
installations and connections required for the operation and servicing of the
Asset Under Development for its intended purposes, and will furnish the Agent
with evidence thereof.
(b) Access. The rights of way for all roads necessary
for the full use of the Assets Under Development for their intended purposes
have either been acquired by the appropriate Governmental Authority or have
been dedicated to public use and accepted by such Governmental Authority. All
such roads shall have been completed, and the right to use all such roads, or
suitable substitute rights of way approved by the Agent, have been obtained and
shall be maintained at all times for the Assets Under Development. All curb
cuts, driveways and traffic signals required for the operation and use of the
Assets Under Development are existing and shall be maintained at all times for
the Assets Under Development.
(c) Project Approvals. The Borrower has obtained all
Project Approvals, which are in full force and effect. No Project Approvals
will terminate, or become void or voidable or terminable, upon any sale,
transfer or other disposition of the affected Asset Under Development,
including, to the extent such Project Approvals are assignable under applicable
law, any transfer pursuant to foreclosure sale under the Security Deeds. The
Borrower will duly perform and comply with all of the terms and conditions of
all Project Approvals obtained at any time.
8.19 OTHER CONTRACTS.
(a) The Borrower has not made, and will not make, any
contract or arrangement of any kind or type whatsoever (whether oral or
written, formal or informal), the
- 35 -
<PAGE> 43
performance of which by the other party thereto could give rise to a lien or
encumbrance on any of the Borrowing Base Assets.
(b) The Borrower has not made, and will not make, any
contract or arrangement of any kind or type whatsoever, with any affiliate of
the Borrower unless such contract or arrangement is (x) approved in writing in
advance by the Agent, (y) on the same terms as would be generally available to
the Borrower in an arm's length contract or arrangement with a third party, and
(z) evidenced by a written agreement; provided that the Agent's approval shall
not be required for any such contract with a contract amount under $100,000.00.
8.20 VIOLATIONS. The Borrower has received no notices of, or has
any knowledge of, any violations of any applicable Requirements or Project
Approvals.
8.21 INVESTMENT COMPANY ACT No Borrower is an "investment
company," or company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
8.22 PUBLIC UTILITY HOLDING COMPANY ACT No borrower is a "holding
company" or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
8.23 MARGIN STOCK No Borrower is engaged principally, or as one of
its activities, in the business of extending credit for the purposes, whether
immediate, incidental or ultimate, of buying or carrying "margin stock" and no
part of the proceeds of any extension of credit hereunder will be used to buy
or carry any "margin stock."
9. AFFIRMATIVE COVENANTS OF THE OBLIGORS.
The Obligors covenant and agree that, so long as any Revolving Credit
Loan or Letter of Credit is outstanding or any Lender has any obligation to
make any Revolving Credit Loans or issue any Letter of Credit:
9.1 PUNCTUAL PAYMENT. The Borrower will duly and punctually pay
or cause to be paid the principal and interest on the Revolving Credit Loan and
all other amounts provided for in the Notes, this Agreement and the other Loan
Documents to which any Borrower is a party, all in accordance with the terms of
the Notes, this Agreement and such other Loan Documents.
9.2 RECORDS AND ACCOUNTS. The Borrower will (a) keep true and
accurate records and books of account in which full, true and correct entries
will be made in accordance with generally accepted accounting principles and
(b) maintain adequate accounts and reserves for all taxes (including income
taxes), depreciation and amortization of its properties, contingencies, and
other reserves, and (c) in order to assist the Agent in monitoring the
financial condition of the Borrower and the Collateral, maintain, or cause to
be maintained, at the Agent all operating
- 36 -
<PAGE> 44
accounts and escrow accounts of the Borrower, except as may be otherwise agreed
by the Agent in writing.
9.3 FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION.
(a) The Borrower will deliver, or cause to be delivered,
to the Agent:
(i) as soon as practicable, but in any event not
later than ninety (90) days after the end of each fiscal year of the Borrower,
the audited balance sheet of the Borrower at the end of such year, and the
related audited statement of income, statement of retained earnings, changes in
capital, and statement of cash flows for such year, each setting forth in
comparative form the figures for the previous fiscal year and all such
statements to be in reasonable detail, prepared in accordance with generally
accepted accounting principles, and accompanied by an auditor's report prepared
without qualification by Borrower's Accountant, together with a written
statement from Borrower's Accountant to the effect that it has read a copy of
this Agreement, and that, in making the examination necessary to said
certification, it has obtained no knowledge of any Default or Event of Default
under this Agreement, or, if Borrower's Accountant shall have obtained
knowledge of any then existing Default or Event of Default, it shall disclose
in such statement any such Default or Event of Default; provided that
Borrower's Accountant shall not be liable to any Lender for failure to obtain
knowledge of any Default of Event of Default;
(ii) as soon as practicable, but in any event not
later than forty-five (45) days after the end of each of the first three (3)
fiscal quarters of the Borrower, copies of the unaudited balance sheet of the
Borrower as at the end of such quarter, and the related unaudited statement of
income, statement of retained earnings, changes in capital, statement of cash
flows, occupancy analysis, and operating statements for each of the Real Estate
Assets for the portion of the Borrower's fiscal year then elapsed, all in
reasonable detail and prepared in accordance with generally accepted accounting
principles, together with a Covenant Compliance Certificate signed by the
principal financial or accounting officer, partner or trustee of the Borrower
that the information contained in such financial statements fairly presents the
financial position of the Borrower on the date thereof (subject to year-end
adjustments) and that, in making the examination necessary to said
certification, such Person has obtained no knowledge of any Default or Event of
Default under this Agreement;
(iii) contemporaneously with the delivery of the
financial statements referred to in clause (i) above, a statement of all
contingent liabilities of the Borrower which are not reflected in such
financial statements or referred to in the notes thereto, and a statement of
projected cash flows of the Borrower for the current fiscal year, all in
reasonable detail and certified by the principal financial or accounting
officer of the Borrower;
(iv) simultaneously with the delivery of the
financial statements referred to in clauses (i) and (ii) above, a Covenant
Compliance Certificate in the form of Exhibit C, attached hereto, signed by the
principal financial or accounting officer, partner or
- 37 -
<PAGE> 45
trustee of the Borrower and setting forth in reasonable detail computations
evidencing compliance with the covenants contained in Section 10.8;
(v) contemporaneously with the filing or mailing
thereof, copies of all material of a financial nature filed with the Securities
and Exchange Commission or sent to the stockholders, partners, members, or
beneficiaries of the applicable Obligor; and
(vi) from time to time such other financial data
and information (including accountants' management letters) as the Agent or any
Lender may reasonably request.
(b) All of the financial information required hereunder
shall be submitted (i) on a Consolidated basis with all of its Subsidiaries and
(ii) as to the operating statements of the Real Estate Assets, separately for
each Real Estate Asset.
9.4 INSURANCE.
(a) The Borrower will obtain and maintain insurance with
respect to the Borrowing Base Assets and the operations of the Borrower as
required by the Security Deeds.
(b) The Borrower will provide the Agent with certificates
evidencing such insurance upon the request of the Agent.
9.5 LIENS AND OTHER CHARGES. The Borrower will duly pay and
discharge, or cause to be paid and discharged, before the same shall become
overdue all claims for labor, materials, or supplies that if unpaid might by
law become a lien or charge upon any of its property; provided that any such
claim need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if the Borrower shall
have set aside on its books adequate reserves with respect thereto; and
provided further that the Borrower will pay all such liens and charges
forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor.
9.6 INSPECTION OF BORROWING BASE ASSETS, OTHER REAL ESTATE ASSETS
AND BOOKS, APPRAISALS.
(a) The Borrower shall permit the Lenders, through the
Agent or any of the Lenders or other designated representatives, at the
Borrower's expense, to visit and inspect any of the Borrowing Base Assets and
will cooperate with the Agent and Lenders during such inspections. Prior to
the occurrence of an Event of Default, the Agent and the Lenders may inspect
each Borrowing Base Asset as often as the Agent or each may elect, but only one
such inspection per year shall be conducted at the Borrower's expense.
(b) The Borrower shall permit, or cause to permit, the
Lenders, through the Agent or any of the Lenders or other designated
representatives, at the Borrower's expense to visit and inspect the Borrowing
Base Assets and any of the other Real Estate Assets of the Borrower and any
other Obligor to examine the books of account of such Person (and to make
- 38 -
<PAGE> 46
copies thereof and extracts therefrom) and to discuss the affairs, finances and
accounts of such Person with, and to be advised as to the same by, its
officers, partners, or trustees, all at such reasonable times and intervals as
the Agent may reasonably request; provided that so long as no Default or Event
of Default shall have occurred and be continuing, the Borrower shall only be
obligated to pay the expenses associated with one (1) such investigation of the
books of account of each Obligor during any twelve (12) month period.
(c) The Agent shall have the right to obtain from time to
time, at the Borrower's cost and expense, updated Appraisals of the Borrowing
Base Assets; provided that so long as no Default or Event of Default shall have
occurred and be continuing, the Borrower shall only be obligated to pay for the
costs and expenses associated with one such Appraisal per Borrowing Base Asset
during any twelve (12) month period.
(d) The costs and expenses incurred by the Agent or the
Lenders in obtaining such Appraisals or performing such inspections shall be
paid by the Borrower forthwith upon billing or request by the Agent for
reimbursement therefor.
9.7 COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Borrower will, or will cause each Obligor and each Subsidiary thereof to,
comply with (a) the applicable laws and regulations wherever its business is
conducted, including all Environmental Laws and, in the case of the Borrower,
all Requirements, (b) the provisions of its Organizational Documents, (c) all
agreements and instruments by which it or any of its properties may be bound,
and all restrictions, covenants and easements affecting the Borrowing Base
Assets, (d) all applicable decrees, orders and judgments, and (e) all licenses
and permits required by applicable laws and regulations for the conduct of its
business or the ownership, use or operation of its properties, including, in
the case of the Borrower, all Project Approvals.
9.8 USE OF PROCEEDS. The Borrower will use the proceeds of the
Facility solely for general corporate purposes including the payment of
existing debt, for general working capital needs, and for the acquisition of
additional Real Estate Assets.
9.9 LEASES. HHLP and Solomons will take or cause to be taken all
steps within their respective power to comply with all of their respective
duties and obligations under the Leases. Further, the Borrower will comply
with the terms and conditions of the Security Documents relating to any and all
Leases.
9.10 FURTHER ASSURANCE OF TITLE. If at any time the Agent or any
of the Lenders or the Agent's counsel has reason to believe that any Revolving
Credit Loan or Letter of Credit is not secured or will or may not be secured by
the Security Deeds as a first lien or security interest on the Borrowing Base
Assets, then the Borrower shall, within ten (10) days after written notice from
the Agent, do all things and matters necessary, to assure to the satisfaction
of the Agent and the Agent's counsel that each Revolving Credit Loan and Letter
of Credit previously made hereunder or to be made hereunder is secured or will
be secured by the Security Deeds as a first lien or security interest on the
Borrowing Base Assets, and the Lenders, at their option, may
- 39 -
<PAGE> 47
decline to make Revolving Credit Loans or issue Letters of Credit hereunder
until the Agent has received such assurance, but nothing in this Section shall
limit the Lenders' right to require endorsements extending the effective date
of the Title Policies as herein set forth.
9.11 DEPOSIT OF INCOME. The Borrower will deposit with the Agent,
upon request at any time, which request shall not be made before the occurrence
of an Event of Default, any sums received by the Borrower from tenants under
Leases, in a special account, from which no funds shall be drawn by the
Borrower without the Agent's prior approval, and which sums shall stand as
additional security for the Obligations. It is expressly agreed that, at the
Agent's option, such sums shall be disbursed from time to time, in accordance
with such disbursement procedures as may be established by the Agent.
9.12 FURTHER ASSURANCES.
(a) Regarding Preservation of Collateral. The Borrower
will execute and deliver to the Agent such further documents, instruments,
assignments and other writings, and will do such other acts necessary or
desirable, to preserve and protect the Collateral at any time securing or
intended to secure the Obligations, as the Agent may require.
(b) Regarding this Agreement. The Borrower will
cooperate with, and will do such further acts and execute such further
instruments and documents as the Agent shall reasonably request to carry out to
its satisfaction the transactions contemplated by this Agreement and the other
Loan Documents.
9.13 INTEREST RATE PROTECTION. The Borrower shall maintain in
effect interest rate protection arrangements, in form and substance
satisfactory to the Majority Lenders, providing for the rate of interest
applicable to the Revolving Credit Loan to be capped at a rate satisfactory to
the Lenders with respect to a portion equal to not less than fifty percent
(50%) of the outstanding balance of the Revolving Credit Loan for a period from
the Closing Date until the Maturity Date. The Borrower shall maintain such
arrangements, at the Borrower's sole cost and expense, in full force and effect
during the period specified above, and shall not, without the written consent
of the Majority Lenders, modify, terminate, or transfer such arrangements
during such period.
9.14 NOTICES.
(a) Generally. The Borrower will promptly notify Agent
and each of the Lenders in writing of (i) the occurrence of any Default or
Event of Default; (ii) the occurrence of any other event that may have a
material adverse effect on any of the Borrowing Base Assets or the business or
financial condition of any Obligor; or (iii) the receipt by the Borrower of any
notice of default or notice of termination with respect to any contract or
agreement relating to the ownership, operation, or use of the Borrowing Base
Assets, including, without limitation, the Leases. If any Person shall give
any notice or take any other action in respect of a claimed default (whether or
not constituting an Event of Default) under this Agreement or any other note,
- 40 -
<PAGE> 48
evidence of indebtedness, indenture or other obligation to which or with
respect to which the Borrower or any of its Subsidiaries is a party or obligor,
whether as principal, guarantor, surety or otherwise, the Borrower shall
forthwith give written notice thereof to the Agent, describing the notice or
action and the nature of the claimed default.
(b) Environmental Events. The Borrower will promptly
give notice to the Agent (i) of any violation of any Environmental Law that the
Borrower or any of its Subsidiaries reports in writing or is reportable by such
Person in writing (or for which any written report supplemental to any oral
reports is made) to any federal, state or local environmental agency and (ii)
upon becoming aware thereof, of any inquiry, proceeding, investigation, or
other action, including a notice from any agency of potential environmental
liability, or any federal, state or local environmental agency or board, that
has the potential to materially affect the assets, liabilities, financial
conditions or operations of the Borrower or any of its Subsidiaries, or the
Agent's security interests pursuant to the Security Documents.
(c) Notification of Claims against Collateral. The
Borrower will, immediately upon becoming aware thereof, notify the Agent in
writing of any setoff, claims (including, with respect to the Borrowing Base
Assets, environmental claims), withholdings or other defenses to which any of
the Collateral, or the Agent's rights with respect to the Collateral, are
subject.
(d) Notice of Litigation and Judgments. The Borrower
will, and will cause each of its Subsidiaries to, give notice to the Agent and
each of the Lenders in writing within fifteen (15) days of becoming aware of
any litigation or proceedings threatened in writing or any pending litigation
and proceedings affecting the Borrower or any of its Subsidiaries or to which
the Borrower or any of its Subsidiaries is or becomes a party involving an
uninsured claim against the Borrower or any of its Subsidiaries that could
reasonably be expected to have a materially adverse effect on the Borrower or
any of its Subsidiaries and stating the nature and status of such litigation or
proceedings. The Borrower will, and will cause each of its Subsidiaries to,
give notice to the Agent and each of the Lenders, in writing, in form and
detail satisfactory to the Agent, within ten (10) days of any judgment not
covered by insurance, final or otherwise, against the Borrower or any of its
Subsidiaries in an amount in excess of $100,000.
9.15 HOTEL OPERATOR.
(a) The Borrower acknowledges that the Lenders will rely
on HH Management's experience in operating properties such as the Borrowing
Base Assets as a means of maintaining the value of the Collateral. In
connection with the approval of HH Management, as tenant and operator (the
"HOTEL OPERATOR"), or any replacement Hotel Operator approved by the Agent and
Majority Lenders in their sole and absolute discretion:
(i) the Hotel Operator or holder of the stock or
partnership interest therein, shall be a Person whose character, financial
strength, stability and experience is acceptable to the Lenders and who shall
have experience managing complexes of a type and size
- 41 -
<PAGE> 49
reasonably similar to the Borrowing Base Assets; in furtherance thereof, James
I. Humphrey, Jr. shall at all times retain the majority ownership and control
of HH Management and shall so certify in each Covenant Compliance Certificate;
(ii) the Hotel Operator shall deliver all
organizational documentation and other materials evidencing its experience,
which must be acceptable to the Lenders;
(iii) the Borrower shall pay a reasonable fee to
the Agent, together with the reasonable fees, costs and expenses of the Agent
and the Agent's counsel incurred in connection with the review and approval of
any such Hotel Operator; and
(iv) the terms of any lease, or if HHLP and/or
Solomons elects to operate the Borrowing Base Assets through a management
contract, affecting the Collateral must be acceptable to the Agent in all
respects.
(b) The Borrower shall, from time to time, use its best
efforts to obtain from the Hotel Operator under the Leases such certificates of
estoppel with respect to compliance by Borrower with the terms of the Leases as
may be requested by the Agent.
9.16 DEFERRED MAINTENANCE ACCOUNT.
(a) If requested by the Agent, prior to the Closing Date
or prior to the addition or substitution of any Borrowing Base Asset, as
applicable, the Borrower shall deliver to the Agent the Deferred Maintenance
Schedule.
(b) If requested by the Agent, the Borrower shall create
for the benefit of the Lenders a reserve account (the "DEFERRED MAINTENANCE
ACCOUNT") for the purpose of creating a reserve for certain capital
improvements in connection with the Collateral as set forth in the Deferred
Maintenance Schedule (collectively, the "DEFERRED MAINTENANCE"). The Borrower
shall deposit with the Agent 125% of the total amount set forth on the Deferred
Maintenance Schedule into the Deferred Maintenance Account on the date hereof.
Borrower, on a periodic basis (but not more often than once every thirty (30)
days), may request disbursements from the Deferred Maintenance Account
provided:
(i) The Borrower shall have delivered a written
request for the disbursement to the Agent, which request shall (1) specify the
line item or items set forth on the Deferred Maintenance Schedule for which the
Borrower has incurred expenses, (2) set forth the amount of the requested
disbursement, (3) contain certifications from the Borrower and the Hotel
Operator for the Collateral that the work for which the disbursement is
requested has been completed and is then due and payable and (d) such other
evidence of completion of work as may be requested by the Agent;
(ii) The disbursement with respect to any line
item as shown on the Deferred Maintenance Schedule does not exceed the amount
allocated to such line item;
- 42 -
<PAGE> 50
(iii) The amount of the disbursement exceeds
$10,000 except with respect to the final payment; and
(iv) No Event of Default shall have occurred.
(c) Permitted disbursements shall be made by the Agent
for disbursement to Borrower by check within ten (10) business days after a
properly documented request for disbursements is received by the Agent as set
forth above. The Agent shall have not obligation to make more than one such
disbursement per month. All such repairs shall be completed within one (1) year
of the date the applicable Real Estate Asset becomes a Borrowing Base Asset.
(d) The Deferred Maintenance Account shall be held by the
Agent as additional and collateral security for the Obligations and the
Borrower hereby grants the Agent a security interest in, and pledges to the
Agent the Deferred Maintenance Account.
(e) The Deferred Maintenance Account shall be an interest
bearing escrow account maintained at the Agent or other financial institution
satisfactory to the Agent in its sole discretion. The Agent shall have the
right to change the bank or financial institution at which the Deferred
Maintenance Account is held. The Agent shall have no liability for its
selection of the bank or financial institution, type of account, fluctuations
in interest rate or for the amount of interest earned on the account. Interest
earned on the Deferred Maintenance Account shall remain in the Deferred
Maintenance Account until such time as the account is released to the Borrower
or the proceeds are applied by the Agent to the payment of the Obligations as
provided herein.
(f) Provided no Event of Default shall have occurred,
upon the satisfactory completion of all of the Deferred Maintenance, the Agent
shall release the sums remaining in the Deferred Maintenance Account, if any,
to the Borrower.
9.17 CONDUCT OF BUSINESS. The Borrower must perform all or
substantially all of its business through the Borrower other than through joint
ventures herein permitted and shall be bound by all covenants of the Borrower
in its corporate capacity, subject to limitations on liability described
therein. The Borrower shall operate hotels with nationally recognized and
Lender approved franchise affiliations in the upper economy and mid-scale
segments. Noncompliance with this covenant regarding franchise affiliations
shall not constitute a Default hereunder, and Real Estate Assets that are in
breach of this covenant may be included in the calculation of Borrower Market
Value; provided that such Real Estate Assets may not be Borrowing Base Assets
without the prior approval of the Lenders in their sole discretion.
9.18 OWNERSHIP OF HH TRUST AND HHLP. At all times, James I.
Humphrey, Jr. shall be the beneficial owner of no less than 500,000 shares of
common stock of HH Trust and/or partnership units of HHLP and shall so certify
in each Covenant Compliance Certificate. Notwithstanding the foregoing, a
transfer of interests in HH Trust, HHLP or HH Management by operation of law on
the death of James I. Humphrey, Jr. shall not be an Event of Default under
- 43 -
<PAGE> 51
this Agreement or any other Loan Document so long as the Lenders approve Mr.
Humphrey's replacement in the management of Borrower and beneficial ownership
of HH Trust, HHLP and HH Management within ninety (90) days after the death,
such approval not to be unreasonably withheld. This Agreement should not be
construed to impose any other restriction on the public trading of the common
stock of HH Trust. HH Trust shall at all times remain qualified as a real
estate investment trust under the Code.
9.19 PIP COMPLIANCE. The Borrower shall comply with the Product
Improvement Plans (the "PIP'S") prepared by the franchisors of the Borrowing
Base Assets within the timeframes required by the respective franchisors.
Without limiting the generality of the foregoing, the Borrower agrees to comply
with all requirements imposed by Promus Hotel Corporation ("PROMUS") in the
Product Improvement Plan (the "JACKSON PIP") for the Hampton Inn Hotel -
Jackson, TN dated July 15, 1998, as such requirements may be modified by
agreement between the Borrower and Promus. The Borrower shall complete all of
such requirements within the time frame required by Promus and shall prepare a
written plan of action to do so. The Borrower shall deliver a copy of such
plan promptly to the Agent. At the time the Borrower delivers its quarterly
Covenant Compliance Certificate to the Agent, the Borrower shall provide to the
Agent a written progress report on the status of compliance with the Jackson
PIP.
10. NEGATIVE COVENANTS OF THE OBLIGORS
The Obligors covenant and agree that, so long as any Revolving Credit
Loan or Note is outstanding or any Lender has any obligation to make any
Revolving Credit Loans or issue Letters of Credit:
10.1 RESTRICTIONS ON EASEMENTS, COVENANTS AND RESTRICTIONS. Except
for the rights of hotel guests, no Obligor will create or suffer to be created
or to exist any easement, right of way, restriction, covenant, condition,
license or other right in favor of any Person which affects or might affect
title to the Borrowing Base Assets or the use and occupancy of the Borrowing
Base Assets or any part thereof without obtaining the prior approval of the
Agent.
10.2 NO AMENDMENTS, TERMINATIONS OR WAIVERS.
(a) No Obligor will amend, supplement or otherwise
modify, whether by change order or otherwise, any of the terms and conditions
of the Leases, or any other contract for the management or operation of the
Borrowing Base Assets, without in each case the prior approval of the Agent.
(b) No Obligor will, directly or indirectly, terminate or
cancel, or cause or permit to exist any condition which would result in the
termination or cancellation of, or which would relieve the performance of any
obligations of any other party under, the Leases, or any other contract for the
management or operation of the Borrowing Base Assets.
- 44 -
<PAGE> 52
(c) No Obligor will, directly or indirectly, waive or
agree or consent to the waiver of, the performance of any material obligations
or any other party under the Leases, or any other contract for the management
or operation of the Borrowing Base Assets.
(d) No Obligor will, directly or indirectly, amend, or
allow the amendment of, any of the Organizational Documents of such Obligor.
10.3 RESTRICTIONS ON INDEBTEDNESS. The Borrower and its
Subsidiaries will not create, incur, assume, guaranty or be or remain liable,
contingently or otherwise, with respect to any Indebtedness other than:
(a) Indebtedness to the Lenders arising under any of the
Loan Documents;
(b) current liabilities of the Borrower incurred in the
ordinary course of business but not incurred through (i) the borrowing of
money, or (ii) the obtaining of credit except for credit on an open account
basis customarily extended and in fact extended in connection with normal
purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies to
the extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of Section 8.9 and Section 9.5;
(d) Indebtedness in respect of judgments or awards that
have been in force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which the Borrower
shall at the time in good faith be prosecuting an appeal or proceedings for
review and in respect of which a stay of execution shall have been obtained
pending such appeal or review;
(e) Indebtedness incurred in connection with the
acquisition after the date hereof of any real or personal property by the
Borrower, provided that the aggregate principal amount of such Indebtedness of
the Borrower outstanding at any one time shall not cause the Indebtedness to
value ratio set forth in Section 11.1 to be exceeded; provided further that if
such Indebtedness exceeds the aggregate amount of $20,000,000.00, the Borrower
shall promptly notify the Agent; and
(f) Indebtedness existing on the date of this Agreement
and listed and described on Schedule 10.3 hereto, including any refinancing of
any debt listed on Schedule 10.3 hereto, so long as such refinancing is not for
an amount in excess of 100% of the fair market value of the asset being
refinanced.
10.4 RESTRICTIONS ON LIENS, ETC. The Borrower and its Subsidiaries
will not (a) create or incur or suffer to be created or incurred or to exist
any lien, encumbrance, mortgage, pledge, charge, restriction or other security
interest of any kind upon any of its property or assets of any character
whether now owned or hereafter acquired, or upon the income or profits
therefrom; (b) transfer any of its property or assets or the income or profits
therefrom for the purpose of
- 45 -
<PAGE> 53
subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to payment of its general creditors; (c) acquire, or
agree or have an option to acquire, any property or assets upon conditional
sale or other title retention or purchase money security agreement, device or
arrangement; (d) suffer to exist for a period of more than thirty (30) days
after the same shall have been incurred any Indebtedness or claim or demand
against it that if unpaid might by law or upon bankruptcy or insolvency, or
otherwise, be given any priority whatsoever over its general creditors; or (e)
sell, assign, pledge or otherwise transfer any accounts, contract rights,
general intangibles, chattel paper or instruments, with or without recourse;
provided that the Borrower may create or incur or suffer to be created or
incurred or to exist:
(a) statutory liens to secure taxes, assessments and
other governmental charges or claims for labor, material or supplies in respect
of obligations not overdue;
(b) liens in favor of the Lenders under the Loan
Documents or to secure any Obligations;
(c) presently outstanding liens on Real Estate Assets
other than the Borrowing Base Assets listed on SCHEDULE 10.4 hereto;
(d) other liens on the Borrowing Base Assets consisting
of easements, rights of way, covenants and restrictions if and to the extent
the same are disclosed in any of the Title Policies and have been approved by
the Agent; and
(e) liens securing Indebtedness allowed by Section
10.3(e) so long as such liens do not affect any of the Borrowing Base Assets.
10.5 RESTRICTIONS ON LOANS AND INVESTMENTS. The Borrower and its
Subsidiaries will not make or permit to exist or to remain outstanding any loan
by the Borrower or any of its Subsidiaries to any Person or any Investment
except Investments in:
(a) marketable direct or guaranteed obligations of the
United States of America that mature within one (1) year from the date of
purchase by the Borrower or any of its Subsidiaries;
(b) demand deposits and bankers acceptances of United
States banks having total assets in excess of $1,000,000,000;
(c) certificates of deposit and time deposits of United
States banks having total assets in excess of $1,000,000,000 that mature within
one (1) year from the date of purchase by the Borrower or any of its
Subsidiaries;
(d) seller take-back financing of Real Estate Assets sold
to Persons having a financial strength reasonably acceptable to the Agent;
- 46 -
<PAGE> 54
(e) securities commonly known as "commercial paper"
issued by a corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase have been
rated and the ratings for which are not less than "P 1" if rated by Moody's
Investors Services, Inc., and not less than "A 1" if rated by Standard and
Poor's; and
(f) Investments existing on the date hereof and listed on
Schedule 10.5 hereto.
10.6 MERGER, CONSOLIDATION, CONVERSION, AND DISPOSITION OF ASSETS.
(a) Neither the Borrower nor any of its Subsidiaries will
become a party to any merger or consolidation, or agree to or effect any asset
acquisition or stock acquisition (other than the acquisition of assets in the
ordinary course of business consistent with past practices); provided that the
Borrower or any of its Subsidiaries may be a party to a merger so long as (i)
the Borrower remains the surviving entity or (ii) the Facility is paid in full
in connection therewith, the Borrower shall remain in compliance with all
covenants of this Agreement upon completion of the merger, and no Event of
Default shall have occurred and be continuing.
(b) Neither the Borrower nor any of its Subsidiaries will
become a party to or agree to or effect any disposition of the Borrowing Base
Assets or any part thereof if such disposition would cause the Borrower to be
in default of the Financial Covenants.
(c) Neither the Borrower nor any of its Subsidiaries will
become a party to or agree to effect any disposition of assets, other than the
disposition of assets not included in the Borrowing Base Assets in the ordinary
course of business, consistent with past practices. Notwithstanding the
foregoing, the Borrower shall notify the Agent of all acquisitions of Real
Estate Assets within seven (7) days after acquisition. Such notification shall
include a current photograph of the property, a description, including the
address of the property, historical occupancy, historic (if available) and pro
forma income statement, and a description of the key terms of sale.
(d) The Borrower will not convert into any other type of
entity, including, without limitation, a limited liability partnership or a
limited liability company.
10.7 SALE AND LEASEBACK. Neither the Borrower nor any of its
Subsidiaries will enter into any arrangement, directly or indirectly, whereby
the Borrower or any of its Subsidiaries shall sell or transfer any property
owned by it in order then or thereafter to lease such property or lease other
property that the Borrower or any of its Subsidiaries intends to use for
substantially the same purpose as the property being sold or transferred.
10.8 DISTRIBUTIONS. The Borrower will not make any Distributions
(i) in excess of ninety percent (90%) of its Funds From Operation per year, or
such higher amount as may be
- 47 -
<PAGE> 55
required by law to maintain the status of HH Trust as a REIT, or (ii) after the
occurrence of a monetary Default or an Event of Default.
11. FINANCIAL COVENANTS.
The Borrower covenants and agrees that, so long as the Facility is
outstanding, the Borrower shall satisfy the following Financial Covenants. All
Financial Covenants shall be tested as of the date of this Agreement, at the
time of each Revolving Credit Loan or issuance of Letter of Credit, and on a
quarterly basis.
11.1 INDEBTEDNESS TO VALUE RATIO. The Borrower will not permit its
Consolidated Indebtedness to exceed fifty-five percent (55%) of the Borrower
Market Value. This covenant shall be tested on a quarterly basis based on the
trailing twelve (12) months' results as adjusted for acquisitions and
disvestitures.
11.2 MINIMUM NET WORTH. The Borrower shall maintain a minimum
Consolidated Net Worth of $22,000,000.00. The Borrower shall include in the
calculation of Net Worth seventy-five percent (75%) of the net proceeds of any
and all public offerings from and after the date of this Agreement. This
covenant shall be tested on a quarterly basis based on the trailing twelve (12)
months' results.
11.3 RATIO OF BORROWER CASH FLOW TO DEBT SERVICE CHARGES
(BORROWER). The Borrower will not, at the end of any fiscal quarter, permit
Borrower Cash Flow to be less than 200% of Debt Service Charges (Borrower).
This covenant shall be tested on a quarterly basis based on the trailing twelve
(12) months' results.
11.4 RATIO OF BORROWING BASE CASH FLOW TO DEBT SERVICE CHARGES
(FACILITY). The Borrower will not, at the end of any fiscal quarter, permit
the Borrowing Base Cash Flow to be less than 225% of actual Debt Service
Charges (Facility) for the subject four (4) fiscal quarters. This covenant
shall be tested on a quarterly basis based on the trailing twelve (12) months'
results.
11.5 RATIO OF BORROWING BASE CASH FLOW TO IMPUTED DEBT SERVICE
CHARGES (FACILITY)The Borrower will not, at the end of any fiscal quarter,
permit the Borrowing Base Cash Flow to be less than 200% of the Imputed Debt
Service Charges (Facility). This covenant shall be tested on a quarterly basis
based on the trailing twelve (12) months' results. As used herein, "IMPUTED
DEBT SERVICE CHARGES (FACILITY)" means the annual payments of principal and
interest that would be required to fully amortize the average Outstanding
Facility balance (including both Outstanding Revolving Credit Loans and
Outstanding Letters of Credit) for the subject fiscal quarter if the Facility
were a loan to be amortized in equal monthly payments of principal and interest
over a 25 year amortization schedule at an interest rate that is the higher of
(i) the actual interest rate or rates in effect on any Revolving Credit Loan
during the subject fiscal quarter or (ii) the sum of the then existing yield on
U.S. Treasury Obligations having a 10 year maturity plus 350 basis points.
- 48 -
<PAGE> 56
11.6 BORROWING BASE LEVERAGE. The Borrower will not permit the
aggregate Outstanding principal amount of the Revolving Credit Loans and
Outstanding Letters of Credit to exceed the Borrowing Base Advance Rate.
11.7 RATIO OF BORROWING BASE VALUE TO OUTSTANDING FACILITY. The
Borrower will not permit the Borrowing Base Value to be less than 250% of the
aggregate Outstanding principal amount of all of the Revolving Credit Loans and
outstanding Letters of Credit. This covenant shall be tested quarterly, at the
time of each Revolving Credit Loan or Letter of Credit issuance and at any time
Borrower adds, substitutes, or disposes of any Borrowing Base Asset in
accordance with this Agreement.
11.8 CONSOLIDATED BASIS. Compliance with the above described
Financial Covenants shall be determined on a Consolidated basis.
12. GUARANTY.
12.1 AGREEMENT TO PAY AND PERFORM; COSTS OF COLLECTION. Guarantor
does hereby agree that if the Notes are not paid by Borrower in accordance with
their terms, or if any and all sums that are now or may hereafter become due
from Borrower to the Lenders under the Loan Documents are not paid by Borrower
in accordance with their terms, or if any and all other Obligations are not
performed by Borrower in accordance with their terms, Guarantor will
immediately make such payments and perform such Obligations. Guarantor further
agrees to pay the Agent for the account of the Lenders on demand all costs and
expenses (including court costs and reasonable attorneys' fees and
disbursements) paid or incurred by the Agent and the Lenders in endeavoring to
collect the Obligations, to enforce any of the Obligations, or any portion
thereof, or to enforce this Guaranty, and until paid to the Lenders, such sums
shall bear interest at the Default Rate unless collection from Guarantor of
interest at such rate would be contrary to applicable law, in which event such
sums shall bear interest at the highest rate that may be collected from
Guarantor under applicable law.
12.2 REINSTATEMENT OF REFUNDED PAYMENTS. If, for any reason, any
payment to any Lender of any of the Obligations is required to be refunded by
such Lender to Borrower, or paid or turned over by such Lender to any other
person, including, without limitation, by reason of the operation of
bankruptcy, reorganization, receivership or insolvency laws or similar laws of
general application relating to creditors' rights and remedies now or hereafter
enacted, Guarantor agrees to pay to such Lender on demand an amount equal to
the amount so required to be refunded, paid or turned over (the "TURNOVER
PAYMENT"), the obligations of Guarantor shall not be treated as having been
discharged by the original payment to such Lender giving rise to the Turnover
Payment, and this Guaranty shall be treated as having remained in full force
and effect for any such Turnover Payment so made by such Lender, as well as for
any amounts not theretofore paid to the Lenders on account of the Obligations.
12.3 RIGHTS OF LENDER TO DEAL WITH COLLATERAL, BORROWER AND OTHER
PERSONS. Guarantor hereby consents and agrees that the Lenders may at any
time, and from time to time,
- 49 -
<PAGE> 57
without thereby releasing Guarantor from any liability hereunder and without
notice to or further consent from Guarantor, either with or without
consideration: (a) release or surrender any lien or other security of any kind
or nature whatsoever held by it or by any person, firm or corporation on its
behalf or for its account, securing any of the Obligations; (b) substitute for
any Collateral, other collateral of like kind, or of any kind; (c) modify the
terms of the Notes or the Loan Documents; (d) extend or renew the Notes for any
period; (e) grant releases, compromises and indulgences with respect to the
Notes or the Loan Documents and to any persons or entities now or hereafter
liable thereunder or hereunder; (f) release any other Guarantor, surety,
endorser or accommodation party of the Notes, the Security Deeds or any other
Loan Documents; or (g) take or fail to take any action of any type whatsoever.
No such action that the Agent or any Lender shall take or fail to take in
connection with the Notes or the Loan Documents, or any of them, or any
security for the payment of the indebtedness of Borrower to the Lenders or for
the performance of any of the Obligations or other undertakings of Borrower,
nor any course of dealing with Borrower or any other person, shall release
Guarantor's obligations hereunder, affect this Guaranty in any way, or afford
Guarantor any recourse against the Agent or any Lender. The provisions of this
Guaranty shall extend and be applicable to all renewals, amendments,
extensions, consolidations, restatements and modifications of the Notes and the
Loan Documents, and any and all references herein to the Notes and the Loan
Documents shall be deemed to include any such renewals, extensions, amendments,
consolidations, restatements or modifications thereof.
12.4 NO CONTEST WITH LENDERS; SUBORDINATION. So long as any
Obligation remains unpaid or undischarged, Guarantor will not, by paying any
sum recoverable hereunder (whether or not demanded by the Agent or any Lender)
or by any means or on any other ground, claim any set-off or counterclaim
against Borrower in respect of any liability of Guarantor to Borrower or, in
proceedings under federal bankruptcy law or insolvency proceedings of any
nature, prove in competition with any Lender in respect of any payment
hereunder or be entitled to have the benefit of any counterclaim or proof of
claim or dividend or payment by or on behalf of Borrower or the benefit of any
other security for any Obligation that, now or hereafter, any Lender may hold
or in which it may have any share. Guarantor hereby subordinates any and all
indebtedness of Borrower now or hereafter owed to Guarantor to all of the
Obligations and any other indebtedness of Borrower to any Lender, and agrees
with the Lenders that (a) Guarantor shall not demand or accept any payment from
Borrower on account of such indebtedness, (b) Guarantor shall not claim any
offset or other reduction of Guarantor's obligations hereunder because of any
such indebtedness, and (c) Guarantor shall not take any action to obtain any
interest in any of the security described in and encumbered by the Loan
Documents because of any such indebtedness; provided, however, that, if the
Agent so requests, such indebtedness shall be collected, enforced and received
by Guarantor as trustee for the Lenders and be paid over to the Agent on
account of the indebtedness of Borrower to the Lenders, but without reducing or
affecting in any manner the liability of Guarantor under the other provisions
of this Guaranty except to the extent the principal amount of such outstanding
indebtedness shall have been reduced by such payment.
- 50 -
<PAGE> 58
12.5 WAIVER OF DEFENSES. Guarantor hereby agrees that its
obligations hereunder shall not be affected or impaired by, and hereby waives
and agrees not to assert or take advantage of any defense based on:
(a) any statute of limitations in any action hereunder or
for the collection of the Notes or for the payment or performance of any of the
Obligation;
(b) the incapacity or lack of authority of Borrower or
any other person or entity, the death or disability of any Borrower or
Guarantor or any other person or entity, or the failure of the Agent or any
Lender to file or enforce a claim against the estate (either in administration,
bankruptcy or in any other proceeding) of Borrower or Guarantor or any other
person or entity;
(c) the dissolution or termination of existence of any
Borrower;
(d) the voluntary or involuntary liquidation, sale or
other disposition of all or substantially all of the assets of any Borrower;
(e) the voluntary or involuntary receivership,
insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, assignment, composition, or readjustment of, or any similar
proceeding affecting, Borrower or Guarantor, or any of Borrower's or
Guarantor's properties or assets;
(f) the damage, destruction, condemnation, foreclosure or
surrender of all or any part of the Borrowing Base Assets;
(g) the failure of the Agent or any Lender to give notice
of the existence, creation or incurring of any new or additional indebtedness
or obligation or of any action or nonaction on the part of any other person
whomsoever in connection with any obligation hereby guaranteed;
(h) any failure or delay of the Agent or any Lender to
commence an action against Borrower, to assert or enforce any remedies against
Borrower under the Notes or the Loan Documents, or to realize upon any
security;
(i) any failure of any duty on the part of the Agent or
any Lender to disclose to Guarantor any facts it may now or hereafter know
regarding Borrower, whether such facts materially increase the risk to
Guarantor or not;
(j) failure to accept or give notice of acceptance of
this Guaranty by the Lenders;
(k) failure to make or give notice of presentment and
demand for payment of any of the indebtedness or performance of any of the
Obligations;
- 51 -
<PAGE> 59
(l) failure to make or give protest and notice of
dishonor or of default to Guarantor or to any other party with respect to any
of the Obligations;
(m) any and all other notices whatsoever to which
Guarantor might otherwise be entitled;
(n) any lack of diligence by the Agent or any Lender in
collection, protection or realization upon any collateral securing the payment
or performance of the Obligations;
(o) the invalidity or unenforceability of the Notes or
any of the Loan Documents;
(p) the compromise, settlement, release or termination of
any or all of the Obligations;
(q) any exculpation of liability contained in the Notes
or in the Loan Documents;
(r) any transfer by Borrower of all or any part of the
security encumbered by the Loan Documents;
(s) the failure of the Agent or any Lender to perfect any
security or to extend or renew the perfection of any security; or
(t) to the fullest extent permitted by law, any other
legal, equitable or surety defenses whatsoever to which Guarantor might
otherwise be entitled, it being the intention that the obligations of Guarantor
hereunder are absolute, unconditional and irrevocable.
12.6 GUARANTY OF PAYMENT AND PERFORMANCE AND NOT OF COLLECTION.
This is a Guaranty of payment and performance and not of collection. The
liability of Guarantor under this Guaranty shall be primary, direct and
immediate and not conditional or contingent upon the pursuit of any remedies
against Borrower or any other person, nor against securities or liens available
to Lender, its successors, successors in title, endorsees or assigns.
Guarantor hereby waives any right to require that an action be brought against
Borrower or any other person or to require that resort be had to any security
or to any balance of any deposit account or credit on the books of the Agent or
any Lender in favor of Borrower or any other person.
12.7 RIGHTS AND REMEDIES OF LENDERS. Following an Event of Default
under this Agreement or the Loan Documents, or any of them, the Lenders shall
have the right to enforce their rights, powers and remedies thereunder or
hereunder or under any other agreement, document or instrument now or hereafter
evidencing, securing or otherwise relating to the Obligations, in any order,
and all rights, powers and remedies available to the Agent and the Lenders in
such event shall be nonexclusive and cumulative of all other rights, powers and
remedies provided thereunder or hereunder or by law or in equity. Accordingly,
Guarantor hereby authorizes and empowers the Agent and the Lenders upon the
occurrence of any Event of
- 52 -
<PAGE> 60
Default under the Notes, this Agreement or the Loan Documents, at the Lenders'
sole discretion, and without notice to Guarantor, to exercise any right or
remedy the Lenders may have, including, but not limited to, judicial
foreclosure, exercise of rights of power of sale, acceptance of a deed or
assignment in lieu of foreclosure, appointment of a receiver to collect rents
and profits, exercise of remedies against personal property, or enforcement of
any assignment of leases, as to any security, whether real, personal or
intangible. At any public or private sale of any security or collateral for
any of the Obligations, whether by foreclosure or otherwise, the Lenders may,
in their discretion, purchase all or any part of such security or collateral so
sold or offered for sale for their own account and may apply against the amount
bid therefor all or any part of the balance due them pursuant to the terms of
the Notes or Security Deeds or any other Loan Document without prejudice to
Lenders' remedies hereunder against Guarantor for deficiencies. If the
Obligations are partially paid by reason of the election of the Lenders to
pursue any of the remedies available to the Lenders, or if such Obligations are
otherwise partially paid, this Guaranty shall nevertheless remain in full force
and effect, and Guarantor shall remain liable for the entire balance of the
Obligations even though any rights that Guarantor may have against Borrower may
be destroyed or diminished by the exercise of any such remedy. Nothing in this
Section 12.7 should be construed to enlarge the remedies of the Lenders against
the Borrower where otherwise limited by this Agreement.
12.8 APPLICATION OF PAYMENTS. Guarantor hereby authorizes the
Agent and the Lenders, without notice to Guarantor, to apply all payments and
credits received from Borrower or from Guarantor or realized from any security
in such manner and in such priority as the Lenders in their sole judgment shall
see fit to the Obligations or the indebtedness, obligation and undertakings of
the Guarantor hereunder.
12.9 BUSINESS FAILURE, BANKRUPTCY OR INSOLVENCY. In the event of
the business failure of Guarantor or if there shall be pending any bankruptcy
or insolvency case or proceeding with respect to Guarantor under federal
bankruptcy law or any other applicable law or in connection with the insolvency
of Guarantor, or if a liquidator, receiver, or trustee shall have been
appointed for Guarantor or Guarantor's properties or assets, the Agent or any
Lender may file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Lenders allowed in
any proceedings relative to Guarantor, or any of Guarantor's properties or
assets, and, irrespective of whether the Obligations shall then be due and
payable, by declaration or otherwise, the Agent or any Lender shall be entitled
and empowered to file and prove a claim for the whole amount of any sums or
sums owing with respect to the Obligations, and to collect and receive any
moneys or other property payable or deliverable on any such claim.
12.10 SECURITY AND RIGHTS OF SET-OFF. Guarantor hereby grants to
each Lender, as security for the full and prompt payment and performance of
Guarantor's obligations hereunder, a continuing lien on and security interest
in any and all securities or other property belonging to Guarantor now or
hereafter held by such Lender and in any and all deposits (general or specific,
time or demand, provisional or final, regardless of currency, maturity, or the
branch of such Lender where the deposits are held) now or hereafter held by
such Lender and other sums
- 53 -
<PAGE> 61
credited by or due from such Lender to Guarantor or subject to withdrawal by
Guarantor; and regardless of the adequacy of any collateral or other means of
obtaining repayment of such obligations, during the continuance of any event of
default under this Agreement or the Loan Documents, such Lender may at any time
and without notice to Guarantor set-off and apply the whole or any portion or
portions of any or all such deposits and other sums against amounts payable
under this Guaranty, whether or not any other person or persons could also
withdraw money therefrom. Any security now or hereafter held by or for
Guarantor and provided by Borrower, or by anyone on Borrower's behalf, in
respect of liabilities of Guarantor hereunder shall be held in trust for each
Lender as security for the liabilities of Guarantor hereunder.
12.11 CHANGES IN WRITING; NO REVOCATION. This Guaranty may not be
changed orally, and no obligation of Guarantor can be released or waived by the
Agent or any Lender except by a writing signed by a duly authorized officer of
the Agent or such Lender. This Guaranty shall be irrevocable by Guarantor
until all of the Obligations have been completely repaid and performed.
13. EVENTS OF DEFAULT AND REMEDIES.
13.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following conditions or events shall constitute an "EVENT OF DEFAULT":
(a) any failure by any Borrower to pay, within five (5)
Business Days of the due date, any interest on or principal of or other sum
payable under any of the Notes; or
(b) any failure by the Borrower to pay as and when due
and payable any other sums to be paid by the Borrower to the Lenders under this
Agreement and the continuance of such failure for a period of five (5) days
after notice thereof from the Agent; or
(c) title to the Collateral is or becomes unsatisfactory
to the Agent by reason of any lien, charge, encumbrance, title condition or
exception (including without limitation, any mechanic's, materialman's or
similar statutory or common law lien or notice thereof), and such matter
causing title to be or become unsatisfactory is not cured or removed (including
by bonding) within twenty (20) days after notice thereof from the Agent to the
Borrower; or
(d) any failure by the Borrower to duly observe or
perform any term, covenant, condition or agreement contained in Section 9.4,
Section 9.11 or Section 10.8 hereof; or
(e) the Guarantor denies that the Guarantor has any
liability or obligations under this Agreement or the Indemnity Agreement, or
shall notify the Lender of the Guarantor's intention to attempt to cancel or
terminate its obligations under this Agreement or the Indemnity Agreement, or
shall fail to observe or comply with any term, covenant, condition and
agreement under this Agreement or the Indemnity Agreement; or
(f) any representation or warranty made or deemed to be
made by or on behalf of any Obligor in this Agreement or in any of the other
Loan Documents, or in any report,
- 54 -
<PAGE> 62
certificate, financial statement, document or other instrument delivered
pursuant to or in connection with this Agreement, any Revolving Credit Loan,
issuance of any Letter of Credit, or any of the other Loan Documents, shall
prove to have been false or incorrect in any material respect upon the date
when made or deemed to be made or repeated; or
(g) any dissolution, termination, partial or complete
liquidation, merger or consolidation of any Obligor, or any sale, transfer or
other disposition of all or substantially all of the assets of any Obligor,
other than as permitted under the terms of this Agreement or the Guaranty; or
(h) any suit or proceeding shall be filed against any
Obligor or any Borrowing Base Asset which, if adversely determined, would have
a materially adverse affect on the ability of any Obligor to perform each and
every one of its respective obligations under and by virtue of the Loan
Documents and such suit or proceeding is not vacated, stayed, dismissed, set
aside or remedied within two hundred seventy (270) days after such filing; or
(i) any failure by the Borrower to obtain any Project
Approvals, or the revocation or other invalidation of any Project Approvals
previously obtained; or
(j) any change in the legal or beneficial ownership of
any Obligor or HH Management except as otherwise permitted by this Agreement;
or
(k) any change in the control of the management of any
Obligor or HH Management, or the giving up or relinquishment of such control by
the Person(s) who is(are) charged with the exercise of such responsibilities on
the date hereof; provided that if the change of management control results from
the death of James I. Humphrey, Jr., the Borrower shall have a period of ninety
(90) days after such death to obtain the approval of the Lenders for the new
Persons who will control management of such Obligor or HH Management; or
(l) any failure by any Obligor to pay at maturity, or
within any applicable period of grace, any obligation for borrowed money or
credit received, including, without limitation, any Obligations, or in respect
of any capitalized lease, or any failure to observe or perform any material
term, covenant or agreement contained in any agreement by which it is bound,
evidencing or securing borrowed money or credit received, or in respect of any
capitalized lease, for such period of time as would permit (assuming the giving
of appropriate notice if required) the holder or holders thereof or of any
obligations issued thereunder to accelerate the maturity thereof; or
(m) any Obligor or Subsidiary thereof shall file a
voluntary petition in bankruptcy under Title 11 of the United States Code, or
an order for relief shall be issued against any such Person in any involuntary
petition in bankruptcy under Title 11 of the United States Code, or any such
Person shall file any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief for itself under any present or future federal,
state or other law or regulation relating to
- 55 -
<PAGE> 63
bankruptcy, insolvency or other relief of debtors, or such Person shall seek or
consent to or acquiesce in the appointment of any custodian, trustee, receiver,
conservator or liquidator of such Person, or of all or any substantial part of
its respective property, or such Person shall make an assignment for the
benefit of creditors, or such Person shall give notice to any governmental
authority or body of insolvency or pending insolvency or suspension of
operation; or
(n) an involuntary petition in bankruptcy under Title 11
of the United States Code shall be filed against any Obligor or Subsidiary
thereof and such petition shall not be dismissed within sixty (60) days of the
filing thereof; or
(o) a court of competent jurisdiction shall enter any
order, judgment or decree approving a petition filed against any Obligor or any
Subsidiary thereof seeking any reorganization, arrangement, composition,
readjustment, liquidation or similar relief under any present or future
federal, state or other law or regulation relating to bankruptcy, insolvency or
other relief for debtors, or appointing any custodian, trustee, receiver,
conservator or liquidator of all or any substantial part of its property; or
(p) any uninsured final judgment shall be rendered
against any Obligor and shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days; or
(q) any of the Loan Documents shall be cancelled,
terminated, revoked or rescinded otherwise than in accordance with the terms
thereof or with the express prior approval of the Lenders, or any action at
law, suit in equity or other legal proceeding to cancel, revoke or rescind any
of the Loan Documents shall be commenced by or on behalf of the Borrower or any
Obligor that is a party thereto or any of their respective stockholders,
partners or beneficiaries, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a determination that,
or issue a judgment, order, decree or ruling to the effect that, any one or
more of the Loan Documents is illegal, invalid or unenforceable in accordance
with the terms thereof; or
(r) any Obligor or any Subsidiary thereof shall be
indicted for a federal crime, a punishment for which could include the
forfeiture of any of its assets; or
(s) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Majority Lenders shall have
determined in their reasonable discretion that such event reasonably could be
expected to result in liability of the Borrower or any of its Subsidiaries or
Guarantor to the PBGC or such Guaranteed Pension Plan in an aggregate amount
exceeding $250,000.00 and such event in the circumstances occurring reasonably
could constitute grounds for the termination of such Guaranteed Pension Plan by
the PBGC or for the appointment by the appropriate United States District Court
of a trustee to administer such Guaranteed Pension Plan; or a trustee shall
have been appointed by the United States District Court to administer such
Plan; or the PBGC shall have instituted proceedings to terminate such
Guaranteed Pension Plan;
- 56 -
<PAGE> 64
(t) any failure by any Obligor to duly observe or perform
any other term, covenant, condition or agreement under this Agreement and
continuance of such failure for a period of thirty (30) days after notice
thereof from the Agent; provided that if such failure is incapable of cure
within thirty (30) days but is capable of cure within a total of ninety (90)
days, then the defaulting Obligor shall have up to any additional sixty (60)
days to cure so long as such Obligor commences to cure within the initial
thirty (30) day cure period and diligently proceeds to cure thereafter; or
(u) any "Event of Default," as defined or otherwise set
forth in any of the other Loan Documents, shall occur.
In any such event, so long as the same may be continuing, the
Agent may, and upon the request of the Majority Lenders, shall, by notice in
writing to the Borrower declare all amounts owing with respect to this
Agreement, the Notes and the other Loan Documents to be, and they shall
thereupon forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Borrower; provided that in the event of any Event of Default
specified in Section 13.1(m), Section 13.1(n), or Section 13.1(o) all such
amount shall become immediately due and payable automatically and without any
requirement of notice from the Agent or any Lender.
13.2 TERMINATION OF COMMITMENTS. If any one or more of the Events
of Default specified in Section 13.1(m), Section 13.1(n) or Section 13.1(o)
shall occur, any unused portion of the Facility hereunder shall forthwith
terminate and each of the Lenders shall be relieved of all further obligations
to make Revolving Credit Loans or issue Letters of Credit to or for the account
of the Borrower. If any other Event of Default shall have occurred and be
continuing, the Agent, upon the request of the Majority Lenders, shall, by
notice to the Borrower, terminate the unused portion of the Facility hereunder,
and upon such notice being given such unused portion of the credit hereunder
shall terminate immediately and each of the Lenders shall be relieved of all
further obligations to make Revolving Credit Loans or issue Letters of Credit.
No termination of the Facility hereunder shall relieve the Borrower or any of
its Subsidiaries of any of the Obligations.
13.3 REMEDIES.
In case any one or more of the Events of Default shall have occurred
and be continuing, and whether or not the Lenders shall have accelerated the
maturity of the Facility pursuant to Section 13.1, each Lender if owed any
amount with respect to the Revolving Credit Loans may, with the consent of the
Majority Lenders but not otherwise, proceed to protect and enforce its rights
by suit in equity, action at law or other appropriate proceeding, whether for
the specific performance of any covenant or agreement continued in this
Agreement and the other Loan Documents or any instrument pursuant to which the
Obligations to such Lender are evidenced, including as permitted by applicable
law the obtaining of the ex parte appointment of a receiver, and, if such
amount shall have become due, by declaration or otherwise, proceed to enforce
the payment thereof or any other legal or equitable right of such Lender. No
remedy herein
- 57 -
<PAGE> 65
conferred upon any Lender or the Agent or the holder of any Note is intended to
be exclusive of any other remedy and each and every remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or any other provision of
law.
13.4 DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that,
following the occurrence or during the continuance of any Default or Event of
Default, the Agent or any Lender, as the case may be, receives any monies in
connection with the enforcement of any of the Security Documents, or otherwise
with respect to the realization upon any of the Collateral, such monies shall
be distributed for application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of, the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or sustained
by the Agent in connection with the collection of such monies by the Agent, for
the exercise, protection or enforcement by the Agent of all or any of the
rights, remedies, powers and privileges of the Agent under this Agreement or
any of the other Loan Documents or in respect of the Collateral or in support
of any provision of adequate indemnity to the Agent against any taxes or liens
which by law shall have, or may have, priority over the rights of the Agent to
such monies;
(b) Second, to all other obligations in such order of
preference as the Majority Lenders may determine; provided however, that
distributions in respect of such Obligations shall be made pari passu among
Obligations owing to the Lenders with respect to each type of Obligation such
as interest, principal, fees and expenses, shall be made among the Lenders pro
rata; and provided, further, that the Agent may in its discretion make proper
allowance to take into account any Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or upon
other provisions for payment in full satisfactory to the Lenders and the Agent
of all of the Obligations, to the payment of any obligations required to be
paid pursuant to Section 9-504(l)(c) of the Uniform Commercial Code of' the
Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the
Borrower or to such other Persons as are entitled thereto.
13.5 POWER OF ATTORNEY. For the purposes of carrying out the
provisions and exercising the rights, remedies, powers and privileges granted
by or referred to in this Article, the Borrower hereby irrevocably constitutes
and appoints the Agent its true and lawful attorney-in-fact, with full power of
substitution, to execute, acknowledge and deliver any instruments and do and
perform any acts that are referred to in this Article, in the name and on
behalf of the Borrower. The power vested in such attorney-in-fact is, and
shall be deemed to be, coupled with an interest and irrevocable.
- 58 -
<PAGE> 66
13.6 WAIVERS. The Borrower hereby waives to the extent not
prohibited by applicable law (a) all presentments, demands for performance,
notices of nonperformance (except to the extent required by the provisions
hereof or of any of the other Loan Documents), protests and notices of
dishonor, (b) any requirement of diligence or promptness on the Agent's or any
Lender's part in the enforcement of its rights (but not fulfillment of its
obligations) under the provisions of this Agreement or any of the other Loan
Documents, and (c) any and all notices of every kind and description which may
be required to be given by any statute or rule of law and any defense of any
kind which the Borrower may now or hereafter have with respect to its liability
under this Agreement or under any of the other Loan Documents.
13.7 EVENTS OF DEFAULT AFFECTING BORROWING BASE ASSET.
Notwithstanding anything in this Agreement to the contrary, if (a) a Default
arises from a condition or event affecting one or more Borrowing Base Assets;
(b) Borrower cannot cure such Default within the applicable cure period, if
any; (c) before the Default becomes an Event of Default, Borrower notifies the
Agent of Borrower's intent to provide a substitute Borrowing Base Asset for the
Borrowing Base Asset affected by the Default; (d) not later than ten (10) days
after the Borrower elects to provide a substitute Borrowing Base Asset, the
Borrower notifies the Agent of the identity of the Real Estate Asset proposed
for substitution; and (e) as a result of the substitution of a Borrowing Base
Asset, which must occur not later than forty-five (45) days after the Borrower
notifies the Agent of the identity of the Real Estate Asset proposed for
substitution, no Event of Default shall then exist, then the Lenders shall
permit the substitution of a Borrowing Base Asset to cure an Event of Default.
In lieu of substituting a Borrowing Base Asset to cure an Event of Default, the
Borrower may also obtain the release of the Default affected Borrowing Base
Asset by making a principal prepayment in an amount sufficient for the
Financial Covenants to remain satisfied. Any substitution of Collateral shall
be subject to the provisions of Section 7.3.
13.8 ENVIRONMENTAL EVENTS. Notwithstanding anything in this
Agreement to the contrary, if a Release or Threat of Release of Hazardous
Materials (as those terms are defined in the Indemnity Agreement)
(collectively, an "ENVIRONMENTAL EVENT") affects any of the Borrowing Base
Assets, such Environmental Event shall not be a Default or Event of Default
unless the Environmental Event would have a materially adverse effect on the
financial condition of the Borrower. An Environmental Event shall, however,
disqualify the affected Borrowing Base Asset from continuing as a Borrowing
Base Asset if (i) the occupancy or room charge of the affected Borrowing Base
Asset is adversely affected by such Environmental Event, as compared with what
otherwise would have been the occupancy and room charge of the Borrowing Base
Asset in the absence of such Environmental Event, or (ii) such Environmental
Event causes the affected Borrowing Base Asset to no longer be financeable on a
non-recourse long-term debt basis (with customary non-recourse carve-outs)
under the then generally accepted underwriting standards of national insurance
company or pension fund real estate institutional lenders. The
disqualification of a Borrowing Base Asset as a result of an Environmental
Event shall not be an Event of Default unless such disqualification itself
causes an Event of Default, including a breach of the Financial Covenants;
provided that the Borrower may cure such breach
- 59 -
<PAGE> 67
of the Financial Covenants by the substitution of additional one or more
Borrowing Base Assets subject to the provisions of Section 7.3.
14. SETOFF.
Regardless of the adequacy of any Collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from any of
the Lenders to the Borrower and any securities or other property of the
Borrower in the possession of any such Lender may be applied to or set off
against the payment of Obligations and any and all other liabilities, direct,
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrower to such Lender. Each of the Lenders agrees
with each other Lender as follows: If an amount to be set off is to be applied
to Indebtedness of the Borrower to such Lender, other than Indebtedness
evidenced by the Note held by such Lender, such amount shall be applied ratably
to such other Indebtedness and to the Indebtedness evidenced by the Note held
by such Lender. If such Lender shall receive from the Borrower, whether by
voluntary payment, exercise of the right of setoff, counterclaim, cross action,
enforcement of the claim evidenced by the Note held by such Lender by
proceedings against the Borrower at law or in equity or by proof thereof in
bankruptcy, reorganization, liquidation, receivership or similar proceedings,
or otherwise, and shall retain and apply to the payment of the Note held by
such Lender any amount in excess of its ratable portion of the payments
received by all of the Lenders with respect to the Notes held by all of the
Lenders, such Lender will make such disposition and arrangements with the other
Lenders with respect to such excess, either by way of distribution, pro tanto
assignment of claims, subrogation or otherwise as shall result in each Lender
receiving in respect of the Note held by it its proportionate payment as
contemplated by this Agreement; provided that if all or any part of such excess
payment is thereafter recovered from such Lender, such disposition and
arrangements shall be rescinded and the amount restored to the extent of such
recovery, but without interest.
15. THE AGENT.
15.1 AUTHORIZATION. The Agent is authorized to take such action
on behalf of each of the Lenders and to exercise all such powers as are
hereunder and under any of the other Loan Documents and any related documents
delegated to the Agent, together with such powers as are reasonably incident
thereto; provided that no duties or responsibilities not expressly assumed
herein or therein shall be implied to have been assumed by the Agent. The
relationship between the Agent and the Lenders is and shall be that of agent
and principal only, and nothing contained in this Agreement or any of the other
Loan Documents shall be construed to constitute the Agent as a trustee for any
Lender.
15.2 EMPLOYEES AND AGENTS. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to
its rights and duties under this Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent in its
- 60 -
<PAGE> 68
sole discretion may reasonably determine, and all reasonable fees and expenses
of any such Persons that are not employees of the Agent shall be paid by the
Borrower.
15.3 NO LIABILITY. Neither the Agent, nor any of its
shareholders, directors, officers or employees nor any other Person assisting
them in their duties nor any agent or employee thereof, shall be liable for any
waiver, consent or approval given or any action taken, or omitted to be taken,
in good faith by it or them hereunder or under any of the other Loan Documents,
or in connection herewith or therewith, or be responsible for the consequences
of any oversight or error of judgment whatsoever, except that the Agent or such
other Person, as the case may be, shall not be exculpated from liability for
losses due to its willful misconduct or gross negligence.
15.4 NO REPRESENTATIONS. The Agent shall not be responsible for
the execution or validity or enforceability of this Agreement, the Notes, any
of the other Loan Documents or any instrument at any time constituting, or
intended to constitute, collateral security or the Notes, or for the value of
any such collateral security or for the validity, enforceability or
collectibility of any such amounts owing with respect to the Notes, or for any
recitals or statements, warranties or representations made herein or in any of
the other Loan Documents or in any certificate or instrument hereafter
furnished to it by or on behalf of the Borrower or any of its Subsidiaries, or
be bound to ascertain or inquire as to the performance or observance of any of
the terms, conditions, covenants or agreements herein or in any instrument at
any time constituting, or intended to constitute, collateral security for the
Notes. The Agent shall not be bound to ascertain whether any notice, consent,
waiver or request delivered to it by the Borrower or any holder of any of the
Notes shall have been duly authorized or is true, accurate and complete. The
Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Lenders, with
respect to the creditworthiness or financial condition of the Borrower or any
of its Subsidiaries. Each Lender acknowledges that it has, independently and
without reliance upon the Agent or any other Lender, and based upon such
information and documents as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement.
15.5 PAYMENTS.
(a) A payment by the Borrower to the Agent hereunder or
any of the other Loan Documents for the account of any Lender shall constitute
a payment to such Lender. The Agent agrees promptly to distribute to each
Lender such Lender's pro rata share of payments received by the Agent for the
account of the Lenders except as otherwise expressly provided herein or in any
of the other Loan Documents. Unless the Borrower has received notice to the
contrary pursuant to Section 3.3, the Borrower shall be entitled to presume
that the Agent has properly distributed to each Lender its share of payments
properly made by the Borrower to the Agent.
(b) If in the opinion of the Agent the distribution of
any amount received by it in such capacity hereunder, under the Notes or under
any of the other Loan Documents might involve it in liability, it may refrain
from making distribution until its right to make distribution shall have been
adjudicated by a court of competent
- 61 -
<PAGE> 69
jurisdiction. If a court of competent jurisdiction shall adjudge that any
amount received and distributed by the Agent is to be repaid, each Person to
whom any such distribution shall have been made shall either repay to the Agent
its proportionate share of the amount so adjudged to be repaid or shall pay
over the same in such manner and to such Persons as shall be determined by such
court.
(c) Notwithstanding anything to the contrary contained in
this Agreement or any of the other Loan Documents, any Lender that fails (i) to
make available to the Agent its pro rata share of any Loan or (ii) to comply
with the provisions of Section 14 with respect to making impositions and
arrangements with the other Lenders, where such Lender's share of any payment
received, whether by setoff or otherwise, is in excess of its pro rata share of
such payments due and payable to all of the Lenders, in each case as, when and
to the full extent required by the provisions of this Agreement, shall be
deemed delinquent (a "DELINQUENT LENDER") and shall be deemed a Delinquent
Lender until such time as such delinquency is satisfied. A Delinquent Lender
shall be deemed to have assigned any and all payments due to it from the
Borrower, whether on account of outstanding Revolving Credit Loans, Unpaid
Reimbursement Obligations, interest, fees or otherwise, to the remaining
nondelinquent Lenders for application to, and reduction of, their respective
pro rata shares of all outstanding Revolving Credit Loans. The Delinquent
Lender hereby authorizes the Agent to distribute such payments to the
nondelinquent Lenders in proportion to their respective pro rata shares of all
outstanding Revolving Credit Loans. A Delinquent Lender shall be deemed to
have satisfied in full a delinquency when and if, as a result of application of
the assigned payments to all outstanding Revolving Credit Loans of the
nondelinquent Lenders, the Lenders' respective pro rata shares of all
outstanding Revolving Credit Loans have returned to those in effect immediately
prior to such delinquency and without giving effect to the nonpayment causing
such delinquency.
15.6 HOLDERS OF NOTES. The Agent may deem and treat the payee of
any Note as the absolute owner or purchaser thereof for all purposes hereof
until it shall have been furnished in writing with a different name by such
payee or by a subsequent holder, assignee or transferee.
15.7 INDEMNITY. The Lenders ratably agree hereby to indemnify and
hold harmless the Agent from and against any and all claims, actions and suits
(whether groundless or otherwise), losses, damages, costs, expenses (including
any expenses for which the Agent has not been reimbursed by the Borrower as
required by Section 16) and liabilities of every nature and character arising
out of or relating to this Agreement, the Notes, or any of the other Loan
Documents or the transactions contemplated or evidenced hereby or thereby, or
the Agent's actions taken hereunder or thereunder, except to the extent that
any of the same shall be directly caused by the Agent's willful misconduct or
gross negligence.
15.8 AGENT AS LENDER. In its individual capacity, BankBoston shall
have the same obligations and the same rights, powers and privileges in respect
to its Commitment and the Revolving Credit Loans made by it, and as the holder
of any of the Notes as it would have were it not also the Agent.
- 62 -
<PAGE> 70
15.9 RESIGNATION. The Agent may resign at any time by giving sixty
(60) days' prior written notice thereof to the Lenders and the Borrower. Upon
any such resignation, the Majority Lenders shall have the right to appoint a
successor Agent. Unless a Default or Event of Default shall have occurred and
be continuing, such successor Agent shall be reasonably acceptable to the
Borrower. If no successor Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Agent's giving of notice of resignation, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent, which shall be a
financial institution having a rating of not less than B or its equivalent by
Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation, the provisions
of this Agreement and the other Loan Documents shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
15.10 NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Lender
hereby agrees that, upon learning of the existence of a Default or an Event of
Default, it shall promptly notify the Agent thereof. The Agent hereby agrees
that upon receipt of any notice under this Section 15.10 it shall promptly
notify the other Lenders of the existence of such Default or Event of Default.
15.11 DUTIES IN THE CASE OF ENFORCEMENT. In case one of more Events
of Default have occurred and shall be continuing, and whether or not
acceleration of the Obligations shall have occurred, the Agent shall, if (a) so
requested by the Majority Lenders and (b) the Lenders have provided to the
Agent such additional indemnifies and assurances against expenses and
liabilities as the Agent may reasonably request, proceed to enforce the
provisions of the Security Documents authorizing the sale or other disposition
of all or any part of the Collateral and exercise all or any such other legal
and equitable and other rights or remedies as it may have in respect of such
Collateral. The Majority Lenders may direct the Agent in writing as to the
method and the extent of any such sale or other disposition, the Lenders hereby
agreeing to indemnify and hold the Agent harmless from all liabilities incurred
in respect of all actions taken or omitted in accordance with such directions,
provided that the Agent need not comply with any such direction to the extent
that the Agent reasonably believes the Agent's compliance with such direction
to be unlawful or commercially unreasonable in any applicable jurisdiction.
16. EXPENSES.
The Borrower agrees to pay (a) the reasonable costs of producing and
reproducing this Agreement, the other Loan Documents and the other agreements
and instruments mentioned herein, (b) any taxes (including any interest and
penalties in respect thereto) payable by the Agent or any of the Lenders (other
than taxes based upon the Agent's or any Lender's net income), including any
recording, mortgage or intangibles taxes in connection with the Security Deeds,
or other taxes payable on or with respect to the transactions contemplated by
this Agreement, including any taxes payable by the Agent or any of the Lenders
after the Closing
- 63 -
<PAGE> 71
Date (the Borrower hereby agreeing to indemnify the Agent and each Lender with
respect thereto), (c) all title insurance premiums, and the reasonable fees,
expenses and disbursements of the Agent's counsel or any local counsel to the
Agent incurred in connection with the preparation, administration or
interpretation of the Facility and the Loan Documents and other instruments
mentioned herein, the making of each Advance hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) the
fees, expenses and disbursements of the Agent incurred in connection with the
preparation, administration or interpretation of the Facility and the Loan
Documents and other instruments mentioned herein, and the making of each
Revolving Credit Loan or issuance of any Letter of Credit hereunder, (e) all
reasonable out-of-pocket expenses (including appraisal fees, surveyor fees,
reasonable attorneys' fees and costs) incurred by any Lender or the Agent and
the fees and costs of consultants, accountants, auctioneers, receivers,
brokers, property managers, appraisers, investment bankers or other experts
retained by the Agent in connection with (i) the enforcement of or preservation
of rights under any of the Loan Documents against the Borrower or any Obligor
or the administration thereof after the occurrence of a Default or Event of
Default and (ii) any litigation, proceeding or dispute whether arising
hereunder or otherwise, in any way related to any Lender's or the Agent's
relationship with the Borrower or any Party, and (f) all reasonable fees,
expenses and disbursements of any Lender or the Agent incurred in connection
with UCC searches, UCC filings, title rundowns, title searches or mortgage
recordings. The covenants of this Section shall survive payment or
satisfaction of payment of all amounts owing with respect to the Notes.
17. INDEMNIFICATION.
The Borrower agrees to indemnify and hold harmless the Agent and the
Lenders from and against any and all claims, actions and suits whether
groundless or otherwise, and from and against any and all liabilities, losses,
damages and expenses of every nature and character arising out of this
Agreement or any of the other Loan Documents or the transactions contemplated
hereby including, without limitation, (a) any actual or proposed use by the
Borrower or any of its Subsidiaries of the proceeds of the Facility, (b) the
Borrower or any of its Subsidiaries entering into or performing this Agreement
or any of the other Loan Documents or (c) with respect to the Borrower and its
Subsidiaries and their respective properties and assets, the violation of any
Environmental Law, the presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release or threatened release of any Hazardous Substances
or any action, suit, proceeding or investigation brought or threatened with
respect to any Hazardous Substances (including, but not limited to, claims with
respect to wrongful death, personal injury or damage to property), in each case
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding. In litigation, or the preparation therefor, the Lenders and the
Agent shall be entitled to select their own counsel and, in addition to the
foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees
and expenses of such counsel. If, and to the extent that the obligations of
the Borrower under this Section 17 are unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under applicable law.
- 64 -
<PAGE> 72
18. LIABILITY OF THE LENDER.
The liability of each Lender to the Borrower for any breach of the
terms of this Agreement by such Lender shall not exceed a sum equal to the
amount that such Lender shall be determined to have failed to advance in
consequence of a breach by such Lender of its obligations under this Agreement,
together with interest thereon at the rate payable by the Borrower under the
terms of such Lender's Note pursuant to which the Borrower was to receive funds
hereunder, computed from the date when the Revolving Credit Loan should have
been made by such Lender to the date when the Revolving Credit Loan is, in
fact, made by such Lender, and, upon the making of any such payment by such
Lender to the Borrower, the same shall be treated as a Revolving Credit Loan
under this Agreement, in the same fashion as any other Revolving Credit Loan
under the terms of this Agreement. In no event shall any Lender be liable to
the Borrower, or anyone claiming by, under or through the Borrower, for any
special, exemplary, punitive or consequential damages, whatever the nature of
the breach of the terms of this Agreement by any Lender, such damages and
claims therefor being expressly WAIVED by the Borrower. Nothing in this
Section is intended to waive the Borrower's right to seek direct damages
resulting from a Lender's breach of its obligations under this Agreement.
19. RIGHTS OF THIRD PARTIES.
All conditions to the performance of the obligations of the Lenders
under this Agreement, including the obligation to make Revolving Credit Loans
and issue Letters of Credit, are imposed solely and exclusively for the benefit
of the Lenders and no other Person shall have standing to require satisfaction
of such conditions in accordance with their terms or be entitled to assume that
the Lenders will refuse to make Revolving Credit Loans or issue Letters of
Credit in the absence of strict compliance with any or all thereof and no other
Person shall, under any circumstances, be deemed to be a beneficiary of such
conditions, any and all of which may be freely waived in whole or in part by
the Lenders at any time if in their sole discretion they deem it desirable to
do so. In particular, the Lenders make no representations and assume no
obligations as to third parties concerning the quality of any construction by
the Borrower of the Assets Under Development or the absence therefrom of
defects.
20. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrower or any Party pursuant hereto
and thereto shall be deemed to have been relied upon by the Lenders and the
Agent, notwithstanding any investigation heretofore or hereafter made by any of
them, and shall survive the making by the Lenders of any of the Revolving
Credit Loans or issuance of any Letter of Credit, as herein contemplated, and
shall continue in full force and effect either (i) so long as any amount due
under this Agreement or the Notes or any of the other Loan Documents remains
outstanding or any Lender has any obligation to make any Revolving Credit Loans
or issue any Letters of Credit or (ii) for such longer period as may
- 65 -
<PAGE> 73
be provided for herein or in any other Loan Document. All statements contained
in any certificate or other paper delivered to any Lender or the Agent at any
time by or on behalf of any Party or any Subsidiary thereof pursuant hereto or
in connection with the transactions contemplated hereby shall constitute
representations and warranties by such Person.
21. ASSIGNMENT AND PARTICIPATION.
21.1 CONDITIONS TO ASSIGNMENT BY LENDER. Except as provided
herein, each Lender may assign to one or more Eligible Assignees all or a
portion of its interests, rights and obligations under this Agreement
(including all or a portion of its Commitment Percentage and Commitment and the
same portion of the Revolving Credit Loans at the time owing to it, and the
Note held by it; provided that (a) the Agent shall have given its prior written
consent to such assignment, (b) each such assignment shall be of a constant,
and not a varying, percentage of all the assigning Lender's rights and
obligations under this Agreement, (c) each assignment shall be in an amount
that is a whole multiple of $5,000,000.00, (d) each Lender that is a Lender on
the date hereof shall retain, free of any such assignment, an amount of its
Commitment of not less than $5,000,000.00 and (e) the parties to such
assignment shall execute and deliver to the Agent, for recording in the
Register (as hereinafter defined), an Assignment and Acceptance, substantially
in the form of Exhibit E hereto (an "ASSIGNMENT AND ACCEPTANCE"), together with
any Notes subject to such assignment. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five (5)
Business Days after the execution thereof, (i) the assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder, and (ii) the assigning
Lender shall, to the extent provided in such assignment and upon payment to the
Agent of the registration fee referred to in Section 21.3, be released from its
obligations under this Agreement. The Borrower shall not be liable for the
costs incurred by any Lender in connection with an assignment of its interest
in the Facility; provided that the Borrower shall be liable for the costs and
expenses incurred by the Agent in connection with such Assignment.
21.2 CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS;
COVENANTS. By executing and delivering an Assignment and Acceptance, the
parties to the assignment thereunder confirm to and agree with each other and
the other parties hereto as follows: (a) other than the representation and
warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, the assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, the other Loan Documents
or any other instrument or document furnished pursuant hereto; (b) the
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower and its
Subsidiaries or any other Person primarily or secondarily liable in respect of
- 66 -
<PAGE> 74
any of the Obligations, or the performance or observance by the Borrower and
its Subsidiaries or any other Person primarily or secondarily liable in respect
of any of the Obligations of any of their obligations under this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto; (c) such assignee confirms that it has received a
copy of this Agreement, together with copies of the most recent financial
statement referred to in Section 9.3 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (d) such assignee will,
independently and without reliance upon the assigning Lender, the Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (e) such assignee represents and
warrants that it is an Eligible Assignee; (f) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; (g) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender; and (h) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance.
21.3 REGISTER. The Agent shall maintain a copy of each Assignment
and Acceptance delivered to it and a register or similar list (the "REGISTER")
for the recordation of the names and addresses of the Lenders and the
Commitment Percentages of, and principal amount of the Loans owing to the
Lenders from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Agent and the Lenders 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 the Borrower and the Lenders at any reasonable time and from time
to time upon reasonable prior notice. Upon each such recordation, the
assigning Lender agrees to pay to the Agent a registration fee in the sum of
$1,000.00.
21.4 NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Agent shall (a) record the information contained therein
in the Register, and (b) give prompt notice thereof to the Borrower and the
Lenders (other than the assigning Lender). Within five (5) Business Days after
receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Agent, in exchange for each surrendered Note, a new Note to the
order of such Eligible Assignee in an amount equal to the amount assumed by
such Eligible Assignee pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained some portion of its obligations hereunder, a new
Note to the order of the assigning Lender in an amount equal to the amount
retained by it hereunder. Such new Notes shall provide that they are
replacements for the surrendered Notes, shall be in an aggregate principal
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the assigned Notes. Within five (5)
days of issuance of any new Notes pursuant to this Section 21.4, the Borrower
shall deliver an opinion of counsel, addressed to the Lenders and the Agent,
relating to the due authorization, execution and delivery of such, new Notes
and the legality, validity and binding effect thereof, in
- 67 -
<PAGE> 75
form and substance satisfactory to the Lenders. The surrendered Notes shall be
cancelled and returned to the Borrower.
21.5 PARTICIPATIONS. Each Lender may sell participations to one or
more banks or other entities in all or a portion of such Lender's rights and
obligations under this Agreement and the other Loan Documents; provided that
(a) the Agent shall have given its prior written consent to such participation,
(b) each such participation shall be in an amount of not less than
$5,000,000.00, (c) any such sale or participation shall not affect the rights
and duties of the selling Lender hereunder to the Borrower, (d) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce
the principal of or the interest rate on any Loans, extend the term or increase
the amount of the Commitment of such Lender as it relates to such participant,
reduce the amount of any commitment fees to which such participant is entitled
or extend any regularly scheduled payment date for principal or interest, and
(e) no participant shall have the right to grant further participations or
assign its rights, obligations or interests under such participation to other
Persons.
21.6 DISCLOSURE. The Borrower agrees that in addition to
disclosures made in accordance with standard banking practices any Lender may
disclose information obtained by such Lender pursuant to this Agreement to
assignees or participants and potential assignees or participants hereunder;
provided that such assignees or participants or potential assignees or
participants shall agree (a) to treat in confidence such information, (b) not
to disclose such information to a third party and (c) not to make use of such
information for purposes of transactions unrelated to such contemplated
assignment or participation.
21.7 MISCELLANEOUS ASSIGNMENT PROVISIONS. If any assignee Lender
is not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrower and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. Anything contained in
this Section 21.7 to the contrary notwithstanding, any Lender may at any time
pledge all or any portion of its interest and rights under this Agreement
(including all or any portion of its Notes) to any of the twelve Federal
Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C.
Section 341. No such pledge or the enforcement thereof shall release the
pledgor Lender from its obligations hereunder or under any of the other Loan
Documents.
21.8 NO ASSIGNMENT BY THE BORROWER. The Borrower shall not assign
or transfer any of its rights or obligations under any of the Loan Documents
without the prior approval of each of the Lenders.
- 68 -
<PAGE> 76
22. RELATIONSHIP.
The relationship between the Lenders and the Borrower is solely that
of lender and borrower, and nothing contained herein or in any of the other
Loan Documents shall in any manner be construed as making the parties hereto
partners, joint venturers or any other relationship other than lender and
borrower.
23. NOTICES.
Except as otherwise provided herein or in any other Loan Document,
each notice, demand, election or request provided for or permitted to be given
pursuant to this Agreement or any other Loan Document (hereinafter in this
Section referred to as "NOTICE") must be in writing and shall be deemed to have
been properly given or served by personal delivery or by sending same by
overnight courier or by depositing same in the United States Mail, postpaid and
registered or certified, return receipt requested, and addressed as follows:
<TABLE>
<S> <C>
If to the Agent: BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attn: Ms. Kimberly A. Dail, Vice President
Real Estate Division
Mail Stop 01-32-05
If to each Borrower: Mr. James I. Humphrey
The Humphrey Companies
12301 Old Columbia Pike
Silver Springs, Maryland 20904
If to any Lender: At its address set forth in SCHEDULE 1.
</TABLE>
Each Notice shall be effective upon being personally delivered or upon
being sent by overnight courier or upon being deposited in the United States
Mail as aforesaid. Unless expressly provided otherwise in this Agreement
Notice from the Borrower to the Lenders shall be deemed properly given if
delivered to the Agent in accordance with this Section. The time period in
which a response to such Notice must be given or any action taken with respect
thereto (if any), however, shall commence to run from the date of receipt if
personally delivered or sent by overnight courier, or if so deposited in the
United States Mail, the earlier of three (3) Business Days following such
deposit or the date of receipt as disclosed on the return receipt. Rejection
or other refusal to accept or the inability to deliver because of changed
address for which no Notice was given shall be deemed to be receipt of the
Notice sent. By giving at least thirty (30) days' prior Notice thereof, the
Borrower or any Lender shall have the right from time to time and at any time
during the term of this Agreement to change their respective addresses and each
shall have the right to specify as its address any other address within the
United States of America.
- 69 -
<PAGE> 77
24. GOVERNING LAW.
This Agreement and each of the other Loan Documents, except as
otherwise specifically provided therein, are contracts under the laws of the
Commonwealth of Massachusetts and shall for all purposes be construed in
accordance with and governed by the laws of said Commonwealth (excluding the
laws applicable to conflicts or choice of law).
25. CONSENT TO JURISDICTION; WAIVERS.
THE BORROWER AND EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY (A)
SUBMITS TO PERSONAL JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OVER ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER
THE LAWS OF ANY STATE (I) TO THE RIGHT, IF ANY, TO TRIAL BY JURY TO THE EXTENT
PERMITTED BY LAW, (II) TO OBJECT TO JURISDICTION WITHIN THE COMMONWEALTH OF
MASSACHUSETTS OR VENUE IN ANY PARTICULAR FORUM WITHIN THE COMMONWEALTH OF
MASSACHUSETTS, AND (III) TO THE RIGHT, IF ANY, TO CLAIM OR RECOVER ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN ACTUAL
DAMAGES. THE BORROWER AND EACH PARTY AGREES THAT, IN ADDITION TO ANY METHODS
OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS
IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED DIRECTED TO THE BORROWER AT THE ADDRESS SET
FORTH IN SECTION 23 ABOVE, AND SERVICE SO MADE SHALL BE COMPLETE UPON RECEIPT
OR AS OTHERWISE PERMITTED BY APPLICABLE LAW. NOTHING CONTAINED HEREIN,
HOWEVER, SHALL PREVENT THE AGENT OR LENDERS FROM BRINGING ANY SUIT, ACTION OR
PROCEEDING OR EXERCISING ANY RIGHTS AGAINST ANY COLLATERAL AND AGAINST ANY
BORROWER, AND AGAINST ANY PROPERTY OF ANY BORROWER, IN ANY OTHER STATE.
INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING SUCH ACTION IN ANY STATE
SHALL IN NO EVENT CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN THE RIGHTS AND
OBLIGATIONS OF THE BORROWER, EACH PARTY, THE AGENT, AND THE LENDERS HEREUNDER
OR THE SUBMISSION HEREIN BY THE BORROWER AND EACH PARTY TO PERSONAL
JURISDICTION WITHIN THE COMMONWEALTH OF MASSACHUSETTS.
26. HEADINGS.
The captions in this Agreement are for convenience of reference only
and shall not define or limit the provisions hereof.
27. COUNTERPARTS.
This Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In proving this Agreement
- 70 -
<PAGE> 78
it shall not be necessary to produce or account for more than one such
counterpart signed by the party against whom enforcement is sought.
28. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Agreement nor
any term hereof may be changed, waived, discharged or terminated, except as
provided in Article 29.
29. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Any consent or approval required or permitted by this Agreement to be
given by all of the Lenders may be given, and any term of this Agreement, the
other Loan Documents or any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by the Borrower or any of its
Subsidiaries of any terms of this Agreement, the other Loan Documents or such
other instrument, or the continuance of any Default or Event of Default may be
waived (either generally or in a particular instance and either retroactively
or prospectively) with, but only with, the written consent of the Borrower and
the written consent of the Majority Lenders. Notwithstanding the foregoing,
the rate of interest on and the term of the Notes, the amount of the
Commitments of the Lenders, and the amount of commitment fee hereunder may not
be changed without the written consent of the Borrower and the written consent
of each Lender affected thereby; the definition of Majority Lenders may not be
amended without the written consent of all of the Lenders; and the amount of
the Agent's fee payable for the Agent's account and Section 13 may not be
amended without the written consent of the Agent. No waiver shall extend to or
affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of the Agent or
any Lender in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrower
shall entitle the Borrower to other or further notice or demand in similar or
other circumstances.
30. TIME OF THE ESSENCE.
Time is of the essence with respect to each and every covenant,
agreement and obligation of the Borrower and the Lenders under this Agreement
and the other Loan Documents.
31. SEVERABILITY.
The provisions of this Agreement are severable, and if any one clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.
- 71 -
<PAGE> 79
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as a sealed instrument as of the date first set forth above.
<TABLE>
<S> <C>
HUMPHREY HOSPITALITY LIMITED
PARTNERSHIP
By: Humphrey Hospitality REIT Trust,
general partner
/s/Bethany H. Hooper By:/s/ James I. Humphrey, Jr. (SEAL)
- ------------------------------ -------------------------------
Name: James I. Humphrey, Jr.
Title: President
SOLOMONS BEACON INN LIMITED PARTNERSHIP
By: Humphrey Hospitality Limited Partnership,
general partner
By: Humphrey Hospitality REIT Trust,
general partner
/s/Bethany H. Hooper By:/s/ James I. Humphrey, Jr. (SEAL)
- ------------------------------ -------------------------------
Name: James I. Humphrey, Jr.
Title: President
HUMPHREY HOSPITALITY TRUST, INC.
/s/Bethany H. Hooper By:/s/ James I. Humphrey, Jr. (SEAL)
- ------------------------------ -------------------------------
Name: James I. Humphrey, Jr.
Title: President
HUMPHREY HOSPITALITY REIT TRUST
/s/Bethany H. Hooper By:/s/ James I. Humphrey, Jr. (SEAL)
- ------------------------------ -------------------------------
Name: James I. Humphrey, Jr.
Title: President
</TABLE>
- 72 -
<PAGE> 80
<TABLE>
<S> <C>
BANKBOSTON, N.A.
/s/Catherine K. Camarda By:/s/ Kimberly A. Dail (SEAL)
- ------------------------------ -------------------------------
Name: Kimberly A. Dail
Title: Vice President
</TABLE>
- 73 -
<PAGE> 1
EXHIBIT 10.9
FIRST AMENDMENT
TO
REVOLVING CREDIT AND
GUARANTY AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AND GUARANTY AGREEMENT (the
"AMENDMENT") is made as of the __30th___ day of November, 1998 by and among
HUMPHREY HOSPITALITY LIMITED PARTNERSHIP ("HHLP"), a limited partnership
organized under the laws of the Commonwealth of Virginia, HUMPHREY HOSPITALITY
TRUST, INC. ("HH TRUST"), a corporation organized under the laws of the
Commonwealth of Virginia, HUMPHREY HOSPITALITY REIT TRUST ("HH REIT"), a real
estate investment trust organized under the laws of the State of Maryland
(HHLP, HH Trust, and HH REIT, collectively, the "BORROWER"), SOLOMONS BEACON
INN LIMITED PARTNERSHIP ("SOLOMONS" or "GUARANTOR"), a limited partnership
organized under the laws of the State of Maryland, each Borrower and Guarantor
having its principal place of business at 12301 Old Columbia Pike, Silver
Spring, Maryland 20904 and BANKBOSTON, N.A. (the "INITIAL LENDER"), a national
banking association, having its principal executive offices at 100 Federal
Street, Boston, Massachusetts 02110, SOVEREIGN BANK (the "NEW LENDER"), a
federal savings bank, having an office at 50 Rowes Wharf, Suite 430, Boston,
Massachusetts 02110, and the other lending institutions that will become
parties to the Credit Agreement (as defined below), and BANKBOSTON, N.A., as
agent for itself and such other lending institutions.
PRELIMINARY STATEMENTS
A. The Borrower, the Guarantor and the Initial Lender entered into a
certain Revolving Credit and Guaranty Agreement dated as of August 18, 1998
(the "ORIGINAL CREDIT AGREEMENT"). All capitalized terms used in this
Amendment and not otherwise defined herein shall have the meanings ascribed to
such terms in the Original Credit Agreement.
B. Pursuant to the terms of the Original Credit Agreement, the Initial
Lender agreed to provide the Borrower with a revolving credit facility and
letters of credit in an aggregate amount of up to $35,000,000.00. The parties
hereto desire to amend the Original Credit Agreement in order to, among other
things, (i) acknowledge the assignment of a portion of the Initial Lender's
Commitment to the New Lender pursuant to an Assignment and Acceptance dated of
even date herewith and (ii) specify the new Commitments of the Lenders and to
adjust the respective Commitment Percentages.
NOW, THEREFORE, in consideration of the foregoing Preliminary Statements
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
- 1 -
<PAGE> 2
AGREEMENTS
1. LETTERS OF CREDIT.
(a) Section 4.6(c). Notwithstanding anything in Section 4.6(c) of
the Original Credit Agreement to the contrary, the Agent shall not instruct the
Lenders to make Base Rate Loans under Section 4.6(c) unless (i) an Event of
Default has occurred and the Agent has declared all amounts owing with respect
to the Credit Agreement, the Notes and the other Loan Documents immediately due
and payable or (ii) a drawing has occurred under one or more Letters of Credit.
If there is a drawing under a Letter of Credit prior to acceleration, the Agent
shall not instruct the Lenders to make such Base Rate Loans in an aggregate
amount greater than the Letter of Credit drawing. Upon acceleration, the Agent
may instruct the Lenders to make such Base Rate Loans in the entire aggregate
amount of the Borrower's reimbursements obligations for the Letters of Credit
regardless of whether one or more Letters of Credit remains undrawn.
(b) Section 4.7(a). After the first sentence of Section 4.7(a), the
remainder of Section 4.7(a) is deleted in its entirety.
2. CONSENTS, AMENDMENTS, WAIVERS, ETC. Section 29, Consents,
Amendments, Waivers, Etc., of the Original Credit Agreement is deleted in its
entirety and the following is substituted in its place.
29. CONSENTS, AMENDMENTS, WAIVERS, ETC.
(a) Any consent or approval required or permitted by this Agreement
to be given by all of the Lenders may be given with the written consent of
the Majority Lenders except as provided in this Section 29. The
performance or observance by the Borrower or any of its Subsidiaries of
any terms of this Agreement, the other Loan Documents or such other
instrument, or the continuance of any Default or Event of Default may be
waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written consent
of the Majority Lenders. Any term of this Agreement, the other Loan
Documents or any other instrument related hereto or mentioned herein may
be amended with, but only with, the written consent of the Borrower and
the written consent of the Majority Lenders.
(b) Notwithstanding the foregoing,
(i) the rate of interest on and the term of the Notes, the
amount of the Commitments of the Lenders, and the amount of commitment fee
hereunder may not be changed without the written consent of the Borrower
and the written consent of each Lender affected thereby;
(ii) the definition of Majority Lenders may not be amended
without the written consent of all of the Lenders;
- 2 -
<PAGE> 3
(iii) any action that has the effect of (A) extending the
date of any amortization payment of any Loan or Note, (B) extending the
time of payment of interest or fees thereon, or (C) otherwise postponing
or forgiving any indebtedness thereunder may not be taken without the
written consent of all of the Lenders;
(iv) any material portion of the Collateral other than in
accordance with the express provisions of the Loan Documents may not be
released or discharged without the written consent of all of the Lenders;
(v) any provision of this Section 29 may not be amended,
modified or waived without the written consent of all of the Lenders;
(vi) any of the financial covenants set forth in Section 11 may
not be amended without the written consent of all of the Lenders;
(vii) any guaranty of the Obligations or indemnifications
provided in the Loan Documents may not be released or waived without the
written consent of all of the Lenders;
(viii) in the definition of Adjusted Appraised Value the
phrase "all of the Lenders" shall not be deemed to mean Majority Lenders;
and
(ix) the amount of the Agent's fee payable for the Agent's
account and Section 13 may not be amended without the written consent of
the Agent.
(c) The Borrower hereby agrees that any of items (b)(ii) through
(ix) may be amended at any time by the Lenders without the consent or
approval of, or notice to, the Borrower.
(d) No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of dealing or
delay or omission on the part of the Agent or any Lender in exercising any
right shall operate as a waiver thereof or otherwise be prejudicial
thereto. No notice to or demand upon the Borrower shall entitle the
Borrower to other or further notice or demand in similar or other
circumstances.
(e) The Lenders agree to consult in good faith and endeavor to reach
agreement on any matter requiring the consent of the Majority Lenders.
3. Except as expressly modified hereby, the Original Credit Agreement is
and remains unmodified and in full force and effect and is hereby ratified and
confirmed. All references in the Loan Documents to the "Credit Agreement"
shall be deemed to refer to the Original Credit Agreement as amended by this
Amendment.
- 3 -
<PAGE> 4
4. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Amendment by signing any such counterpart. This
Amendment shall be construed in accordance with the internal laws (and not the
law of conflicts) of the Commonwealth of Massachusetts, but giving effect to
federal laws applicable to national banks.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first set forth above.
<TABLE>
<S> <C>
WITNESS/ATTEST: HUMPHREY HOSPITALITY LIMITED
PARTNERSHIP,
By: Humphrey Hospitality REIT Trust,
general partner
/s/Bethany H. Hooper By:/s/ James I. Humphrey, Jr. (SEAL)
- ------------------------------ --------------------------------
Name: James I. Humphrey, Jr.
Title: President
HUMPHREY HOSPITALITY TRUST, INC.
/s/Bethany H. Hooper By:/s/ James I. Humphrey, Jr. (SEAL)
- ------------------------------ --------------------------------
Name: James I. Humphrey, Jr.
Title: President
HUMPHREY HOSPITALITY REIT TRUST
/s/Bethany H. Hooper By:/s/ James I. Humphrey, Jr. (SEAL)
- ------------------------------ --------------------------------
Name: James I. Humphrey, Jr.
Title: President
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
<S> <C>
SOLOMONS BEACON INN LIMITED
PARTNERSHIP
By: Humphrey Hospitality Limited Partnership,
general partner
By: Humphrey Hospitality REIT Trust,
general partner
/s/Bethany H Hooper By:/s/ James I. Humphrey, Jr. (SEAL)
- ------------------------------ ----------------------------
Name: James I. Humphrey, Jr.
Title: President
BANKBOSTON, N.A., as Agent
By:/s/ Kimberly A. Dail (SEAL)
- ------------------------------ --------------------------------
Name: Kimberly A. Dail
Title: Director
BANKBOSTON, N.A., as Initial Lender
By:/s/ Kimberly A. Dail (SEAL)
- ------------------------------ --------------------------------
Name: Kimberly A. Dail
Title: Director
Commitment: $25,000,000.00
Commitment Percentage: 71.4285714286%
SOVEREIGN BANK, as New Lender
By: :/s/ Thomas W. Nadeau (SEAL)
- ------------------------------ -------------------------------
Name: Thomas Nadeau
Title: Senior VP
Commitment: $10,000,000.00
Commitment Percentage: 28.5714285714%
</TABLE>
- 5 -
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
1. Humphrey Hospitality Reit Trust, a Maryland real estate investment
trust ("HHRT")
SUBSIDIARIES OF HHRT
1. Humphrey Hospitality Limitied Partnership, a Virginia limited
partnership (84.21% owned by HHRT) ("HHLP")
SUBSIDIARIES OF HHLP
1. Solomons Beacon Inn Limited Partnership, a Maryland limited partnership
(99.0% owned by HHLP)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income on pages F-1
through F-37 of the Company's 1998 annual report on Form 10-K and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 542
<SECURITIES> 0
<RECEIVABLES> 3,024
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,039
<PP&E> 77,761
<DEPRECIATION> (4,956)
<TOTAL-ASSETS> 78,844
<CURRENT-LIABILITIES> 1,733
<BONDS> 44,196
0
0
<COMMON> 46
<OTHER-SE> 27,672
<TOTAL-LIABILITY-AND-EQUITY> 78,844
<SALES> 0
<TOTAL-REVENUES> 10,648
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,108
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,654
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
